Reference no: EM132594839

Question 1: For each of the following scenarios, explain the accounting principle or concept that would apply in order to rectify the situation and provide the necessary advise/explanation to the management in each case.

(a) The management of ABC Ltd is concerned with its accounts receivable status.

Over the past year it has had to write off four percent (4%) of its account receivable as bad. The annual audit later revealed that there was no provision made in the books to account for bad debts.

(b) Jerry Bennett has been the Accountant of Trying Times Ltd for the last three (3) years.

In the recording of depreciation, he has used a different method every year to account for depreciation of the company's assets. He explains that each time it makes the profit situation of the company looks improved.

(c) In preparing the final accounts and balance sheet of Tamar's Ltd, $200,000 paid for stocks to be received in the next accounting period was recorded as part of the purchases figure for the current period.

(d) Island Improvements Ltd. has had serious challenges in meeting its reporting deadlines at the end of financial periods. The accounts department was managed by one David Thinker, who has CXC experience in accounting. The management team has employed Hyacinth Jones who has over ten years experience in accounting at the managerial level.

(e) Terrilee Wilks is a shareholder in PXQ Ltd. She prides herself in using information from financial statements to assist in her investing decisions. However, she is of the opinion that the information presented to her by PXQ Ltd in its financial statements is not assisting adequately in helping her to make the right investing decisions.