EXERCISE IN CLASS
TOPIC 1-CONCEPTUAL FRAMEWORK
QUESTION 1
State the accounting assumption, principle, information characteristics or constraint that is
most applicable in the following cases.
1. Personal transactions of the proprietor are distinguished from business transactions.
2. A company is a party to major litigation that it may lose and decides not to include the
information in the financial statements because it may have a negative impact on the
company’s share price.
3. The current fair value of the factory building is RM180,000. The company recorded the
factory building at the original cost of RM250,000.
4. All payments less than RM10 are expensed as incurred.
5. A company refuses to report certain data in its financial statements due to the high cost
of preparing financial statements.
6. The company employs the same inventory valuation method from period to period.
7. Rent paid in advance is recorded as prepaid rent.
8. Prepare financial statements at least once a year.
QUESTION 2
Kwason Bhd is a company that produces a range of pastries. At present, Kwason Bhd is
experiencing cash flow problems and encountering the following issues:
(a) Kwason Bhd also offers corporate event planning services. Kwason Bhd signed a contract
to arrange a special event for Semporna Bhd. The event shall take place next month. The
value of the contract is RM 30,000, and 40% of the amount has already been paid by
Semporna Bhd. Kwason Bhd recognised the RM30,000 received as the company’s
revenue.
(b) Kwason Bhd rents a one-storey building to store their corporate event appliances. Kwason
Bhd paid RM18,000, which covers the next 12 months. Kwason Bhd recognised the rental
payment of RM18,000 as the company’s expense.
(c) Kwason Bhd bought a motor vehicle for RM145,000 with an expected useful life of five
years. After two years of use and without any valid reasons, Kwason Bhd decided to
change the depreciation method from a straight-line basis to a reducing balance method at
the rate of 15%.
REQUIRED:
Determine which accounting assumptions and principles have been violated by Kwason Bhd
and explain the correct and appropriate accounting treatment.