FINANCIAL ACCT.FUND.(LOOSELEAF)
7th Edition
ISBN: 9781260482867
Author: Wild
Publisher: MCG
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Question
Chapter 1, Problem 1MCQ
To determine
Accounting Principle : Accounting principle are the special guidelines that should be followed by the company for recording the financial transactions of the company.
Cost Principle: As per cost principle, a new asset purchased by a company it should be recorded at its actual cost instead of its current market value.
To identify: The correct option.
Answer:
Option c-$450,000' is correct.
Expert Solution & Answer
Explanation of Solution
Option c:
- As per GAAP guidelines the new asset purchased by a company will always recorded at its actual cost based on cost principle of GAAP.
- In the given case, a building is offered for sale at $500,000 but the current value of building is $ 400,000, the purchaser of building think the worth of building is of $475,000, but actually pay to supplier $450,000 so the correct option is c, $450,000
- So, the current market value does not matter for accounting purpose of a fixed asset.
Option a:
As buyer does not pay $50,000 for machinery, so it is incorrect option.
Option b.
Current value of machinery plays no role in accounting. Only actual value will be recorded in books of accounts, so option b $400,000 is incorrect.
Option d:
Accounting is not done as per the thinking of the buyer so, option d $475,000 is incorrect option.
Option e:
Accounting is not done as per the thinking of the seller, so option e $500,000 is incorrect option.
Conclusion
Thus, the correct option is c.
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Chapter 1 Solutions
FINANCIAL ACCT.FUND.(LOOSELEAF)
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