General Guidance For Question 4 and 5

You seem to be having most problems with questions 4 and 5 which are worth over 60% of the available marks.

Question 4.

15 marks are available for this question and there are 4 depot manager requests. To ensure you pick up as many marks as possible you should answer this question in a structured manner.

e.g. Let us imagine that the depot manager told you that one item of B stock had been stolen just after the year end, so we should remove it from the year end accounting records. This is the format for the answer I would suggest that you use.

a. Depot Manager Proposal

Dr Closing Stock (P&L)* = 5500
Cr Stock (Balance Sheet) = 5500

(I'd probably give 1 mark for getting this right)

b. The depot manager proposal is not valid and no adjustment should be made in the year end financial statements.

(1/2 mark for saying that the proposal is not valid and 1/2 a mark for saying that no adjustment should be made as a result of this information)

c. The reason the proposal is not valid is that the event (the theft of the car) relates to the next accounting period. This is an application of the matching principle.

(1 mark for explaining the application of the matching principle to this accounting treatment).

At present, some people are missing marks that they could get.

Accounting Principles

Of course in the homework itself, I have provided you with further reading references.

Consistency

Barrow Ltd is one of many subsidiaries of a group holding company. In the question group accounting policies are mentioned in certain places. Group policies are an example of an application of the consistency principle as they try to ensure consistency both between dealerships and over time.

Matching

The matching principle is key when discussing transactions occurring close to the accounting year end. Please read page 138-9.

Conservatism

Page 280 gives a good example of the application of this principle. Stock is normally valued at purchase price. If the sale value of that stock falls below the purchase price you should reduce the value of the stock - that's called being prudent. If the opposite is true and the sales value of stock exceeds purchase price, you don't increase the value of stock. Therefore, the valuation of stock can be example of the application of the conservatism principle.

Question 5

4 marks are on offer so please follow a structure in your answers taking each of the 4 transactions individually. The question asks you to provide any reason why the depot manager would want to influence profits? All I can say is that the answer is elsewhere in the homework question.