QUIZ – AA015 TOPIC 2 (Accounting Concepts)

QUIZ – AA015 TOPIC 2 (Accounting Concepts)

 Answer all question. You are given 30 minutes to answer those questions.

Total marks = 39 marks.

 

Accounting Concepts consists of:

1. Historical Cost

2. Monetary Measurement

3. Economic Entity

4. Going Concern

5. Consistency

6. Accounting Period

7. Materiality

8. Revenue Recognition

9. Expense Recognition (Matching Concept)

10. Full Disclosure

11. Objectivity

12. Prudence

13. Fair Value Measurement

 

In each question below, please state:

i. Concepts involved.

i. Does it comply to the concepts involved?

iii. What is the solution?

 

 Question:

 

1.      The company has established on 1 July 2022. The trade closes the business account every 12 months on 30 June every year.

 

2.          The company purchases a lorry from supplier with a cost price RM90,000 on 21 August 2023. The market value increases up to RM95,000 on the next day.  The company record RM95,000 as the cost.

 

3.           A transaction occurred in the organization but the value cannot be determined.

 

4.       A company purchases a calculator at a cost of RM50 and it will depreciate for 5 years over its useful life.

 

5.        Asyraaf is a pottery entrepreneur. He has received 100 reservations porcelain vase on January 1, 2023 and has received a payment of RM1,000 as a deposit. The product was sent on January 15, 2023. En. Asyraaf record the sales revenue of RM1,000 on 15 January 2019.

 

6.          The company purchases a laptop for his son by using money from the business’ operations. He had recorded the purchases as a business’ assets.

 

7.      Pn. Syakirah has recorded expenses of RM1,000 for the utility in December 2022 although payment will only be made in January 2023.

8.         The company purchases a machine with a cost of RM45,000 with the estimated useful life for 10 years. The market value for the machine is RM50,000. It is suggested that the machine should be depreciated for 5 years because the business is expected to permanently close in a short period.

 

9.         Perniagaan Aqidah is only issued a receipt for cash transactions but for the return of goods sales transactions no source document is issued.

 

10.    The company uses straight line method in depreciating the motor vehicle of the company. The company decides to change to declining balances method without any reason.   

 

11.     Investment securities of the company worth RM600,000 at market price but the actual cost is RM500,000. Investment securities are reported at fair value rather than the purchase price.

 

12.    Perniagaan Awadah has made changes in stock valuation method used. The company did not disclose the information in the financial statements for the accounting period.

 

13.         Inventory is recorded at the lower of cost or net realisable value (NRV) rather than the expected selling price.

 

  

ANSWER - AA015 TOPIC 2 (Accounting Concepts)

 

1.      The company has established on 1 July 2022. The trade closes the business account every 12 months on 30 June every year.

a.       Accounting Period concept

b.      Comply

c.      That is normal condition when the trade follow the accounting period where the financial statements will be held every 12 months.

 

2.         The company purchases a lorry from supplier with a cost price RM90,000 on 21 August 2023. The market value increases up to RM95,000 on the next day.  The company record RM95,000 as the cost.

a.       Historical cost

b.      Not comply

c.       The value should be recorded as RM90,000 because cost is a reliable measure.

 

3.             A transaction occurred in the organization but the value cannot be determined.

a.       Monetary Measurement concept

b.      Not comply

c.       The transaction must be recorded in the monetary unit concept and the value must not change with the inflation situation.

 

4.       A company purchases a calculator at a cost of RM50 and it will depreciate for 5 years over its useful life.

a.       Materiality concept

b.      Not comply

c.    Although the proper accounting would depreciate the calculator over its useful life but this cost is considered immaterial. It will not make a material difference on total assets and net income. It should be record as expenses.

 

5.        Asyraaf is a pottery entrepreneur. He has received 100 reservations porcelain vase on January 1, 2023 and has received a payment of RM1,000 as a deposit. The product was sent on January 15, 2023. En. Asyraaf record the sales revenue of RM1,000 on 15 January 2019.

a.       Revenue Recognition concept

b.      Comply

c.       En. Asyraaf need to recognize sales revenue of RM1,000 on 15 January 2019 because the product was transferred to the buyer on that date.

 

6.       The company purchases a laptop for his son by using money from the business’ operations. He had recorded the purchases as a business’ assets.

a.       Economic Entity concept

b.      Not comply

c.       The purchase should be recorded as drawing because the transaction was the personal transaction.

 

7.      Pn. Syakirah has recorded expenses of RM1,000 for the utility in December 2022 although payment will only be made in January 2023.

a.       Expense Recognition concept

b.      Comply

c.     Any expenses of the current period should be recorded in the current accounting period even though it is paid after the current period.

8.       The company purchases a machine with a cost of RM45,000 with the estimated useful life for 10 years. The market value for the machine is RM50,000. It is suggested that the machine should be depreciated for 5 years because the business is expected to permanently close in a short period.

a.       Going Concern concept

b.      Not comply

c.      The machine should be recorded as the value of RM45,000 and must be depreciated for 10 years because the trade must be assumed to operate for the period that cannot be expected.

 

9.        Perniagaan Aqidah is only issued a receipt for cash transactions but for the return of goods sales transactions no source document is issued.

a.       Objectivity concept

b.      Not comply

c.       The company does not comply with the concept of objectivity for the return of goods sales transaction. All transactions that occurred needs to be confirmed with the release of the source document. In addition to the evidence it can also facilitate the recording.

 

10.    The company uses straight line method in depreciating the motor vehicle of the company. The company decides to change to declining balances method without any reason.   

a.       Consistency concept

b.      Not comply

c.    The method should be used from year to year. Any changes should be disclosed in the notes to the financial statements.

 

11.    Investment securities of the company worth RM600,000 at market price but the actual cost is RM500,000. Investment securities are reported at fair value rather than the purchase price.

a.       Fair Value Measurement concept

b.      Comply

c.     This is because market price information is usually readily available for these types of assets. Only in situations where assets are actively traded, such as investment securities, companies will apply the fair value principle extensively.

 

12.     Perniagaan Awadah has made changes in stock valuation method used. The company did not disclose the information in the financial statements for the accounting period.

a.       Full Disclosure concept

b.      Not comply

c.       Any changes is made should be reported in the notes to the accounts. The aim is to inform the user of changes in the financial statements.

 

13.     Inventory is recorded at the lower of cost or net realisable value (NRV) rather than the expected selling price.

a.       Prudence concept / Conservatism concept

b.      Not comply

c.       This ensures profit on the sale of inventory is only realized when the actual sale takes place.

As Salam and Hi everyone... My name is Puan Asmazatul Yusfiziati Binti Mohd Yusof CA(M) or you can call me Madam Fizi. I'm an Accounting lecturer at Negeri Sembilan Matriculation College (KMNS), Kementerian Pendidikan Malaysia. This blog (www.madamfizi.com) was created to share learning materials on the subject of Accounting for Matriculation, Form 6, Foundation, Diploma, Secondary School and related students.