QUESTION 5: Accounting Concepts

Please answer each of the next 3 parts of question 5 in the spaces provided.

Part A

The owner of Max-Mix allocates the entire cost of a new delivery vehicle, which had a cost of $30,000 to motor vehicle expenses in the year the delivery vehicle was bought. With reference to accounting concepts, discuss whether you agree with this accounting treatment.

Part B

Explain the difference between Cash accounting and Accrual accounting.You also need to explain, based on the Conceptual Framework, which is the correct way to record transactions (cash or accrual accounting) and why this is the case.

Part C

Dawid, the owner of a coffee shop, has paid for a holiday for himself and his family.He paid for the holiday from the business bank account and recorded this as a travelling expense in the business' accounting records.

For the transaction above you need to explain:

a)Which Accounting concept/s has/have been violated and

b)Indicate what the correct accounting treatment of this transaction will be