POA@HGV_Grace_Accounting Theories_Violation

State the accounting theory violated.

Payment for the owner’s personal car repairs using office cash was recorded as motor vehicle repairs in the books of the business.

• Accounting entity theory

• Monetary theory

• Revenue recognition theory

State the accounting theory violated.

Good teamwork amongst employees was presented as an asset of $10000 on the Statement of Financial Position even though teamwork cannot be measured in dollars and cents.

• Monetary theory

• Accounting period theory

• Revenue recognition theory

State the accounting theory violated.

Instead of preparing financial statements at regular time intervals, the accountant prepares financial statements only when he is free.

• Accounting period theory

• Going concern theory

State the accounting theory violated.

The business changes its depreciation method every two years regardless of whether the new depreciation method accurately reflects the pattern of usage of its non-current assets.

• Consistency theory

• Materiality theory

State the accounting theory violated.

The business bought a lock for $10 and recorded it as fixtures and fittings (i.e. non-current asset) as the lock can last a few accounting years.

• Materiality theory

• Objectivity theory

State the accounting theory violated.

The accountant records transactions based on how much the accountant thinks the amount should be and not based on evidence such as invoice and receipt.

• Objectivity theory

• Prudence theory

State the accounting theory violated.

Non-current assets are valued on the Statement of Financial Position at historical cost instead of net book value (i.e. historical cost less accumulated depreciation), thus overstating non-current assets.

• Prudence theory

• Monetary theory

State the accounting theory violated.

Inventory is valued on the Statement of Financial Position at cost even when net realisable value is lower, thus overstating inventory (current assets).

• Prudence theory

• Accrual basis of accounting theory

State the accounting theory violated.

The accountant did not create allowance for impairment of trade receivables even though he estimated that 2% of credit customers may not be able to pay. This resulted in overstating of trade receivables (current assets) on Statement of Financial Position.

• Prudence theory

• Going concern theory

State the accounting theory violated.

Although the business used non-current assets to generate income, it did not record depreciation expense in its Statement of Financial Performance.

• Matching Theory

• Accounting period theory