Question

Indicate the most applicable assertations. Use only one letter for each item.

assertions about classes of transactions and events :

a) Occurrence B)completeness c) Accuracy D)Classification E) Cut-off

Assertions about account balances : F) Existence G) Completeness H) valauation and allocation I) Rights and obligations

Assertions about presentation and disclosure: J) Occurence and rights and obligation K) Completeness L) Accuracy and valuation M) Classification and Understandability

Items:

A) Company management says that the company own assets included in the accounting records.

B) All inventory purchases that took place has been recorded.

C) Sales shipped FOB destination, still in transit at the end of year 1 are excluded from the revenue of year 1.

D) Management states that the probable losses from all law suits and claim against the company have been recognized in the financial statements.

E) Management complies with accounting principles in determining depereciation expense.

F) All sales that have been recorded, took place.

G) The financial statement footnotes include the significant accounting principles used.

H) No footnotes are included with the financial statements.

Answer 1

A) Rights and obligations: The management says it owns the assets, that means they have right over these assets, therefore the assertion made is "Rights and obligations"

B)Completeness: Completeness is an negative assertion, it assumes that the financial statements are complete. Nothing is left out, so if it is said that all purchases are recorded, the assertion made is "completeness".

C) Cut off: Cut off assertion follows the accounting period concept. The transsactions which occur in the next accounting year have to be accounted for in the next accounting year. So, when sales are not recognisedin the current year because the goods have not been shipped, the assertion stated is "cut off".

D) Completeness:  All probable losses have been recognised, the assertion made is the completeness of events.

E) Accuracy : Management complies with accounting principles. The assertion made is accuracy of transactions.

F) Occurence : All sales that have been recorded, took place.The management is contending that the sales have actually occured, hence the assertion of "occurence".

G)Classification and Understandability: Foot notes are added in the financial statements to make the financial statements understandable and more presentable.

H) Classification and Understandability: The assertion is not followed as the footnotes are not prepared alongwith financial statements.