MBAZC415 QUIZ 3

Definition of periodicity concept: The activity within the scope of an accounting period that must be
recorded within the time period on a financial statement.

the accountants will report the company's net income and cash flows for each accounting period (year,
quarter, month, etc.) and the company's financial position at the end of each accounting period.
Periodicity is also known as the time period assumption.

Equity financing is the method of raising capital by selling company stock to investors. In return for the
investment, the shareholders receive ownership interests in the company.

Need Capex $100,000

offer for sale ordinary shares 10,000
Unit Share price to public 10
100000
themselves subscribe 2500
7,500 10
Equity 75000
On Going Concept: Assumed to forever continue activity.

If there was no going concern principle, the value of assets of a business including machinery investment
and real estate investment would have to be calculated at their present liquidation value.

1st April 2016 had Non-current assets worth 55,000

Land 10000
Building 20000
Equipment 25000

current asset Instock 45,000

bank balance 15000
fully funded by equity shares

land was acquired 40 years ago 10,000

land the value as on 1st Jan 2017 500,000

Sales for 3 quarters till 31st December 70,000

expenses 92,000

The matching concept is an accounting practice whereby firms recognize revenues and their related
expenses in the same accounting period. Firms report revenues, that is, along with the expenses that
brought them. The purpose of the matching concept is to avoid misstating earnings for a period.
 On December 1, Cash and Carry Ltd

purchased for resale tins of baked beans 2000

tin cost price 20
selling price 45
December sales 1000
administrative and selling expenses for the month of December. 5000

profit for the month which is attributable to this line of goods

Profit = selling price - cost price + expenses

sale price 45000
cost price 20000
25000
Expenses 5000
20000

Sales Reported = Sale price for each bungalow. = 100/2 = 50

If it is profit = 100- (50+20) = 30 for 2 bungalows

But sold only 1 = 30/2 = 15 profit

Partners decided to sell only 1 bungalow..

The realization principle is the concept that revenue can only be recognized once the
underlying goods or services associated with the revenue have been delivered or rendered,
respectively. Thus, revenue can only be recognized after it has been earned

(Discussion point assuming the sale is completed to the business man offering)

If assumption is not made the answer will be no sale at all. Since the transaction is not compelted or not
delivered.

A business entity is an entity that is formed and administered as per commercial law in order to engage
in business activities, charitable work, or other activities allowable. Most often, business entities are
formed to sell a product or a service.

Investment in Business is 10000 ---- 30, 000 is his inherited personal amount.
The accrual concept in accounting means that expenses and revenues are recorded in the period they
occur, whether or not cash is involved. The benefit of the accrual approach is that financial statements
reflect all the expenses associated with the reported revenues for an accounting period.

The conservatism principle is the general concept of recognizing expenses and liabilities as soon as
possible when there is uncertainty about the outcome, but to only recognize revenues and assets when
they are assured of being received.