Accounting Principles

For each of the scenarios below, briefly explain which accounting concept (i.e. principle, qualitative characteristic or assumption) has been violated (or not followed):

• Part (a): Jones Company Ltd buys goods from around the world and then sells those goods in its New Zealand retail stores. As a result, many transactions are carried out in foreign currency. However, its recent annual report included no disclosure on foreign currency because management believe that investors will not understand this information.

• Part (b): The accountant for Colossus Company Ltd purchased a new stapler for $23. It has an estimated useful life of 10 years. The accountant records the purchase of the stapler as follows: $20 increase in the stapler account (an expense), $3 increase in the GST claimed account (an asset) and $23 decrease in the bank account (an asset).

• Part (c): Disclosed on Chipolata Company Ltds balance sheet is factory equipment used to make sausages: Last years value is $53,000, which is its historic cost less accumulated depreciation; and this years value is $78,000, which is the amount to replace it. The change of valuation methods is disclosed in the notes to the financial statements.

• Part (d): Appliances Ltd manufactures and sells appliances to appliance retailers. To increase this years revenue, Appliances Ltds management asks the retailers who are separate accounting and legal entities to hold additional inventory and return any unsold inventory next year. All shipments of appliances to the retailers are included in this years revenue.