1.According to the International Financial Reporting Standards, entities must maintain and report
their accounts, defining types of transactions and other events with a financial impact so that their
financial statements could be consistent and reliable. Under the concept of entity, they should
prepare separate financial statements (one for the supermarket and another for the rental apartment)
to measure and evaluate the performance of substantially all of its transactions on a fair value basis.
Reliability and completeness— this will be the accounting characteristics of the said business
entities in separating the financial statements because the information that they acquire has the
quality of reliability because its free from material error and bias. And completeness because it
purports all transaction that needs to be reported in the financial statement.
3.No, they should not record the current market value to their financial statements. Under the
historical cost principle, acquired assets are to be recorded on the balance sheet at their
historical/acquisition cost and not on the current market value, even if they have significantly
increased in value over time. Instead, they should focus more on their acquisition cost in creating
their financial statement because it will be more relevant in recording the said information.
Assuming that this belief is true, they can rely on the accounting characteristic of conservatism
since it will provide them guidance when uncertainty and the need for estimation arise in their
business.
5.Personal expenses are different from business expenses. Business expenses have a legitimate
business purpose that should be ordinary and necessary for your business only. Personal expenses
have no connection to the business and cannot be subtracted along with business expenses. That
is why they should not include an estimate of the cost of their withdrawals in their financial
statement at the expense of the supermarket. As far as the supermarket’s operation is concerned,
the owners should record their withdrawals under a different account because, under the
accounting characteristic of faithful representation, transactions or information that might affect
the business must be faithfully represented for what it purports. If they did not keep a record of the
things they got from the supermarket, there is a high possibility that their financial statement will
emit an error.