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Presented below are the basic assumptions and principles underlying financial statements. a. Historical cost principle d. Going concern assumption b. Economic entity assumption e. Monetary unit assumption c. Full disclosure principle f. Periodicity assumption Identify the basic assumption or principle that is described below. 1. The economic life of a business can be divided into artificial time periods. select a letter 2. The business will continue in operation long enough to carry out its existing objectives. select a letter 3. Assets should be recorded at their cost. select a letter 4. Economic events can be identified with a particular unit of accountability. select a letter 5. Circumstances and events that make a difference to financial statement users should be disclosed. select a letter 6. Only transaction data that can be expressed in terms of money should be included in the accounting records. select a letter

User Chry Cheng
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Answer with Explanation:

Requirement 1. The economic life of a business can be divided into artificial time periods.

It is a periodicity assumption which says that the business time periods can be used to prepare financial statement as per the need of the management or other organization to make meaningful decisions.

Requirement 2. The business will continue in operation long enough to carry out its existing objectives.

It is going concern assumption which says that the company will continue its business for foreseeable future and thus the financial reporting exists. If this assumption wasn't present then the financial reporting would had only included "How to prepare financial statements on breakup basis?". Which is the situation when the company goes bankrupt and we have to prepare in breakup basis which says that the business will not continue for the foreseeable future.

Requirement 3. Assets should be recorded at their cost.

It is based on Historical cost principle which says that the contracts formed and the prices agreed would be incorporated in the financial reporting.

Requirement 4. Economic events can be identified with a particular unit of accountability.

It is Economic entity assumption which says that every stakeholder is an entity. For example, engineer, schools, leather company, Honda company, Gucci, Boss inc, etc are the examples of economic entity.

Requirement 5. Circumstances and events that make a difference to financial statement users should be disclosed.

It is talking about Disclosure principle which says that the circumstances and events that has potential to alter the decision making of the user of financial statement, must be disclosed in notes to financial statements.

Requirement 6. Only transaction data that can be expressed in terms of money should be included in the accounting records.

The statement is clear reflection of Monetary Unit assumption which says that the dealings of company that can be measured in financial terms can only be recorded in the books of accounts.

User Celavek
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