Question

4. Each of the situations in A through C below applies to one of the assumptions or principles included in the conceptual framework of accounting. Identify which assumption or principles applies and explain why that assumption or principle applies. A) Globall Inc. is a U.S. company that has divisions in several countries around the world. Each country has a currency different than the U.S. dollar. Globall must include the financial data of its worldwide divisions in its financial statements. GAAP Runciple Cheetum & Howell operate a security business as a partnership. The partners are considering a change to the corporate form of business organization. B) Yum Shops, Inc. is a locally owned and operated confectionary. The owners have decided to expand into nearby cities. Expansion will require more capital, but management does not expect it will stay in business for more than one year or so regardless of its expansion plans. ANS:

Answer 1

Part A

The monetary unit assumption applies to it.

According to this assumption financial statements should be presented in the monetary values and it is important that the only one currency should be used as the standard monetary unit.

Part B

The Economic entity assumption applies to it.

Whatever form the business has taken, but in every business form the business unit has identity distinct from its owners.

Part C

The Going concern (continuity) assumption applies to it.

It is expected the business would continue its operations to fulfill all obligations. This will allow the business to present proper asset valuation and cost allocation.