Question

Presented below are the assumptions and principles discussed in this chapter.

1. Full disclosure principle.

2. Going concern assumption.

3. Monetary unit assumption. 

4. Time period assumption.

5. Historical cost principle.

6. Economic entity assumption.

 

Instructions

Identify by number the accounting assumption or principle that is described below. Do not use a number more than once.

_______ (a) Is the rationale for why plant assets are not reported at liquidation value.

_______ (b) Indicates that personal and business record keeping should be separately maintained.

_______ (c) Assumes that the monetary unit is the “measuring stick” used to report on financial performance.

_______ (d) Separates financial information into time periods for reporting purposes.

_______ (e) Measurement basis used when a reliable estimate of fair value is not available.

_______ (f) Dictates that companies should disclose all circumstances and events that make a difference to financial statement users.

 

 

Answer 1

(a)Going concern assumption belief that a company will continue to operate for the foreseeable future.

(b) Economic entity assumption indicates that personal and business records should be separately maintained.

(c) Monetary unit assumption assumes that the dollar is the “measuring stick” used to report on financial performance.

(d) Periodicity (time period) assumption separates financial information into time periods for reporting purposes.

(e) Historical cost principle a belief that items should be reported on the balance sheet at the price that was paid to acquire them.

(f) Full disclosure principle dictates that companies should disclose all circumstances and events that make a difference to financial statement users.