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Land was reported at its selling price which is substantially higher than its cost. The increase in value was included in the income statement, which accounting principle is violated ?
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Land was reported at its selling price which is substantially higher t...
Violation of Accounting Principle for Reporting Land at Selling Price
The cost principle is one of the fundamental accounting principles that states that assets should be recorded at their original cost. This principle helps in ensuring that the financial statements are reliable and accurate, as it prevents the overstatement of assets.
The violation of the cost principle occurs when the value of an asset is reported at a price that is substantially higher than its original cost. In this case, the increase in the value of land was included in the income statement, which goes against the cost principle.
The inclusion of the increase in the value of land in the income statement can lead to an overstatement of the company's profits. This can mislead investors and other stakeholders, as they may think that the company is performing better than it actually is.
In conclusion, reporting land at its selling price, which is substantially higher than its cost, violates the cost principle. This can have a significant impact on the company's financial statements, leading to an overstatement of profits and misleading stakeholders. It is essential for companies to adhere to the fundamental accounting principles in order to ensure accurate and reliable financial reporting.
Cost Principle
The cost principle is one of the fundamental accounting principles that states that assets should be recorded at their original cost. This principle helps in ensuring that the financial statements are reliable and accurate, as it prevents the overstatement of assets.
Violation of Cost Principle
The violation of the cost principle occurs when the value of an asset is reported at a price that is substantially higher than its original cost. In this case, the increase in the value of land was included in the income statement, which goes against the cost principle.
Impact on Financial Statements
The inclusion of the increase in the value of land in the income statement can lead to an overstatement of the company's profits. This can mislead investors and other stakeholders, as they may think that the company is performing better than it actually is.
Conclusion
In conclusion, reporting land at its selling price, which is substantially higher than its cost, violates the cost principle. This can have a significant impact on the company's financial statements, leading to an overstatement of profits and misleading stakeholders. It is essential for companies to adhere to the fundamental accounting principles in order to ensure accurate and reliable financial reporting.
Community Answer
Land was reported at its selling price which is substantially higher t...
Historical cost concept of is being violated here. The pricinple says that a concern should record its assets at its cost price. But here the land is being recorded at its selling price.
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Land was reported at its selling price which is substantially higher than its cost. The increase in value was included in the income statement, which accounting principle is violated ?
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Land was reported at its selling price which is substantially higher than its cost. The increase in value was included in the income statement, which accounting principle is violated ? for CA Foundation 2024 is part of CA Foundation preparation. The Question and answers have been prepared according to the CA Foundation exam syllabus. Information about Land was reported at its selling price which is substantially higher than its cost. The increase in value was included in the income statement, which accounting principle is violated ? covers all topics & solutions for CA Foundation 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Land was reported at its selling price which is substantially higher than its cost. The increase in value was included in the income statement, which accounting principle is violated ?.
Land was reported at its selling price which is substantially higher than its cost. The increase in value was included in the income statement, which accounting principle is violated ? for CA Foundation 2024 is part of CA Foundation preparation. The Question and answers have been prepared according to the CA Foundation exam syllabus. Information about Land was reported at its selling price which is substantially higher than its cost. The increase in value was included in the income statement, which accounting principle is violated ? covers all topics & solutions for CA Foundation 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Land was reported at its selling price which is substantially higher than its cost. The increase in value was included in the income statement, which accounting principle is violated ?.
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