Question

ANSWER IL TULLUWING QUESTIONS UN TIC ICSI PAPER Give the assumption or principle that would have been violated if the following entries or information had not been given: a. An Adjustment is made for Depreciation at the EFY: é Pre-paid Insurance is an Asset account and is adjusted at EFY to reflect how much has been used up. C. Changing inventory valuation methods is not allowed. ☺ Recording Interest the company has earned on a Notes Receivable at EFY even though it has not been received. e. Owners are not allowed to co-mingle their personal funds with their business funds.

Answer 1

The principles violated are:

a) Matching Principle

b) Matching Principle

c) Consistency Principle

d) Accrual Concept

e) Economic entity or Entity concept

Notes

As per the matching principle expenses incurred to earn revenues are booked in the same period.

Likewise depreciation is charged on machine used for production is a cost that should be booked in the same period when revenues are earned.

Insurance coverage which has expired should be booked in the same period to which they relate.

As per the Consistency principle same set of policies and accounting principles should be followed year on year so that the financial statements of different periods are comparable.

As per the Accrual concept, all revenues and expenses related to a particular period should be accounted for in the same period to which they pertain irrespective of whether cash has been exchanged or not.

In accounting, business entity and its owners are considered separate entities and books of an entity are prepared keeping in mind that the owners different from the business firm.

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