Chapter 1 - Accounting Theory Task A Solutions

1. VCE ACCOUNTING
UNIT 3 – RECORDING AND REPORTING FOR A TRADING BUSINESS
CHAPTER 1 – THE NATURE OF ACCOUNTING
Page | 1
Chapter 1 – Task A
Question 1
With reference to an appropriate Qualitative Characteristic of Accounting, explain whether each of
these changes should be made.
Change #1
Qualitative characteristic 1 mark Comparability
Explanation
Define
1 mark
 The same consistent accounting methods must be used every reporting period so that
information can be compared over time.
Relate
1 mark
 In this case, the owner SHOULD NOT make the change to combine Assets into one group.
 This is because the firm will be unable to compare its Balance Sheet with previous periods
where Assets were listed separately.
1 + 2 = 3 marks
Change #2
Qualitative characteristic 1 mark Reliability
Explanation
Define
1 mark
 The information in accounting reports must be free of error, estimates and opinions by
ensuring all data is verified with source documents.
Relate
1 mark
 In this case, the owner SHOULD NOT make the change to prepare next year’s reports now.
 This is because the figures provided by the owner are estimates of what the owner thinks
will happen and these figures can’t be verified with a source document.
1 + 2 = 3 marks

2. VCE ACCOUNTING
UNIT 3 – RECORDING AND REPORTING FOR A TRADING BUSINESS
CHAPTER 1 – THE NATURE OF ACCOUNTING
Page | 2
Change #3
Qualitative characteristic 1 mark Understandability
Explanation
Define
1 mark
 The information in financial reports must be presented so that users can comprehend its
meaning easily.
Relate
1 mark
 In this case, the owner SHOULD make the change to prepare graphs of the key numbers in
the reports.
 This is because the presentation of information in a graph is more likely to be
comprehended by the user than a written number of statement.
1 + 2 = 3 marks
Change #4
Qualitative characteristic 1 mark Relevance
Explanation
Define
1 mark
 Only information which influences decision‐making should be included in financial reports.
Relate
1 mark
 In this case, the owner SHOULD NOT include her apartment as an Asset of the business
 This is because the owner and the business are separate entities and her personal
apartment is not relevant to the decision‐making of the business.

3. VCE ACCOUNTING
UNIT 3 – RECORDING AND REPORTING FOR A TRADING BUSINESS
CHAPTER 1 – THE NATURE OF ACCOUNTING
Page | 3
Change #5
Qualitative characteristic 1 mark Reliability
Explanation
Define
1 mark
 The information in the firm’s financial records must be free from error and be based on data that can
be verified with a source document.
Relate
1 mark
 In this case, the owner SHOULD NOT throw out all the old documents after three months.
 This is because in the future she may need to verify transactions from the past and she will
not have source documents to do this, making the firm’s records open to error.
Total /15 marks