WMH101201920 S2 Assignment Question 2 (50 marks) Part! (2 mark) (a) Briefly explain what is meant by the principle of adequate disclosure. (b) Refer to Question of Beauty Forever Company and assume the Company's financial statements were issued on March 31, 2020. State "Yes" or "No" whether situation (1) to (4) below require disclosure with the financial statements. If "Yes", identify the nature of disclosure. If "No". give the reason to support. The following events occurred in Beauty Forever Company: (1) During the year 2019, the Company was sued by a customer for medical compensation or $80,000 for injury as a result of a laser hair removal treatment provided by the Company. The hearing date is fixed on May 5, 2020. (2) The Company adopts straight-line method to calculate the depreciation expense for the equipment. (3) Due to the outbreak of coronavirus disease starting from 19 January 2020, the Company has suspended its operation until the end of March to avoid the spread of disease. 1) A customer is very satisfied with the botox injection procedure provided by the Company and paid $50 tips to the Company in addition to the service fee. (24 marks) BM T01 201920 S Assignment The following events occurred in Beauty Forever Company in January 2020: (1) A customer has purchased S8,100 ten whitening treatment vouchers for the service to be used in next few months. The total amount received was recorded as revenue by the company. (2) On ! January 2020, Beauty Forever Company has purchased 1-year medical insurance policy for its stall amounting to S120,000. paid by cash. The total amount was recorded as insurance expense. (3) On 1 January 2020, the owner of Beauty Forever Company purchased a car of $30,000 in cash for his personal use but reported it as the Company's transaction. The Company also recorded the monthly depreciation adjusting entry for the car with a useful life of 5 years on 31 January 2020. (4) On 31 January 2020, the accountant adjusted the balance of equipment to market value at $244.800 because of inflation and recorded a gain of $4,800. Required: For each of the situations describe above, (a) Identify the relevant accounting principle that has been violated. (12 marks) (b) indicate the effect (with dollar amount of the above error on each of the financial statement elements at the end of January 2020 described in the column headings in the table below. Use the following symbols: 0 - overstated, U- understated and NE - no effect Assets c.g. U S1000 Liabilities US1000 Equity (12 marks) -END OF ASSIGNMENT 1
