Question

The board of directors of Long River Limited is meeting to discuss the past years results before
releasing financial statements to the public. The discussion includes this exchange of
conversation: Samson, company CEO: "This has not been a good year! Revenue is down and
expenses are way up. If we are not careful, we41 report a loss for the third year in a row. I can
temporarily transfer some land that I own into the company's name, and that will brighten our
statement of financial position. Bruce, can you change the method of depreciation from double-
declining-balance to straight-line. Also all expenses should be paid as late as possible and
record expenses when cash is paid. Then we can probably get a better profit figure."

Bruce, company chief accountant: "Samson, you are asking too much. Generally accepted
accounting principles are designed to keep this sort of thing from happening

Required:

Discuss how Samson's proposals violate generally accepted accounting principles. Identify
each specific principle involved.

Answer 1

Samsons proposals are violating the following generally accepting accounting principles.

1. Consistency, changing the method of depreciation is violating the principle of consistency.
2. Accrual or matching principle, recognising of Expenses when cash is paid and delaying the cash payment violates the matching principle.