Task 1B - Accounting Principles
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This document contains sample questions from a VCE Accounting exam. It addresses accounting principles related to asset valuation and financial reporting. Specifically: - Question 1 asks how buildings owned by a retail business should be valued according to the historical cost and conservatism principles. - Question 2 asks how preparing financial reports only once and paying expenses from one business' account violates accounting principles. - Question 3 asks how unsold inventory should be valued according to the consistency principle. The document provides context and instructions for answering questions about applying key accounting concepts like historical cost, conservatism, and consistency. It is a teaching tool focused on asset valuation and financial reporting standards.
Task 1B - Accounting Principles
- 1. VCE ACCOUNTING UNIT 3 – RECORDING AND REPORTING FOR A TRADING BUSINESS CHAPTER 1 – THE NATURE OF ACCOUNTING © Michael Allison Author’s express permission required for external or professional use Page | 1 Name Task 1B Accounting Principles Question 1 High Street School Uniforms, a small retail business selling a range of uniforms for students at nearby schools, operates two stores in Balwyn and Richmond. The building in which the Balwyn store is located was purchased in 2010 for $470,000, while the Richmond building was bought in 2003 for $250,000. Both properties have been listed at their original purchase prices in the respective Balance Sheets of each firm. The owner of High Street School Uniforms has decided to have re-value the buildings and, based on his research, he estimates that the current market value of the Balwyn property is $420,000 and the Richmond property is worth $540,000. a) Explain the value at which each building should be valued in the Balance Sheet according to the Historical Cost Principle. Explanation 3 marks b) Explain the value at which each building should be valued in the Balance Sheet according to the Conservatism Principle. Explanation 3 marks
- 2. VCE ACCOUNTING UNIT 3 – RECORDING AND REPORTING FOR A TRADING BUSINESS CHAPTER 1 – THE NATURE OF ACCOUNTING © Michael Allison Author’s express permission required for external or professional use Page | 2 Question 2 Rod Tidwell owns and operates two small businesses: Rod’s Racers – a car dealership in Kew selling new and used vehicles Cleaner Cars – a business in Camberwell cleaning the cars of customers. Both businesses were started in 2011 but Rod has only calculated the firms’ profits once since operations began. a) Explain how Rod has breached an Accounting Principle. Accounting Principle Explanation 1 + 2 = 3 marks Given that both of Rod’s businesses are similar and have many of the same customers, Rod has decided to combine the financial reports of each firm into one overall consolidated set of reports. In addition, both firms have a phone plan with Telstra, so Rod often pays the accounts for both firms from the bank account of Rod’s Racers. b) Explain how Rod has breached an Accounting Principle in this situation. Accounting Principle Explanation 1 + 2 = 3 marks
- 3. VCE ACCOUNTING UNIT 3 – RECORDING AND REPORTING FOR A TRADING BUSINESS CHAPTER 1 – THE NATURE OF ACCOUNTING © Michael Allison Author’s express permission required for external or professional use Page | 3 The car dealership in Kew has four vehicles remaining from last year’s inventory that it has been unable to sell. Each of these vehicles has a sale price of $35,000 and cost the business $27,000 to buy. Because they are now a year old, Rod believes he can only sell the vehicles for $25,000 and, as such, believes he should write down their value in the Balance Sheet. In previous years, the business has always written down the value of old stock to its current market value. c) Explain how Rod should value these vehicles in the Balance Sheet according to the Consistency Principle. Explanation 2 marks Total /14 marks