Assume the following independent events occurred during 2022. Identify the most relevant accounting principle/concept has been violated by the Company. Indicate the effect on profit for the year ended 31 December 2022 as a result of this violation. Use the following symbols: O = overstated, U = understated and NE = no effect. Fill in your answers in the table provided. (1) The owner of the Company purchased a boxing punching bag for his son’s use. The Company reported it as the Company’s Equipment and made the monthly depreciation. (2) The Company purchased an electric pencil sharpener for office use. The Company estimated the useful life of the pencil sharpener to be 4 years and so it recorded it under Equipment and made the monthly depreciation. (3) A customer was injured in a training class. He sued the Company for a big compensation amount, which cannot be estimated. The court hearing date is fixed on 1 March 2023. The Company ignored it when preparing the Financial Statement. (4) The Company recorded the total amount of the 1-year rent received in advance as rent revenue. The rent agreement was effective in March 2022.
Assume the following independent events occurred during 2022. Identify the most relevant accounting principle/concept has been violated by the Company. Indicate the effect on profit for the year ended 31 December 2022 as a result of this violation. Use the following symbols: O = overstated, U = understated and NE = no effect. Fill in your answers in the table provided. (1) The owner of the Company purchased a boxing punching bag for his son’s use. The Company reported it as the Company’s Equipment and made the monthly depreciation. (2) The Company purchased an electric pencil sharpener for office use. The Company estimated the useful life of the pencil sharpener to be 4 years and so it recorded it under Equipment and made the monthly depreciation. (3) A customer was injured in a training class. He sued the Company for a big compensation amount, which cannot be estimated. The court hearing date is fixed on 1 March 2023. The Company ignored it when preparing the Financial Statement. (4) The Company recorded the total amount of the 1-year rent received in advance as rent revenue. The rent agreement was effective in March 2022.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
Assume the following independent events occurred during 2022. Identify the most relevant
accounting principle/concept has been violated by the Company. Indicate the effect on profit
for the year ended 31 December 2022 as a result of this violation. Use the following symbols:
O = overstated, U = understated and NE = no effect. Fill in your answers in the table provided.
(1) The owner of the Company purchased a boxing punching bag for his son’s use. The
Company reported it as the Company’s Equipment and made the monthly depreciation.
(2) The Company purchased an electric pencil sharpener for office use. The Company
estimated the useful life of the pencil sharpener to be 4 years and so it recorded it under
Equipment and made the monthly depreciation.
(3) A customer was injured in a training class. He sued the Company for a big compensation
amount, which cannot be estimated. The court hearing date is fixed on 1 March 2023. The
Company ignored it when preparing the Financial Statement.
(4) The Company recorded the total amount of the 1-year rent received in advance as rent
revenue. The rent agreement was effective in March 2022.
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