Applications-of-Accntg-Guidelines.pdfjjjjiiuu

All about accountancy

1. Accounting
Guidelines
1
ST
SEMESTER QUARTER 1 MODULE 2
1

2. Lessons:
•Lesson 1
Accounting Guidelines
•Lesson 2
Accounting Guidelines as
Applied in Various Cases
2

3. Learning Competencies:
•Explainthevariedaccounting
conceptsandprinciplesand
•Solveexercisesonaccounting
principlesasappliedinvarious
cases.
3

4. Lesson 2
Applications
4

5. What are the
Operating
Guidelines?
5

6. 6
ASSUMPTIONS
PRINCIPLES
CONSTRAINTS
CONCEPTS

7. 1.Monetary Unit
2.Economic Entity/
Accounting Entity
3. Time Period/Periodicity
4. Going Concern
7

8. 1.Revenue Recognition Principle
2.Matching Principle
3.Full Disclosure Principle
4.Historical Cost Principle
8

9. 1.Materiality
2.Conservatism
9

10. 1.Use of Estimates and
JudgementsConservatism
2.Objectivity
3.Substance over Form
10

11. ABMCompanypurchasedacomputer
packagein2010amountingto₱20,000.
Todaythisequipmentisonlyworth₱10,000.
InthebookofABMCompany,theequipment
wasstillreportedatitspurchasepriceof
₱20,000,lessdepreciation,eventhoughthe
currentfairmarketvalueofthecomputeris
only₱5,000.Thisistrueunderwhich
AccountingGuideline?Supportyouranswer.
11Historical Cost

12. Neartheendofthecurrentyear,acompany
requiredacustomertopay₱200,000asa
depositforworkthatistobegininthe
followingyear.Attheendofthecurrentyear
thecompanyreportedthe₱200,000asa
liabilityonitsbalancesheet.Which
accountingguidelinepreventedthecompany
fromreportingthe₱200,000onitsincome
statementforthecurrentyear?Why?
12Revenue Recognition Principle

13. Acompanyborrowed₱100,000onDecember
1andwillmakeitsonlypaymentforinterest
whenthenotecomesduesixmonthslater.
Thetotalinterestforsixmonthswillbe
₱3,600.OnDecember31,theaccountant
reportsanInterestExpenseof₱600inits
incomestatement.Thisactionistheresultof
whichaccountingguideline?Explainyour
answer.
13Matching Principle

14. Afterlearningthedifferentguidelines
followedbybusinessesfortheiraccounting
system,youcannowidentifythe
guidelinesappliedorviolatedin
differentsituations.Youwillthenbeable
toknowwhethertheaccounting
transactionisrelevantandcorrectby
ensuringthatitisinconformitywiththe
AccountingGuidelinesthatwehave
discussed.
14

15. 15
Case1:Alargecompanywithan
averagetotalassetsof₱20,000,000
purchasesa₱2,500digitalcamera
andusesitimmediatelyinsteadof
recordingitasanassetand
depreciatingitoveritsusefullife.
Thispracticemaybeacceptable
becauseofwhichAccounting
Guideline?

16. 16
OperatingGuidelineAppliedor
Violated:
MaterialityPrinciple

17. 17
Consideringthetotalassetsofthe
company,the₱2,500isrelativelyasmall
amountandshouldbeexpensed.Evenif
thecameramaybeusedforseveral
years,itmaynotberecordedasanasset
becauseofitsinsignificance.The
MaterialityConstraintstatesthatifanitem
isimmaterial,thebookkeeperor
accountanthastheoptiontotreatit
differentlythanitsusualtreatment.

18. 18
Case2.Acorporationpaysitsannual
propertytaxofapproximately
₱12,000inonepaymenteach
December28.Duringtheyear,the
corporation'smonthly income
statementsreportPropertyTax
Expenseof₱1,000.Thisisan
exampleofwhichAccounting
Guideline?

19. 19
OperatingGuidelineAppliedor
Violated:
MatchingPrinciple

20. 20
AccordingtotheMatchingPrinciple,the
expensemustberecognizedintheperiod
therelatedrevenueisearned.Every
revenueearnedmustalsoreflectthe
expensesrelevanttogeneratingsuch
revenue.Sincethepropertyisusedby
thebusinessyear-roundandithas
contributedtogeneratingtherevenue
everymonth,itispropertoreflectthe
PropertyTaxExpenseonamonthlybasis.

21. 21
Case3.Acompanysolda
merchandiseof₱8,000toacustomer
inDecember.Thecompany'ssales
termsrequirethecustomertopaythe
companyin30days.Thecompany's
incomestatementreportedthesale
inDecember.Thisisproperunder
whichAccountingGuideline?

22. 22
OperatingGuidelineAppliedor
Violated:
Revenue Recognition
Principle/AccrualBasisof
Accounting

23. 23
TheRevenueRecognitionPrinciplestates
thatrevenueshouldberecordedatthe
timeitisearnedoratthepointofsaleeven
ifnopaymentwasreceivedfromthe
customer.Thepointofsaleisthedatethat
thecustomerreceivedorhasthecustody
ofthemerchandise.Sincethecustomer
receivedthegoodsinDecember,theseller
mustrecordthesaleinDecemberevenif
thepaymentwillbereceivedinJanuary.

24. 24
Case4.Jane,aretailer,
wishestoreporther
merchandiseinventoryonits
balancesheetatitsretail
value.Thiswillviolatewhich
AccountingGuideline?

25. 25
OperatingGuidelineAppliedor
Violated:
HistoricalCostPrinciple

26. 26
JanewillviolatetheHistoricalCost
Principleifshewishestorecordher
inventoryatretailvalue.TheHistorical
CostPrinciplestatesthatassetsshould
berecordedatiscostoracquisition
pricesinceitismorerelevantand
reliable.Theretailvalueorfairvalueis
onlyanestimateorapproximation,thus
itmaynotreflectthetruevalueofthe
merchandise.

27. 27
Case5.Intheearly2000s,GeneralMotors
wasexperiencinggreatfinancialdifficulties
andwasreadytodeclarebankruptcyand
closeoperationsallovertheworld.The
Federalgovernmentsteppedinandgavethe
companyabailoutaswellasaguarantee.
TheinterventionoftheFederalgovernment
indicatedthatGeneralMotorswillstilloperate
inthefuture.WhatOperatingGuidelineis
associatedwiththiscase?

28. 28
OperatingGuidelineAppliedor
Violated:
GoingConcernAssumption

29. 29
Sincetheexistenceofthegovernment
isindefiniteandithasprovided
guaranteetoGeneralMotors,the
latter’sstakeholderscanbeconfident
thatthebusinesswillcontinueto
operateinthefuture.Thegoing
concernassumptionimpliesthatthe
businesswillbeabletooperatelong
enoughtoaccomplishitsobjectives.

30. 30
Case6.Duringthemiddleofthenighta
retailer'sstoreisvandalized.The
signageisspray-paintedallover,the
windowsarebroken,andsome
merchandiseisstolen.Theretailer's
financialstatementswillonlyreporta
lossonthedamagedproperty.Sales
lostduetothetimewaitedfortherepair
ofthestorewillnotbereportedbecause
ofwhatAccountingGuideline?

31. 31
OperatingGuidelineAppliedor
Violated:
MonetaryUnitAssumption

32. 32
Lossonpotentialsalesishypothetical
andcannotbemeasuredinreal
monetaryunits,thus,recordingitwill
violatetheMonetaryUnitAssumption.
Monetaryunitassumptionemphasizes
thatonlytransactionsthatcanbe
reliablymeasuredandexpressedin
moneyshouldberecordedinthe
accountingbooks.

33. 33
Insolvingcasessuchasthese,thereare
nouniformrulesandsteps.Itwilltake
analyticalskillsandgoodcomprehension
tounderstandandidentifytheoperating
guideline/sappliedineachofthecase.
Thus,itisamustthatyouunderstandthe
keyconceptsofalltheaccounting
assumptions,principles,concepts,and
constraintsinorderforyoutoapplythem
tovariouscases.

34. 34
Inthefollowingsituations,
identifytheaccountingguideline
thatisapplicable.Furthermore,
indicatewhethertheAccounting
Guidelineiscorrectlyappliedor
violatedandgiveajustification
foryouranswer.

35. 35
1.Theowner-manager
boughtacomputerfor
personaluse.Theinvoice
wasgiventotheaccountant
whorecordeditasanasset
ofthebusiness.

36. 36
Violated:
EconomicEntity

37. 37
2.Thestatementoffinancial
positionofacompanyincluded
equipmentpurchasedfromJapan
for350,000yen.Itwasreported
atthatamountinthestatementof
financialpositionwhileallthe
otherassetswerereportedin
Philippinepesos.

38. 38
Violated:
MonetaryUnit

39. 39
3.Therearenofinancial
statementsthatarepreparedby
MichaelGoforhisbusiness.He
explainedthathewillpreparethe
statementswhenheclosesthe
business,whichhepredictsto
takeplaceafter20years.

40. 40
Violated:
GoingConcern

41. 41
4.Asidefromowninga
shoestore,Albertoperates
acanteen.Theassetsof
thecanteenarereportedin
thestatementoffinancial
positionoftheshoestore.

42. 42
Violated:
EconomicEntity

43. 43
5.Abuscompanyhavingatotal
assetofP300,000,000purchased
atoolkitamountingtoP12,000.
The company bookkeeper
recordedthepurchaseasan
outrightexpenseanddidnot
includeittoassetsfor
depreciation.

44. 44
Applied:
Materiality