Activity 2 – Tutorial 2 DAM 561

Q1 Explain, with examples, the different accounting information needs of the following
users: investors, department managers and trade creditors.

Q2 Define the (accounting) entity concept, and explain two implications that follow from
adopting it.

Q3 Define ‘monetary convention’, and explain the main advantage of (and rationale for)
applying the monetary convention to accounting records.

Q4 Goran Triagin runs a tennis equipment sales and training business.

Following some help fro m a friend who did accounting at secondary school 15 years
ago, Goran has prepared his own Income Statement and Balance Sheet for the last
accounting period. He brings them to your for checking.
On inspection and following discussions with Goran, the following points arise:
• His Income Statement shows that only cash receipts and cash payments have been
included as revenues and expenses.
• Goran withdrew $100 per week cash from the business during the year. This has
been included as a business expense.
• When Goran valued his tennis racquets, nets and other equipment at the end of the
year, he estimated their current value according to prices of similar second-hand
items being advertised in the NZ Tennis national monthly magazine.
• Goran had several bad customers who left to go to Australia in 1999, who still owe
Goran’s business money. No adjustments to Goran’s accounts have been made for
these amounts owing, even though the accounts are now 5 years old; all attempts to
contact the customers have failed.
• Goran states ‘I want you to check over my financial statements, and to make any
adjustments necessary to show the best possible net profit and the highest possible
owner’s equity. That way, if I want to sell my business, I will get the best price
possible, even if I have to pay higher tax on my profits. I don’t think it is necessary to
show everything in my financial reports; in fact, if there are any items that don’t look
so good, please hide them somehow.’
State what accounting principle or rule is violated by each of the above scenarios.