Each of the Situations in a Through C Below Applies

question 5

Essay

Each of the situations in A through C below applies to one of the assumptions or principles included in the conceptual framework of accounting.Identify which assumption or principles applies and explain why that assumption or principle applies.
A) High Collectibles is a Canadian company that has divisions in several countries around the world. Each country has a currency different that the Canadian dollar. The company must include the financial data of its worldwide divisions in its financial statements.

B) Howell Trucking operates as a partnership. The partners are considering a change to the corporate form of business organization.

C) Holly Company is a local company. The owners have decided to expand into nearby cities. Expansion will require more capital, but management does not expect it will stay in business for more than one vear or so regardless of its expansion plans

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Definitions:

Contribution Margin Ratio

A financial metric showing the percentage of revenue that exceeds total variable costs, indicating how much revenue contributes to fixed costs and profit.

Break-even Sales

The amount of revenue needed to cover all fixed and variable costs, resulting in no profit or loss.

Variable Cost

Costs that change in proportion to the level of production or sales activity, such as raw materials and direct labor costs.

Fixed Costs

Fixed overheads that stay the same no matter how much is produced or sold, including rental fees or staff salaries.