Question

As an aspiring accountant, you have been asked to give your input on the scenarios below:

You are required to:

(i.) Identify an accounting concept that is relevant to each case.

(ii.) Explain whether or not that concept was correctly applied.

a.       A company is in the process of winding up and liquidating all its assets. The company has chosen to use the original book value in the balance sheet and not at the liquidated values.     

b.      A company currently has numerous long outstanding debts and has decided to create a provision for bad debts account for that purpose.

c.       Expenses due in March were recorded in April when they were paid.   

d.      In recording the purchase of goods on credit. An accountant debited the purchases account twice.  

e.       In preparing for a meeting, a few juices were bought for refreshment. The accountant decided not to keep the receipts for the juices because he believed the cost insignificant.

Answer 1

              

Sr No.	Accounting Concept	Remarks
A	Fair Value Concept	While Winding Up & Liquidating the assets of company, the company should calculate the fair value of its assets.
B	Provisions Concept	Provision for bad debts is to be made for Trade Receivables not for Long Outstanding debts So it is not properly followed.
C	Accrual Concept	The Accrual should be made in March only instead of April. The Concept is not properly followed.
D	Error of Commission	Recording Twice Purchases is not correct.