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Historical Cost Concept or the Cost Principle

It means that assets are normally shown at cost price, and that this is the basis for valuation of the assets.

Accountants calculate the value of an asset by reference to the cost of acquisition, and not by reference to the value of the returns which are expected to be realized.

The historical cost convention holds that the value of assets shown on the balance sheet should be based on their acquisition cost (that is, historic cost).This method of measuring assets value takes preference over other methods based on some form of current value.

Money Measurement Concept (or Monetary Principle)

Accounting information has traditionally been concerned only with those facts covered by (a) and (b) which follow:

It can be measured in monetary units,and

Most people will agree to the monetary value of the transaction

(Frank Wood and Alan Sangster 2008)

Its role as a common denominator , by which the value of assets of different kinds could be compared ,encouraged the extension of trade.

(M W E Glautier and B Underdown 1997)

There have been occasional attempts to measure and report resources of a business that are normally excluced from the balance sheet so as to provide a more complete picture of its financial position.

(Eddie McLaney and Peter Atrill 2008)

The business Entity Concept(or Accounting Entity Assumption/ Concept)

The business entity concept implies that the affairs of a business are to be treated as being quite separate from the non-business activities of its owner(s).

No matter what activities te proprietor(s) get up to outside the business ,they are completely disregarded in the books kept by the business.

(Frank Wood and Alan Sangster 2008)

This principal remains enshrined in modern financial accounting ,and the owner is shown as entitled to both the ‘capital’ which s/he has invested in the business ,and also the profits which have been made during the year.

(M W E Glautier and B Underdown 1997)

The business entity concept must be distinguished from the legal position that may exist between business and their owners .For sole proprietorships and partnerships ,the law does not make any distinction between the business and its owner(s). For limited companies, on the other hand , there is a clear legal distinction between the business and its owners.

(Eddie McLaney and Peter Atrill 2008)

The time Interval Concept(or Accounting Entity Assumption/principle)

One of the underlying principles of accounting, the time interval concept, is that financial statements are prepared at regular intervals of one year.Companies which publish further financial statements between their annual ones describe the others as ‘interim statements’.

(Frank Wood and Alan Sangster 2008)

The custom of making periodic reports to the owner of a business dates from the time when wealth men employed servants to manage and oversee their affairs. Periodic accounting has its origin in the ideal of control, and company law sees the role of financial reports as being essentially the communication of information from the managers of the business, that is the directors ,to the owners of the business ,that is the shareholders.

(M W E Glautier and B Underdown 1997)

Generally, the life of a business is assumed to cover a long period of time and for accounting purposes it is divided into units of equal length.

(Andrew Leong Fook Chee and Wong Sei Van 2005)

Going Concern Assumption

It is assumed that the business will continue to operate for at least twelve months after the end of the reporting period.

(Frank Wood and Alan Sangster 2008)

The valuation of assets used in a business is based on the assumption that the business is a continuing one, not on the verge of cessation .This concept is important: many assets derive their value from their employment in the firm ,and should the firm cease to operate the value which could be obtained for these assets on a closing-down sale would be much less probably than their book value.

(M W E Glautier and B Underdown 1997)

The going concern holds that the financial statements should be prepared on he assumption that the business will continue operations for the foreseable future, unless this is known not to be true sheet.

(Eddie McLaney and Peter Atrill 2008)

Task 2

The Difinition and Explanation

Historical Cost Concept

The transaction recorded based on the cost price of inventory on the date purchased.The cost recorded is eternity although the value of the assets change.

Example, the vehicle that purchased by Salon Sally cost $80000 had recorded althought the value of vehicle in market decrease to $50000.

Money Measurement Concept

The money measurement must be use in the same currency. Example, Company ACE have to record the transaction in the same currency like RM into every account.

The Business Entity Concept

This concept means that there are separate entity between business and the owner. Example, the owner of D Enterprise invests $20000 to another C Enterprise business, so owner of D Enterprise cannot record the transaction in the account cause is not for business purposes .

The time Interval Concept

The transaction record and collect based on the unit of time. Example, the time period for Company T at every 6 months, after 6 months, Company T will collect all the accounting data to do a financial reports.

Going Concern Assumption

Business is predicted to be as usual in near future .Example, John invests another $20000 into his business so that the business could keep operate to the next year.

Task 3(i)

Assets

=

Owner’s

Liabilities + Equity

Cash

at Accounts

Bank + Receivable + Supplies + Land

=

Monica

Accounts Bass,

+

Payable Capital

Bal.

2250 1500 12000

8000 7750

a)

20000

20000

b)

700

700

c)

-8000

-8000

d)

1000

1000

e)

1000 -1000

f)

1000

1000

g)

2400

2400

h)

-1000

-1000

i)

150 -150

j)

-2000

-2000

14100 2900 850 12000

1000 28850

Total

29850

29850

Task 3 (ii)

The total ending balance of:-

Asset = 14100+2900+850+12000 = 29850

Liability =1000

Owner’s Equity = 28850

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