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The Mortgage (Loan) financing Mr. Curran's personal home should not be included as a non-current liability in Beach Break Pty Ltd's statement of financial position. This is because personal assets are not part of the company's assets or liabilities; they belong to the individual. The accrual basis of accounting requires transactions to be recorded based on the rights and obligations they create, not personal finances. Therefore, this is an error and does not align with the principle of relevance and faithful representation.
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The credit sale of $8,000 recognized in the financial year ending 30 June 2024 is correct according to the accrual basis of accounting. Revenue is recognized when earned, not when cash is received. Since the service was provided in May 2023, it is appropriate to include it in the 2023-2024 financial statements, reflecting the matching principle.
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The inventory purchased in US dollars should be converted into Australian dollars for reporting in Beach Break Pty Ltd's financial statements. This is in line with the principle of comparability and consistency, ensuring that financial information is presented in the same currency as the functional currency of the entity. Not converting the amount would lead to misrepresentation of the financial position.
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Recording inventory at $12,000 based on potential future selling price is not in accordance with the historical cost principle. Inventory should be valued at its acquisition cost or lower, reflecting the cost principle. The potential selling price is a non-observable market value and not relevant for current financial reporting purposes.
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Including only the amounts paid for gas and electricity in the financial year 2023-2024 is an error. According to the accrual basis, expenses should be recognized when incurred, not just when paid. A balance day adjustment is necessary to account for expenses that have been used but not yet paid. This aligns with the matching principle, ensuring expenses are matched with the related revenues in the same period.
In summary, items 1, 3, 4, and 5 contain errors in their accounting treatment, while item 2 follows the accrual basis correctly. The principles of relevance, faithful representation, comparability, consistency, cost principle, and matching principle are all relevant in assessing these items.
