Accounting

Question 1 a)

Historical Cost

Definition 1 : Assets are normally shown at cost price.

(Wood, F. and Sangster, A. (2008) Business Accounting 1. 12th ed. United Kingdom: Pearson.)

Definition 2 : The amount paid for an asset and used as a basis for recognizing it on the balance sheet and carrying it on later balance sheets.

(Porter, G. and Norton, C. (2012) Using Financial Accounting Information: The Alternative to Debits and Credits Financial Accounting Series. 8th ed. United States: Cengage Learning.)

Example : 100 units of an item were purchased one month back for $10 per unit. The price today is $11 per unit. The inventory shall appear on balance sheet at $1,000 and not at $1,100.

Monetary

Definition 1 : The concept that accounting is concerned only with facts measurable in monetary terms, and for which purpose measurements can be used that obtain general agreement as to their suitability.

(Wood, F. and Sangster, A. (2008) Business Accounting 1. 12th ed. United Kingdom: Pearson.)

Definition 2 : The idea that money is the accounting unit of measurement and that only economic activities measureable in monetary terms are included in the accounting model

(Albrecht, W. et al. (2010) Accounting: Concepts and Applications. 11th ed. United States: Cengage Learning. )

Example : The company's property, plant and equipment on 2009 balance sheet amounted to $2 billion. During 2010 inflation was 10%. The monetary unit and stable dollar assumption prohibits any adjustment to current or prior period figures to account for the inflation.

Going Concern

Definition 1 : The assumption that a business is to continue for the foreseeable future.

(Wood, F. and Sangster, A. (2008) Business Accounting 1. 12th ed. United Kingdom: Pearson.)

Definition 2 : The assumption that an entity is not in the process of liquidation and that it will continue indefinitely.

(Porter, G. and Norton, C. (2012) Using Financial Accounting Information: The...