Question

ki , survey of Accounting, le Help System Announcements Historical cost principle Materiality Monetary unit assumption Exercise 4-2 Identify the accounting concept that describes each situation below. Do not use any concept more than once. Periodicity assumption (a) is the rationale for why plant assets are not reported at liquidation value. (Do not use the historical cost principle.) Revenue recognition principle (b) indicates that personal and business recordkeeping should be separately maintained. Full disclosure principle (c) Ensures that all relevant financial information is reported. Going concern assumption (d) Assumes that the dollar is the measuring stick used to report on financial performance. Expense recognition principle (e) Requires that accounting standards be followed for all items of significant size. Cost constraint (0) Separates financial information into time periods for reporting purposes. Economic entity assumption (9) Requires recognition of expenses in the same period as related revenues. (h) Indicates that fair value changes subsequent to purchase are not recorded in the accounts. Click if you would like to Show Work for this question: Doen Show Work

Answer 1

(a) Going concern assumption: As per this concept, a company will continue to exist forever. It has no intention to close down its operations. This is why plant assets are nor recorded at liquidation value.

(b) Economic entity assumption: As per this assumption, business is a separate entity distinct from its owners.

(c) Full disclosure principle: As per this principle, all relevant financial information must be disclosed.

(d) Monetary unit assumption: This assumption ensures that there should be some money measurement criteria / unit for recording transactions.

(e) Materiality: This assumption assumes that all material items must be disclosed.

(f) Periodicity assumption: This assumption requires that financial information must be segregated into periods.

(g) Expense recognition principle: It requires that expenses are matched against the related revenue of the period.

(h) Cost constraint: It requires that subsequent changes in fair value are not recorded.