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Universiti Tunku Abdul Rahman

Bachelor of Commerce (Hons) Accounting


Bachelor of Business Administration (Hons) Banking & Finance
Bachelor of Finance (Hons)
ear ! "emester !
Facult# of Business and Finance
$e%artment of Commerce & Accountanc#
UBAF!&!' Financial Accounting Frame(ork )
Tutorial *
(1a)
The business entity concept requires that a business is to be treated as
separate from its owner, able to enter into business transactions on its own
and be treated as a legal person
Is this statement true or false?
A True
B False
(1b)
Which of the following statements are correct?
(1) Materiality means that only items haing a !hysical e"istence may be
recognise# as assets$
(%) The substance oer form conention means that the legal form of a
transaction must always be shown in financial statements een if this #iffers
from the commercial effect$
(&) The money measurement conce!t is that only items ca!able of being
measure# in monetary terms can be recognise# in financial statements$
(Woo#s' F$' %(()' !$1(* an# 11%)
A % only
B 1' % an# &
+ 1 only
, & only
(1c)
What is the main !ur!ose of a balance sheet?
I To re!ort assets' liabilities at a !articular #ate
II To re!ort ca!ital (owner shi! e-uity) at a !articular #ate
III To re!ort on aluation . information about business actiities at a
oer a s!ecific !erio# of time$
I/ To re!ort on the growth in alue of business at a !articular #ate
(Thomas' A$' %((0' !$1(211)
A I only
B I . II only
+ III . I/ only
, I/ only
(1#)
What accounting conce!t 3 !rinci!le #escribe the following statement?
All business transactions shall be expressed in common money terms to
facilitate comparison & ealuation purposes! (Woo#s' F$' %(()' !$1(*)
A Matching
B Materiality
+ Monetary
, 4ubstance oer form
(1e)
Which of the following statements e"!lain the consistency conce!t?
(Woo#s' F$' %(()' !$1(1)
A 51'%(( was ta6en u! in accounting recor#s as !urchase of 1(( units of
merchan#ise at 51% !er unit$
B 4toc6s that hae been ta6en from business for own use by a sole
!ro!rietor is 6nown as #rawings$
+ ,e!reciation rate of 178 !er annum has been #eci#e# u!on by the
management to be a!!lie# on all com!any9s owne# motor ehicles$
, ,iscount allowe# . commission receie# will be ta6en u! in the
releant financial statement in or#er to #erie the !rofit or loss for the
business$
(1f)
The purchase of an air filtration & purifier equipment alued at
"#,$$$! A%& 'dn %hd treated it as an expense item where as for
(er)ongsian *+,, it was ta)en up as business asset!: (Woo#s' F$' %(()'
!$11%)
The aboe brief statement e"!lains the conce!t of ;$$
A Materiality
B +onsistency
+ <istorical cost
, Monetary
(%a)
=ist 7 com!onents of financial statements$
(%b)
4tate the main reason for !re!aring a balance sheet$ (Thomas' A$' %((0'
!$1(211)
(&)
>"!lain the following accounting terms?
(i) @oing concern conce!tA
(ii) <istorical +ost conce!t
(iii) Accruals conce!tA
(i) Materiality
() Bru#ence' in relation to the recognition of !rofits an# losses$
(Woo#s' F$' %(()' !$ 117)
(C)
Briefly e"!lain the obDecties of financial statements$
(7)
4tate . briefly e"!lain four -ualitatie characteristics of financial
statements$ (Thomas' A$' %((0' !$111)
(0) I#entify . briefly e"!lain the a!!licable accounting conentions 3
conce!ts for the following scenario?
(a) A business entity has been in o!eration for the !ast 7 years . has been
!re!aring its accounts for 1% months en#ing &1 ,ecember$ Ene of the
!artners re-ueste# the latest accounts to be !re!are# for 1* months in
or#er to !resent a much im!ressie: accounts to for the reiew of its
loan !roi#er$
(b) +onfirme# 3 realiFe# cre#it sales amounting to GM%((H nee# not be
ta6en u! in boo6s for the current accounting !erio# as it #oes not inole
cash recei!t 3 !ayment$
()) The historical cost conention loo6s bac6war#s but the going concern
conention loo6s forwar#s$ Which #o you thin6 a sharehol#er is li6ely to
fin# more useful' a re!ort on the !ast or an estimate of the future? Why?
(Woo#s' F$' %(()' !$ 117)
Tutorial * + Ans(ers
(1a) A
(1b) $
(1c) B
(1#) C
(1e) C
(1f) A
(%a)
Balance 4heet' Income 4tatement' 4tatement of +hanges 3 Moement in
(Ewners) >-uity' +ash Flow 4tatement . Accounting Bolicies .
>"!lanatory Iotes$
(%b)
A balance sheet !roi#es a statement of the financial !osition of a business
at a !articular !oint in time$ It re!orts the assets' liabilities . ca!ital at a
s!ecific #ate' usually the en# of an accounting !erio#$
(&a)
(i) @oing +oncern +once!t
The going concern conce!t im!lies that the business will continue in
o!erational e"istence for the foreseeable future' an# that there is no
intention to !ut the com!any into li-ui#ation or ma6e #rastic cutbac6s to
the scale of o!eration$
This conce!t has a maDor influence on the assum!tions ma#e when
ealuating !articular items in the balance sheet$
For e"am!le assets are not normally shown at net realisable alue
because they are e"!ecte# to be 6e!t in the business for future use$
(ii) <istorical +ost +once!t
The assets are normally shown at cost !rice' an# that is the basis for
aluation of the asset$
(iii) Accruals +once!t
The accruals conce!t re-uires that reenue an# costs are recognise# as
they are earne# or incurre#' not when the money is receie# or !ai#$
They must be matche# with one another so far as their relationshi! can be
establishe# or Dustifiably assume# an# #ealt with in the income statement
of the !erio# to which they relate$
(i) Bru#ence +once!t
The accountant shoul# always e"ercise caution when #ealing with
uncertainty while' at the same time' ensuring that the financial statements
are neutral J that gains an# losses are neither oerstate# nor un#erstate#$
By a!!lying the !ru#ence conce!t' an accountant will normally ma6e
sure that all losses are recor#e# in the boo6s' but that !rofits an# gains
will not be antici!ate# by recor#ing them before they shoul# be recor#e#$
(&b)
Accruals or matching conce!t$
Brofit shoul# be calculate# by matching the costs which hae been
incurre# in an accounting !erio# (regar#less of when !ayment is actually
ma#e) with the reenue earne# in the same !erio#$
(C)
2 To !roi#e information on financial !osition' !erformance . cash
flows of an enter!rise that is useful to a wi#e range of users in ma6ing
economic #ecisions$
2 4how the result of management9s stewar#shi! of the resources entruste#
to it$
(7)
Understandabilit#
Ksers who has a reasonable gras! or 6nowle#ge of accounting an#
Business acumen an# as well as willing . 6now how to stu#y an#
analyFe the information !resente#$

Reliabilit#
This will be enhance# in the case of re!orts which are in#e!en#ently
erifie#$ >$g$ haing gone through e"ternal au#it by -ualifie# !ublic
accountant$
Relevance
Geleant information !roi#es both fee#bac6 an# !re#ictie alue$ This
hel!s users ealuate !ast an# future !erformance$ Geleant information
must be ma#e aailable on time$ If information is only aailable after the
#ecision is ma#e' it isn9t of much use$

Com%arabilit#
+om!arability re-uires that similar eents be accounte# for in the same
manner on the financial statements of #ifferent businesses an# for a
!articular business' for #ifferent !erio#s$ +om!arability of accounting #ata
for the same business oer time is calle# consistency$
(0a) +onsistency conce!t$
The entity shall continue to !re!are a 1% months en#ing accounts
instea# of a 1*2month accounts$ This ensures the similar !attern is
maintaine# an# e-uitable com!arison can be ma#e against the !reious
financial results$ Ene #oes not change unless circumstances re-uire#'
such as change of accounting year en#' re-uirement by any accounting
stan#ar#s or legislation$
(0b) Accrual conce!t
As long as it is realiFe# 3 sales been ma#e' this conce!t re-uires that
reenue or e"!ense is to be recogniFe# . recor#e# in boo6s when it is
earne# or incurre#' #isregar# when the !rocee# is receie#$
)) 4harehol#ers want financial statements so that they can #eci#e what to
#o with their sharehol#ings' whether they shoul# sell the shares or hol#
on to them$
To enable them to #eci#e u!on their actions' they woul# really li6e to
6now what is going to ha!!en in the future$ To hel! them in this' they
also woul# li6e information which shows them what ha!!ene# in the
!ast$ I#eally' therefore' they woul# li6e both ty!es of re!ort' those on
the !ast an# those on the future$