The following events occurred in Fresh Cleaning Company in December 2021: (1) A customer has purchased $5,000 vouchers for the cleaning service to be used in next few months. The total amount received was recorded as revenue by the company. (2) On 1 December 2021, the Company has purchased 3-month medical insurance policy for its staff amounting to $30,000. The total amount paid was recorded as insurance expense. (3) On 1 December 2021, the owner of the Company has purchased a washing machine of $54,000 for his personal use but reported it as the Company’s transaction. The Company also recorded the monthly depreciation adjusting entry for the washing machine with a useful life of 10 years on 31 December 2021. (4) A worker was injured when doing the cleaning work. The worker filed the lawsuit against the Company for the compensation with significant amount. The Court hearing date is scheduled on 31 March 2022. The management thought that the worker will be unlikely to win the case and the amount cannot be estimated. The litigation has been disclosed as notes of the financial statement. (5) The Company bought the property for $2 million in year 2015 but now the value of the property has been increased to $3 million. The Company recorded the property at $2 million at 31 December 2021 and did not make any adjusting entries. Required: For each of the situations describe above, (i) identify the relevant accounting principle/concept adopted by the Company, (ii) state whether the accounting principle/concept has been “violated” or “applied”, and (iii) indicate the effect (with dollar amount) of the above accounting treatment on profit for the month ended 31 December 2021. Use the following symbols: O = overstated, U = understated and NE = no effect. Put your answers in the column headings in the table below. Name of Accounting principle Violated/Applied Profit
The following events occurred in Fresh Cleaning Company in December 2021:
(1) A customer has purchased $5,000 vouchers for the cleaning service to be used in next few months. The total amount received was recorded as revenue by the company.
(2) On 1 December 2021, the Company has purchased 3-month medical insurance policy for its staff amounting to $30,000. The total amount paid was recorded as insurance expense.
(3) On 1 December 2021, the owner of the Company has purchased a washing machine of $54,000 for his personal use but reported it as the Company’s transaction. The Company also recorded the monthly
(4) A worker was injured when doing the cleaning work. The worker filed the lawsuit against the Company for the compensation with significant amount. The Court hearing date is scheduled on 31 March 2022. The management thought that the worker will be unlikely to win the case and the amount cannot be estimated. The litigation has been disclosed as notes of the financial statement.
(5) The Company bought the property for $2 million in year 2015 but now the value of the property has been increased to $3 million. The Company recorded the property at $2 million at 31 December 2021 and did not make any
Required:
For each of the situations describe above,
(i) identify the relevant accounting principle/concept adopted by the Company,
(ii) state whether the accounting principle/concept has been “violated” or “applied”, and
(iii) indicate the effect (with dollar amount) of the above accounting treatment on profit
for the month ended 31 December 2021. Use the following symbols: O = overstated,
U = understated and NE = no effect.
Put your answers in the column headings in the table below.
|
Name of Accounting |
Violated/Applied | Profit |
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