FA18 (2)

Andy Company accrued interest expense on the personal bank loan of the owner at year end.

Which concept / principle was violated?

• Business entity

• Accrual

• Materiality

• Consistency

Perfect Repairs charged hand tools with small unit costs to expense when purchased, even though the tools have a useful life of several years. For the accounting year, the company had a revenue of $600,000 and a hand tools expense of $150,000 in the income statement.

Which concept / principle was violated?

• Money measurement

• Historical cost

• Materiality

• Going concern

An item of office equipment with an original list price of $45,000 was acquired by the company for $35,000 in a special sale. Since the office equipment had a market value of $42,000 on the date of purchase, the company recorded the market value in the asset account.

Which concept / principle was violated?

• Business entity

• Historical cost

• Materiality

• Going concern

The company runs a popular news and search site on the Internet. In view of the high hit rate, the directors estimate that advertising income will increase substantially and so decided to record an intangible asset of $1 000 000 in the accounts.

Which concept / principle was violated?

• Business entity

• Historical cost

• Materiality

• Money measurement

Paul owns two firms: X Company and Y Company. During the year, Paul made business purchase of $700,000 in total of which 98% belonged to Y Company. Paul suggested to record the whole amount as purchases in the books of X Company to simplify the accounting of his two businesses.

Which concept / principle was violated?

• Business entity

• Accrual

• Materiality

• No violation