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Cambridge IGCSE and O Level Accounting

Worksheet 3.3: Introducing accounting


principles and policies and valuation of
inventory
1 Complete the table by inserting either the definition or the name of the
accounting principle to match the corresponding entry in the table.

Name of accounting Definition


principle
1 Revenue is regarded as being earned when the
legal title to goods passes from the seller to the
buyer
2 Matching principle
3 Once a method has been selected from those
available, that same method must be used from
one accounting period
4 Going concern principle
5 Profits and assets should not be overstated and
1
liabilities and losses must not be understated
6 Business entity
principle
7 Every transaction has two aspects – a giving and a
receiving
8 Historic cost principle
9 Individual items which will not significantly affect
either the profit or the assets do not need to be
recorded separately
10 Money measurement
principle

2 Complete the following sentences.

To be reliable, information in accounting statements must be able to


be .............................. verified and it must also be free from ............. and free
from significant .................

The information contained in financial statements can be useful if it can


be compared with similar information about the same .......................

© Cambridge University Press 2018


Cambridge IGCSE and O Level Accounting

for a different accounting ................ or with information about


other ...............................

It is important that financial statements can be ................................ by the


users of those statements.

If the information contained in financial statements is ...................... it can


be used to confirm prior expectations about past events and help form
expectations about the future.

3 Complete the table by naming the accounting principle that should have
been applied in each of the following situations.

Accounting principle not


applied
Cash drawings were debited to the wages account
An order received from a credit customer for
delivery next month was recorded as credit sales
The value of the assets of a business was
increased when the manger won a national award 2

for customer care


Stationery used during the year was not included
in the income statement
The business is expected to continue for several
years but reduced office furniture to the expected
sale price
A number of items of inventory were damaged but
no adjustment was made to the value of inventory

4 a State the meaning of the term ‘net realisable value’.

.........................................................................................................................................

.........................................................................................................................................

b State the effect on the profit for the year and the current assets of
undervaluing closing inventory.

.........................................................................................................................................

.........................................................................................................................................
© Cambridge University Press 2018
Cambridge IGCSE and O Level Accounting

5 Narenda sells two different types of goods (A and B). He provided the
following information at the end of his financial year on 31 March 20–7:

Type A Type B
Units 320 410
Cost per unit $0.50 $1.25
Carriage per unit (not $0.30
included in cost)
Net realisable value per unit $0.55 $1.60

30 units of Type A were damaged and would cost $0.15 per unit to bring
into a saleable condition. It is expected that these goods could then be
sold for $0.20.

Calculate the total value of Narenda’s inventory at 31 March 20–7.

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© Cambridge University Press 2018

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