Week 1 assignment (AC501) - ASSIGNMENT Exercise 2-7(Assumptions Principles and Constraints Presented below are the assumptions principles and

Week 1 assignment (AC501) - ASSIGNMENT Exercise...

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ASSIGNMENT Exercise 2-7 (Assumptions, Principles, and Constraints) Presented below are the assumptions, principles and constraints used in this chapter 1) Economic entity assumption 2) Going-concern assumption 3) Monetary unit assumption 4) Periodicity assumption 5) Historical-cost principle 6) Matching principle 7) Full disclosure principle 8) Cost-benefit relationship 9) Materiality 10) Industry practices 11) Conservation INSTRUCTIONS Identify by number the accounting assumption, principle, or constraint that describes each situation below. Do not use a number more than once. a) Recognizes expenses based on contribution to revenues in the proper period 6 - Matching Principle b) Indicated that market value changes subsequent to purchase are not recorded in the accounts. (Do not use revenue recognition principle). 5 - Historical-cost Principle c) Ensures that all relevant financial information is reported. 7 - Full Disclosure Principle d) Rationale why plant assets are not reported at liquidation value (Do not use historical cost principle) 2 - Going Concern Assumption e) Anticipates all losses, but reports no gains. 11 - Conservatism f) Indicates that personal and business record keeping should be separately maintained. 1 - Economic Entity Assumption g) Separates financial information into time periods for reporting purposes. 4 - Periodicity Assumption h) Permits the use of market value valuation in certain specific situations. 10 - Industry Practices i) Requires that information significant enough to affect the decision of reasonably informed users should be disclosed. (Do not use full disclosure principle). 9 - Materiality j) Assumes that the dollar is the "measuring stick" used to report on financial performance. 3 - Monetary Unit Assumption
Exercise 2-8 (Assumptions, Principles, and Constraints) Presented below are a number of operational guidelines and practices that have developed over time. INSTRUCTIONS Select the assumptions, principle, or constraint that most appropriately justifies these procedures and practices. (Do not use qualitative characteristics). a) Market value changes are not recognized in the accounting records. Historical Cost Principe b) Lower-of-cost-or-market is used to value inventories.

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