Assumptions And Accounting Policies

Question 1

When a parent and subsidiary relationship exist, consolidated financial statement are prepared in recognition of the accounting concept of?

Answer 1

Economic entity

It’s a violation of Legal entity because it combines more than one legal entity together

Question 2

Accounting framework items

Answer 2

Relevance
Predictive value
Confirmatory value
Materiality

Faithful representation
Completeness
Neutrality
Free of error

Enhancing quality
Comparability
Verifiability
Timeliness
Understandability

Question 3

Example of faithful over relevance

And relevance over faithful

Answer 3

Use historical cost as a valuation cost for assets
Historical cost is faithful, but not relevant since price can be changing and depreciation will decrease value

Relevance over faithful: the use of accounting estimates

Question 4

Report a/r at net realizable value is a departure from the actg principle of?

Answer 4

Historical cost

Question 5

What is the principal use for comparing prior year’s uncollectable amount to past net credit sales?

Answer 5

Matching principal