Case Scenario Summary Relevant Concepts Answer to question Accounting Treatment Accounting Equation
Assets Liability Equity
Mr. Smith pays both business & residence Separate Entity Yes Rs. 4000 will be considered as the expenses of business Only Rs.3,000 (business) is expense;
1 (-)4000 (Cash) (-)4000 (Cash)
telephone bills from business cash Rs.1,000 (personal) is drawings
Mr. Ravi purchases 4 cars @ 7,00,000 each Historical Cost Rs.28,00,000 should be recorded as value of car Record at purchase price: Rs.28,00,000 (-) 28,00,000 (Cash)
2 The price drops later. As the price dropped later has no impact (+) 2560000 (Current (-) 240000
on accounts. Asset)
Mr. Ravi sells a car; should others be revalued? Going Concern, No. He shouldn’t revalue all other cars. This will not justify, Situation 1: One car sold and cash received
Historical Cost unless they are revaluated based on specific car conditions in business. (+)580000 (+)580000
at the time of sell
3
Yes, due to financial crises, all the cars can be revaluated as Situation 2: No cars sold
the business might close down shortly and Ravi would NA NA
require to dissolve all his assets
Jonathan wants to record accounting after Going Concern Jonathan should do proper recording of Assests, Liabilities, Start accounting enties as and when
project ends equity, expenses and gains. Avoiding it not a good idea and transactions occur, not after completion of
4 NA NA NA
is never advisable these transaction or completion of task
Electromax: installation done before year-end Revenue Recognition, Recognize sale in 2014–15 Amount receivable entries to be made in
5 Matching (installation done on 30.03.15) accounts for 2014-15 (Account receivables)
Austrade sells goods before year-end, pays Accrual, Matching In FY 2014-15, Sales of Rs.28,000 made and Purchases of Assets increases by Rs.28,000 (Cash),
(+) 28000 (cash)
6 supplier after Rs.25,000 (amount will be made payable in April'15) done. Account payable is Rs.25,000Capital and (+)25000 (+)3000
Increase in Equity by Rs.3000
Wantmart telecom & insurance expenses Accrual, Matching There will be 3 entries in the book Record Rs.1.20 Cr (telecom), 7.5 lakh (-) 7.5 lakh
7 (+)1.2 cr. (+) 7.5 Lakh
(insurance) (-)1.2 cr.
Suave Tech capitalizes development team salary Matching The company can do this and this canbe considered as right Rs. 792 cr. Will be considered as Assest and
practise. will also be added in equity. However Rs. (+)792 cr.
8 (+)792 cr.
584 cr. Will be accounted as decrease in (-) 584 cr. (Cash)
assest (Cash)
Zenstar wants to book gain/loss on raw Conservative, No, I will not support the decision, as only the loss should be We will book loss on Rs. 2 Cr. Of Aluminum,
materials Historical Cost booked, and the profit should not be recognized until and no entry to be made for gain on
9 realized. Copper (-)2 cr. (-) 2 cr.
So we will do the entry for loss of Rs. 2 Cr. for Aluminium
only and no entry for copper
Altius minor expenses disclosure Materiality, Full No, Altius Ltd. cannot ignore the disclosure of relatively Aggregate minor expenses, but do not (-) 46 cr. (-) 46 cr.
Disclosure minor expenses as these expenses are required to be ignore (-) 10 Cr. (-) 10 Cr.
recorded to understand the financial position of the (-) 16 Cr. (-) 16 Cr.
10 company. However the minor expenses can be clubbed such (-) 1 Cr. (-) 1 Cr.
as Legal Charges, Corporate Office Expenses can be clubbed (-) 1.2 cr. (-) 1.2 cr.
in Adminstrative expenses etc. (-) .20 cr. (-) .20 cr.
(-) 6 Cr. (-) 6 Cr.
