Question 1 “ Conceptual Framework
1. Coglin Clothing Ltd discovers that a manager has stolen $20,000 worth of clothing over time. The manager s employment is terminated and the accountant decides that this should be covered up and omits the adjustment from the accounting records.
2. The company spent $50,000 on computer software development for a sewing machine and recorded the cost as an asset. As yet it is impossible to predict whether this cost will result in any future economic benefits to Coglin Clothing Ltd.
3. Coglin Clothing Ltd buys three manuals for the cutting machines. They cost $220 each and the accountant expensed them, even though they have a useful life of 5 years.
4. When preparing the final financial statements, it appears that the income statement will report a loss for the financial year if depreciation expense is recorded. The accountant decides not to record depreciation expense for the year.
For each of the above situations, discuss the accounting principle(s) or reporting characteristics (if any) that are not being correctly followed.
Information to assist in answering questions will be contained in chapter 17 of textbook. You may also want to look at chapter 20 “ Non- Current Assets as well as
AASB1031 Materiality, which can be found on the portal.
Tips on answering question:
Read facts and required 2-3 times
Highlight keywords in facts as we have in class
When answering question, please ensure that you refer to the conceptual framework and any relevent definitions and tests in your answer. I will be looking for keywords.
Tutorial questions are good starting points in answering question. Please think back to process we used in class to answer question.
Sentences do not have to be perfect and the use of bullet points may assist.
Do not panic “ you are all capable of successfully answering theory questions like this, it just takes practice!
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