ACCOUNTING PRINCIPLES

IDENTIFY THE ACCOUNTING PRINCIPLE

FOLLOWED/VIOLATE IN THE FOLLOWING CASES
AND BRIEFLY EXPLAIN THE PRINCIPLE
IDENTIFIED:
1. Medical expenses of the son of the proprietor charged to
office expenses.2. Land and building shown at current market price in Balance
Sheet of a solvent business unit
3. Sale made on sale or return recorded as sales before the
expiry of the option period
4. Method of depreciation was changed to WDV from SLM
while raising bank overdraft5. Balance Sheet tallied
6. Reserve for Discount on Debtors is created.7. Reserve for discount on Creditors is created.8. Bills discounted are shown as a contingent liability in a foot
note.
9. Loss by fire is credited to Trading A/C.
10. Wages and expenses due debited to P&L A/c11. Commission receivable credited to P&L A/c.12. Financial Statements are prepared once in 12 months.13. Rent paid for personal residence debited t Rent A/c.14. Fire in godown after preparing Final account shown as a
footnote.
15. Stock is valued at ` 4000 (cost `5000).16. Rent paid for residence of proprietor debited to office
rent account.17. Cost of machinery bought for factory use debited to
Profit & Loss account.-

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18. Stock shown at cost in books while market share is

shrinking due to cheap substitute goods.19. Suspense account appears in the books of account20. Factory building valued at its market value21. 100% provision is created for a time barred debt.22. Stock lost in burglary credited to Trading account.23. Rent for business premises paid out of drawings.
24. Goods destroyed by fire credited to Trading A/c.
25. Bills discounted appear as footnote in Balance Sheet.

26. Tea Companies value their closing stock at market

value.- conservatism violated.
27. Companies charge depreciation at 100% on fixed assets
costing upto` 5000 in the year of acquisition.- materiality.
28. Outstanding salary appears in the Balance sheet.29. Classification of assets into fixed assets and current
assets.
30. Creation of provision for bad debts.- conservatism
31. Showing loss by fire after preparation of balance sheet as
a foot note.-disclosure.
32. Provision for warranty claims after sales.-conservatism.
33. School fees of proprietors son debited to drawings A/cbusiness entity.
34. Claims against business not acknowledged as debt shown
as an item in notes to balance sheet.

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35. Capital is shown as liability in the balance sheet.business entity.

36. Unsold stock credited to Trading A/c.
37. Salaries not paid for the current year debited to P&L A/c.
38. Land purchased 15 years ago for `40,500 is now worth
`3,00,000.It is still carried in the books at ` 40,500.
39. ABC Ltd is sued for `10,00,000 for breach of contract.
Its lawyers believe that it will lose the case.ABC Ltd
reports the possible loss in a footnote to Balance sheet.
40. Partially completed products are shown in books at the
total of expenses incurred to date on their manufacture.
41. Rental value of proprietors building used for business
debited to rent a/c.
42. Purchases of sundry officeequipments for less than `50
are entered in miscellaneous expenses A/c.
43. Rakesh owns a car rental business and call center
business. He prepares separate financial statements for each
business.
44. Philips India Ltd offers a one year guarantee on all
electronic gadgets that it sells. In its A/c it maintains a
provision of 5% on sales towards meeting after sales
service expenses during the guarantee period.
45. A monkey escapes from the pet shop next door and
rushes into Gifts corner owned by Anand and breaks a
display of dolls valued at `320, a part of the stock to be
sold. Anandcredited his trading A/c with `320. On
recovering `100 from the pet shop owner he debited `220
to P&L A/c.
46. Market value and purchase price of investments shown in
Balance Sheet
47. A solvent firm values all fixed assets at Value in use
basis.
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48. Business
merchandise
consumed
debited
to
Advertisement account.
49. A defaulting business with pending litigations shows
fixed assets at realisable value.
50. Sale proceeds of personal assets left in business credited
to capital account.
51. Legal advisory charges paid to son, a lawyer, debited to
legal expenses account.
II.Name the accounting principles violated in the
following:
1. Balance Sheet does not tally.- dual aspect.
2. Creation of provision for discount on creditors.
Conservatism.
3. Recording goods sold on sale or return basis as sales.revenue recognition.
4. Proprietors sons medical expense debited to
miscellaneous expense of the business.- business entity.
5. Goods sold on sale or return basis recorded as sales.revenue recognition.
6. Insurance paid till June 30th 2011 debited to P&L A/c
prepared on 31.3.11.
7. Rent due for the current accounting year not recorded in
the books.
8. Computer purchased for personal use recorded as
business asset.
9. Business purchases paid out of personal bank A/c.
10.
Last years outstanding salary paid debited to salary
A/c in the current year.
11.
Fixed asset valued at estimated market price.
12.
Withdrawals by the owner of the business appear on
the debit side of the profit and loss A/c.
13.
Repairs to building debited to Building A/c.
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14.
A fashion goods dealer shows the stock at cost price
in his books. There is a steady fall in the demand for the
product coupled with cheaper substitutes.
15.
Debit side total of Trial Balance is more than credit
side total.
16.
Mrs Lily, owner of Lilys Beauty shop operates one
bank A/c for both her personal and business
expenses/revenue and records the balance details in her
business books.
17.
Philips India Ltd does not maintain any provision
for meeting after sale service expenses.
18.
A solvent firm shows building at current realisable
value.
19.
X ltd. Values stock at FIFO method till last year and
switched to LIFO method in the current year.
20. Investments shown in balance sheet at its investment
value of `25,000. Its current market value of `10,000 is
not shown.

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