MINICASE 1

A231
Deadline: 28 October 2023.

QUESTION 1
A. Briefly explain any FIVE (5) basic assumptions that underlie the Framework for
Financial Reporting.

B. Mr. Razak is the chief financial officer (CFO) at Smooth Network Bhd. Due to stiff
competition in business, Mr. Razak decided to manipulate the accounting figures in the
company’s financial statement. The reason for so doing is to show the higher amount of
profit earned for the year.
Briefly explain which qualitative characteristic of the Framework for Financial Reporting
that Mr. Razak violated.

QUESTION 2
Below are several accounting procedures and practices in Gemilang Bhd.
1. The company switched its depreciation method from accelerated depreciation to
straight-line depreciation because the company’s income is low this year.
2. The Chairman of Gemilang Bhd did not agree to report financial information on a
yearly basis. Instead, the Chairman suggested that financial information should be
disclosed only when significant new information is available related to the company’s
operations.
3. Gemilang Bhd recognized a large loss and related liability this year because of the
possibility that it may lose a pending patent infringement lawsuit. The possibility of
loss is considered remote by its attorneys.
4. An officer of Gemilang Bhd purchased a new home computer for personal use with
company money, and recorded the purchase as miscellaneous expenses.

REQUIRED:
For each of the above items, identify ONE (1) violation from either assumption, principle,
OR qualitative characteristic. Justify your answer.

QUESTION 3
a. Based on the revised Conceptual Framework for Financial Reporting, define the
following terms:
i.Relevance
ii.Faithful representation

b. List TWO (2) accounting assumptions that underlie the Conceptual Accounting
Framework and briefly explain the assumptions.

c. Why is it important for a company to maintain the same accounting methods and
practices from period to period?

d. Wasana Maju Bhd (WMB) plans to expand its businesses that will require a large bank
loan. WMB has completed financial statements for each year of operations and will
present them to the bank. Because some periods were more profitable than others,
 WMB attempts to streamline earnings by switching depreciation and inventory
valuation methods. This will create the appearance that the company earnings are very
consistent over the years.
Discuss the merits of WMB financial statements with regard to this streamlining
decision.

e. State and explain/discuss the concept of (i) revenue recognition and (ii) expense
recognition.