Do you think that when a set of financial accounts is being prepared, neutrality should override prudence?
2.2 ‘The law should lay down precise formats, contents and methods for the preparation of limited liability company accounts.’ Discuss.
2.3 The Accounting Standards Board bases its Financial Reporting Standards on what is sometimes called a ‘conceptual framework’. How far do you think that this approach is likely to be successful?
In questions 2.4, 2.5 and 2.6 you are required to state which accounting rule the accountant would most probably adopt in dealing with the various problems.
2.4* (a) Electricity consumed in Period 1 and paid for in Period 2. (b) Equipment originally purchased for £20,000 which would now cost £30,000. (c) The company’s good industrial relations record. (d) A five-year construction contract. (e) A customer with a poor credit record might go bankrupt owing the company £5000. (f) The company’s vehicles, which would only have a small scrap value if the company goes into liquidation.
2.5* (a) A demand by the company’s chairman to include every detailed transaction in the presentation of the annual accounts. (b) A sole-trader business which has paid the proprietor’s income tax based on the business profits for the year. (c) A proposed change in the methods of valuing stock. (d) The valuation of a litre of petrol in one vehicle at the end of accounting Period 1. (e) A vehicle which could be sold for more than its purchase price. (f) Goods which were sold to a customer in Period 1 but for which the cash was only received in Period 2.
2.6* (a) The proprietor who has supplied the business capital out of his own private bank account. (b) The sales manager who is always very optimistic about the creditworthiness of prospective customers. (c) The managing director who does not want annual accounts prepared as the company operates a continuous 24-hour-a-day, 365-days-a-year process. (d) At the end of Period 1, it is difficult to be certain whether the company will have to pay legal fees of £1000 or £3000. (e) The proprietor who argues that the accountant has got a motor vehicle entered twice in the books of account. (f) Some goods were purchased and entered into