Question 2 (30 marks) The following transactions occurred in Fighting Limited, a company offering Thai Boxing lessons, in December 2021. (1) On 1 December 2021, Peter has paid $5,000 to purchase courses coupon for 10 lessons to be used in two months. In December, Peter has attended 2 Thai Boxing lessons. The total amount received was recorded as revenue earned by the Company. (2) The Company is involved in a major lawsuit related to injuries of one of the students during the Thai Boxing lesson. The Company is being sued of $2,000,000 and the hearing date is fixed in next March. The Company's lawyer advised that the company possibly lose the case but the amount cannot be estimated at this moment. The lawsuit is not disclosed in the financial statements. (3) On 1 December 2021, the Company has purchased fitness equipment amounting to $120,000 with useful life of 5 years. The Company has recorded the whole amount as expense as the Company is profitable in this year. (4) Due to high inflation rate, the purchase price of the existing training equipment was raised by 20% in this year. The Company ignored this factor and recorded the value of training equipment at $50,000 which is the amount paid for acquired the equipment in 2019. (5) Anson is the owner of the Company. In December, the Company paid a $1,000 utility bill for Anson's personal residence and recorded as an expense in the Company's book. Required: For each of the situations describe above, identify the relevant accounting principle/concept, (ii) state whether the accounting principle concept has been "violated" or "applied", and (iii) indicate the effect (with dollar amount) of the above accounting treatment on profit for the month ended 31 December 2021. Use the following symbols: 0 = overstated, U= understated and NE = no effect. The Case: Suppose Lillian Luk was the young employee of the company, who had been pushed by her boss to increase profit of the company: the customer was the victim: and the ethical issue was about Lillian Luk's ethical dilemma if she should make profit by all means or act as whistle blower in the case study. The case was set at the moment just right before the customer was lured into buying the air fryer. Lillian Luk kind of sensed the company's trick but her supervisor forced her to "seize the opportunity to make profit by all means. She was considering whether she should still induce her customer to make the purchase. Refer to the following News Report AND answer the following three Questions using theories from your textbook by RXC: News Report: The case is based on the news report titled "Consumer Council: airfryer causes cancer" Page 2 of 23
