Questions: Identify the accounting concept, assumption, or principle that best applies to each of the following situations: View the situations. a. Inflation has been about 3.5% for some time. Village Realtors is considering measuring its land values in inflation-adjusted amounts. Stable-monetary-unit assumption b. You get an especially good buy on a laptop, paying only 300 when it normally costs 800. What is your accounting value for this laptop? Entity assumption Going-concern assumption Historical cost principle Reliability principle Stable-monetary-unit assumption

Let's analyze each situation and identify the appropriate accounting concept, assumption, or principle.

Inflation has been about 3.5% for some time. Village Realtors is considering measuring its land values in inflation-adjusted amounts.

The answer is: Stable-monetary-unit assumption

Explanation:

• Stable-monetary-unit assumption: This assumption states that the value of the monetary unit (e.g., the dollar) is stable over time, and inflation or deflation is not considered in the financial statements. Therefore, even if inflation is present, the financial statements are prepared without adjusting for inflation.
• Other options:
  • Entity assumption: This assumption states that the business is separate from its owners and other entities. It is not relevant to the issue of inflation.
  • Going-concern assumption: This assumption states that a business will continue to operate indefinitely. It does not address inflation adjustments.
  • Historical cost principle: This principle states that assets should be recorded at their original cost. While it is relevant to asset valuation, it does not specifically address inflation adjustments.
  • Reliability principle: This principle emphasizes that financial information should be verifiable and dependable. It does not address inflation adjustments.

You get an especially good buy on a laptop, paying only $300 when it normally costs $800. What is your accounting value for this laptop?

The answer is: Historical cost principle

Explanation:

• Historical cost principle: This principle states that assets should be recorded at their original cost, which is the amount paid to acquire them. Therefore, the accounting value for the laptop would be $300, the amount you actually paid.
• Other options:
  • Entity assumption: This assumption states that the business is separate from its owners and other entities. It is not relevant to the valuation of the laptop.
  • Going-concern assumption: This assumption states that a business will continue to operate indefinitely. It does not address the valuation of individual assets.
  • Reliability principle: This principle emphasizes that financial information should be verifiable and dependable. While it supports the use of historical cost for reliability, it is not the primary principle for asset valuation.
  • Stable-monetary-unit assumption: This assumption states that the value of the monetary unit is stable over time. It is not directly relevant to the valuation of the laptop.

In summary:

• For situation a, the appropriate concept is the Stable-monetary-unit assumption.
• For situation b, the appropriate concept is the Historical cost principle.