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E2-6B (Assumptions, Principles, and Constraint) Presented below are the assumptions, principles, and constraints used in this chapter.
1. Economic entity assumption 6. Measurement principle (fair value)
2. Going concern assumption 7. Expense recognition principle
3. Monetary unit assumption 8. Full disclosure principle
4. Periodicity assumption 9. Cost – constraint
5. Measurement principle (historical cost)
Identify by number the accounting assumption, principle, or constraint that describes each situation below. Do not use a number more than once.
(a) Permits the use of market value valuation in certain specific situations.
(b) Rationale why plant assets are not reported at liquidation value. (Do not use measurement principle.)
(c) Allocates expenses to revenues in the proper period.
(d) Indicates that personal and business record keeping should be separately maintained.
(e) Ensures that all relevant financial information is reported.
(f) Indicates that market value changes subsequent to purchase are not recorded in the accounts. (Do not use measurement principle.)
(g) Separates financial information into time periods for reporting purposes.
(h) Assumes that the dollar is the “measuring stick” used to report on financial performance.