CAMIDCHOL, GWYNETTE L.

Answer the questions comprehensively but in a concise manner.

Part 1.Short Cases

Case A

Mr. Z runs a bakery as his business. He asked Mr. P to work for him as a baker. Mr. P proposed
that if he works for Mr. Z, he should have 5% profit sharing aside from his monthly salary in
which Mr. Z agreed.

 Is there a partnership in this case?

- Yes, there is a partnership in this case because there is an agreement made

by Mr. Z and Mr. P and the business owner even agreed to it.

 What of form of business should be registered and to which government agencies should
they register?

- The form of business is partnership that it should be registered with the

Securities & Exchange Commission because it is a partnership.

 What is the primary activity of the business? 

- The primary activity of the business is manufacturing because they create the
products.

Case B

You just passed the CPA board exam and ranked as top 1. You don't have any experience in
accounting practice. A client comes to you for management advisory and tax consultancy, and
audit engagement purposes. Will you accept the engagement? Why or why not?

-Yes, because you have to test your skills and the knowledge you learn from the past
years and not because you don’t have any experience that you should be discourage
because you can ask help from the others for approval if what you’re doing is correct.
Exploring by challenging yourself results to learning.

Part 2.Identify the accounting concepts violated then explain how each violation can be
corrected.

1. The owner of Z Enterprise mixed up his personal expenses with the operating expenses of
the corporation.
ACCOUNTING ENTITY CONCEPT
- This scenario or situation violated AEC because the owner mixed the personal
expenses with the operating expenses which in this concept the records should have a
separate set of records to determine the amount of payouts of different transactions.

2. Because the enterprise's income is low this year, the owner decided to ignore depreciation
incurred this year.

CONSERVATISM (PRUDENCE)

- The owner ignores depreciation whereas the owner underestimates the liabilities
depreciation incurred this year. The owner shouldn’t ignore the depreciation incurred
because the owner can use this to compare the assets’ value that has been used up.

3. The owner did not report the sales because he is waiting for the customer to pay first.

CONSERVATISM/ACCRUAL BASIS
- The owner did not report the sales because the owner is waiting for a customer to pay
which is considered as a bad debt and the owner is unsure is sure on what to put in the
report sales so I should be considered because there is a possibility that the customer
will not pay for it and the income should be recorded regardless of collections of cash.

4. The owner believes it is foolish to report financial information on a yearly basis. Instead, the
owner believes that financial information should be disclosed only when significant new
information is available related to the company's operations.

FULL DISCLOSURE PRINCIPLE

- The owner ignore the relevant information which it the owner only welcome and only
notice significant information which should not be because it should disclose all
necessary information in its financial statements.

5. The accountant of Z enterprise included sales of the subsequent period as sales of the
current period.

ACCRUAL BASIS
- The accountant should include the income that has not yet received and also the
accrued expense.

6. The owner of the business purchased a new home computer for personal use using the
company money, charging miscellaneous expense.

ACCOUNTING ENTITY CONCEPT

- The owner of the business uses the company’s money and charging miscellaneous
expenses for personal use which should be for the company usage only. The person who
is in charge of financial should check it and to talk to the owner that it shouldn’t be used
for personal stuff.

7. Inventories costing P100,000 is reported at its current market value of P140,000.

MONETARY UNIT
-It doesn’t meet the assumption of the accountants in peso stability that it doesn’t retain
its purchasing power because of the replacement cost which if you compare the market
value is higher than the cost of the inventory which it should reduce interest rates.

8. Land owned by the company was recorded as resources even if the said land has been
covered by volcanic mudflow and cannot be used anymore.

COST-BENEFIT
-It should be analyze economically as it was covered by volcanic mudflow that the land
covered cannot be used anymore that it should be cost-effective of an operation.

9. After a decision for expansion was made, the financial statements of Z Enterprise were
prepared.

MATCHING CONCEPT
-This is an association of cause and effect and matching principle but the financial
statement were already prepared just after the decision for expansion was made which in
matching principle it should be matched over the course to balance the cost.

10. All resources were initially recorded at their acquisition cost.

GOING CONCERN (HISTORICAL COST CONCEPT)

-It doesn’t violate any accounting concepts but it falls under Going Concern.