The company, Discover, Embrace & Fulfill Scenic Tours offers road journeys to tourist sites in Melbourne and Victorian Provincial towns.
The company has a fleet of luxury bus coaches. The major shareholder and executive director Mr Edward Alexander has a passion for vintage (old classic) cars. On rare occasions, he collects important clients from their hotel to the departure lounge of his business. He uses his private 1958Rolls Royce, registration EA-001 motor vehicle.
Mr Edward Alexander believes he should list the11958 Rolls Royce, EA-001 as a non-current asset in the Statement of Financial Position of Discover, Embrace & Fulfill Scenic Tours.Is there a breach of an accounting principle and if so what accounting principle?
○ Yes, Going Concern Principle
O Yes, Accounting Entity Principle
O No, no breach of the Accounting Entity Principle
O No, no breach of the Going Concern Principle
O Yes, Historical Cost
O No, no breach of the Accounting Entity Principle
The Accounting Entity Principle states that the financial transactions and affairs of a business should be separate from its owners and other entities. In this case, Mr. Edward Alexander using his personal 1958 Rolls Royce for occasional business purposes does not necessarily require the company to list it as a non-current asset. The car is owned by Mr. Alexander personally, not by the company Discover, Embrace & Fulfill Scenic Tours. Therefore, there is no breach of the Accounting Entity Principle, as the company's financial statements should reflect only the assets owned by the company itself.
