Theory Base of Accounting Test

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Theory Base of Accounting Test - 22

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Question 1
1 / -0

The term 'Material' is _____________.

A
Objective

B
Subjective

C
Psychological

D
None of these

Solution

Materiality being the fundamental concept of accounting states that all important matters of the firm must be disclosed. Items which are important for the firm are called material items.
Hence, materiality means relative importance. It depends on the three aspects viz. informational, amounts and procedures. Because of all these aspects materiality is subjective.
Question 2
1 / -0

In financial statements, adequate disclosure is ensured by companies as per the requirements of.
I. Management policies
II. Materiality concept
III. Disclosure concept
IV. Relevant provision of the Companies Act
V. Internal control
Of these statements.

A
I and III are correct

B
I, II and III are correct

C
II, III and V are correct

D
II, III and IV are correct

Solution

Materiality Principle or materiality concept is the accounting principle that concern about the relevance of information, and the size and nature of transactions that report in the financial statements.
The full disclosure concept is an accounting principle that requires management to report all relevant information about the company's operations to creditors and investors in the financial statements and footnotes.
This clause corresponds to section 173 of the Companies Act, 1956 and seeks to provide that a statement setting out all the material facts concerning each item of special business to be transacted at a general meeting, shall be annexed to the notice calling such meeting.
Question 3
1 / -0

Conservatism is a ___________.

A
Policy of caution or playing safe

B
Rules and Practices

C
Customs or traditions

D
Cost concept

Solution

The concept of conservatism provides guidance for recording transactions in the book of accounts and is based on the policy of playing safe.
The concept states that a conscious approach should be adopted in ascertaining are more than the actual, it may lead to distribution of dividend out of capital, which is not fair as it will lead to reduction in the capital of the enterprise.
It requires that profits should not to be recorded until realised but all losses, even those which may have a remote possibility are to be provided for in the books of accounts.
Question 4
1 / -0

Accounting standard (AS) -2 provides that inventories should be valued at __________.

A
Lower of historical cost and net realizable value

B
Lower of historical cost and market value

C
Only estimated selling price

D
All of these

Solution

Net realizable value is the estimated selling price in the ordinary course of business less the estimates costs.
The cost of inventories should comprise all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition.
As per AS-2, "Inventories should be valued at the lower of cost and net realizable value".
Question 5
1 / -0

The proprietor of a business is treated as a creditor for capital introduced by him according to __________.

A
Money Measurement Concept

B
Cost Concept

C
Business Entity Concept

D
Dual Aspect Concept

Solution

According to Business entity concept, a business is treated as a separate entity and is distinct from its owner(s).
Question 6
1 / -0

Consistency with reference to application of accounting principles refer to the fact that________________________________.

A
Companies in the same industry use identical accounting procedures and methods.

B
Income and assets have not been over stated.

C
Accounting methods and procedures used have been consistently applied from year to year.

D
All the methods and procedures have been utilized.

Solution

The accounting information provided by the financial statements would be useful in drawing conclusions regarding the working of an enterprise, only when it allows comparisons over a period of time, as well as, with the working of other enterprises.
Thus, both inter-firm and inter-period comparisons are required to be made. This can be possible only when accounting policies and practices followed by enterprises are uniform and are consistent over the period of time.
Question 7
1 / -0

"Holding gains in relation to stocks should not be used for payment of dividend." which one of the following accounting principles is involved in this?

A
Consistency

B
Cost

C
Materiality

D
Realisation

Solution

Dividends can only be paid out of the profits when it has been realized in cash."
The realization concept states that any change in value of an asset shall to be recorded only when the business realizes it.
The change is not to be recorded unless there is certainty that such change will materialize.
Therefore, holding gains in relation to stocks should not be used for payment of dividends because these have not been realized in cash.
Question 8
1 / -0

Market price or actual cost, whichever is less, is the generally accepted accounting principle for valuation of___________.

A
Stock-in-trade

B
Fixed assets

C
Current assets

D
All of these

Solution

As per AS-2, Valuation of inventories (stock-in-trade) prescribed the accounting treatment for inventories and sets the guidance to determine the value at which the inventories are carried in the financial statement.

Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs.

The cost of inventories should comprise all costs of purchase, Costs of conversion and other costs incurred in bringing the inventories to their present location and condition.

As per AS-2, "Inventories should be valued at the lower of cost and net realisable value."
Question 9
1 / -0

"Make sufficient provisions for future losses, but do not anticipate future profits." This statement is in accordance to the concept of __________.

A
Matching

B
Objectivity

C
Conservatism

D
Materiality

Solution

The conservatism principle is the general concept of recognising expenses and liabilities as soon as possible when there is uncertainty about the outcome, but to only recognise revenues and assets when they are assured of being received. Under the conservatism principle, if there is uncertainty about incurring a loss, you should tend towards recording the loss. conversely, if there is uncertainty about recording a gain, you should not record the gain.
Question 10
1 / -0

The test of materiality can be applied to three aspects:
Which is incorrect?

A
Dimensional

B
Informational

C
Amounts

D
Procedures

Solution

Materiality being the fundamental concept of accounting states that all important matters of the firm must be disclosed. Items which are important for the firm are called material items. Hence, materiality means relative importance. It depends on the three aspects viz. informational, amounts and procedures. These three aspects are very important for the firm.

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Theory Base of Accounting Test - 22

Result

Theory Base of Accounting Test - 22

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SHARING IS CARING

Question 1

Objective

Subjective

Psychological

None of these

Solution

Question 2

I and III are correct

I, II and III are correct

II, III and V are correct

II, III and IV are correct

Solution

Question 3

Policy of caution or playing safe

Rules and Practices

Customs or traditions

Cost concept

Solution

Question 4

Lower of historical cost and net realizable value

Lower of historical cost and market value

Only estimated selling price

All of these

Solution

Question 5

Money Measurement Concept

Cost Concept

Business Entity Concept

Dual Aspect Concept

Solution

Question 6

Companies in the same industry use identical accounting procedures and methods.

Income and assets have not been over stated.

Accounting methods and procedures used have been consistently applied from year to year.

All the methods and procedures have been utilized.

Solution

Question 7

Consistency

Cost

Materiality

Realisation

Solution

Question 8

Stock-in-trade

Fixed assets

Current assets

All of these

Solution

Question 9

Matching

Objectivity

Conservatism

Materiality

Solution

Question 10

Dimensional

Informational

Amounts

Procedures

Solution

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