Theory Base of Accounting Test

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Theory Base of Accounting Test - 24

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Question 1
1 / -0

Expenses/Income are recorded when it is earned irrespective of cash being received/paid as per _____________.

A
Cash basis

B
Accrual basis

C
Both of the above

D
None of the above

Solution

Under accrual basis of accounting, expenses are matched with the related revenues and/ or are reported when the expense occurs, not when the cash is paid. The result of accrual accounting is an income statement that better measures the profitability of a company during a specific time period.
Question 2
1 / -0

Accounts must be honestly prepared & they must disclose all material information is know as ____________.

A
Disclosure Concepts

B
Entity concept

C
Cost concept

D
Dual aspect concept

Solution

The principle of full disclosure requires that all material and relevant facts concerning financial performance of an enterprise must be fully and completely disclosed in the financial statements and their accompanying footnotes.
This is to enable the users to make correct assessment about the profitability and financial soundness of the enterprise and help them to take informed decisions.
Question 3
1 / -0

Which of the following is an example of 'REVENUE' for the purpose of AS-9?

A
Appreciation in the value of a fixed asset.

B
Gain resulting from changes in foreign exchange rates.

C
Royalties receivable.

D
Realized gain resulting from the discharge of an obligation at less than its carrying amount.

Solution

AS-9 deals with the bases for recognition of revenue in the statement of profit and loss of an enterprise. The Standard is concerned with the recognition of revenue arising in the course of the ordinary activities of the enterprise from:
–the sale of goods,
–the rendering of services, and
–the use by others of enterprise resources yielding interest, royalties and dividends.
Revenue is the gross inflow of cash, receivables or other consideration arising in the course of the ordinary activities of an enterprise from the sale of goods, from the rendering of services, and from the use by others of enterprise resources yielding interest, royalties and dividends.
Question 4
1 / -0

Under which accounting concept owner & firm are to be treated as two separate entities _______________.

A
Going Concern

B
Dual Aspect

C
Business Entity

D
Cost Concept

Solution

The concept of business entity assumes that business has a distinct and separate entity from its owners. It means that for the purposes of accounting, the business and its owners are to be treated as two separate entities. Keeping this in view, when a person brings in some money as capital into his business, in accounting records, it is treated as liability of the business to the owner.
Here, one separate entity (owner) is assumed to be giving money to another distinct entity (business unit).
Similarly, when the owner withdraws any money from the business for his personal expenses (drawings), it is treated as reduction of the owner’s capital and consequently a reduction in the liabilities of the business.
Question 5
1 / -0

Valuation of inventory is dealt with in ___________.

A
Accounting Standard-2

B
Accounting Standard-5

C
Accounting Standard-6

D
Accounting Standard-9

Solution

As per AS-2, Valuation of inventories 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 6
1 / -0

Concept which provide a line between present & future is known as __________.

A
Entity concept

B
Cost concept

C
Going concern

D
Accrual Concept

Solution

Going concern is a basic underlying assumption in accounting. This concept is the line between present and future. The assumption is that a company or other entity will be able to continue operating for a period of time that is sufficient to carry out its commitments, obligations, objectives, and so on.
Question 7
1 / -0

Accounting records transactions in terms of____________.

A
Commodity units.

B
Monetary units.

C
Production units.

D
None of these.

Solution

Accounting records transactions in terms of monetary units. As per Money measurement concept, only those transactions or events which can be converted in monetary terms are to be recorded. Hence, an event like efficiency of the manager cannot be recorded in the books of accounts.
Question 8
1 / -0

According to Accounting Standard-2, inventory is to be valued at __________.

A
Actual cost or sales value, which ever is less.

B
Historical cost.

C
Net realizable value.

D
Historical cost or net realizable value, which ever is less.

Solution

As per AS-2, Valuation of inventories 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

Double entry system is more accurate because__________.

A
Mis-appropriations are minimised

B
Arithmetic inaccuracies in records can be checked

C
Possibilities of frauds is reduced

D
All of the above
Solution
The accounting system is a system of double entry , which means that every business transaction that is to be recorded or have been recorded, always have dual impact. This system is more accurate because of the following reasons:
Mis-appropriation are minimized: The record of every transaction is first classified into assets, liabilities, expenses, revenue, capital and then these are recorded accordingly so if there will be any misappropriations that can be checked.
Arithmetic inaccuracies in records can be checked: Double-entry system of book-keeping is based on the dual entry principle which means that for every debit there is a equal and corresponding credit amount. Such a method of debit and credit helps in ensuring the arithmetical accuracy of the recordings of the transactions.
Possibilities of frauds is reduced: Accounting records helps the organizations to detect the frauds and errors that have taken place in business and take steps to prevent their recurrence i.e occurring again. Under this system mistakes and deflections can be detected - this exerts a moral pressure on the accountant and his staff.
Question 10
1 / -0

Contingent liability is shown due to________________.

A
Convention of full disclosure

B
Convention of conservatism

C
Convention of materiality

D
Dual aspect concept

Solution

Contingent liability is shown due to the convention of full disclosure. The convention of full disclosure requires that all material facts should be disclosed in the financial statements.
A contingent liability is a liability which may or may not arise in the near future hence, its necessary for the users of the financial statements to know about any such liability which might arise in the future.

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Re-Attempt Weekly Quiz Competition

Theory Base of Accounting Test - 24

Result

Theory Base of Accounting Test - 24

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Rank

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SHARING IS CARING

Question 1

Cash basis

Accrual basis

Both of the above

None of the above

Solution

Question 2

Disclosure Concepts

Entity concept

Cost concept

Dual aspect concept

Solution

Question 3

Appreciation in the value of a fixed asset.

Gain resulting from changes in foreign exchange rates.

Royalties receivable.

Realized gain resulting from the discharge of an obligation at less than its carrying amount.

Solution

Question 4

Going Concern

Dual Aspect

Business Entity

Cost Concept

Solution

Question 5

Accounting Standard-2

Accounting Standard-5

Accounting Standard-6

Accounting Standard-9

Solution

Question 6

Entity concept

Cost concept

Going concern

Accrual Concept

Solution

Question 7

Commodity units.

Monetary units.

Production units.

None of these.

Solution

Question 8

Actual cost or sales value, which ever is less.

Historical cost.

Net realizable value.

Historical cost or net realizable value, which ever is less.

Solution

Question 9

Mis-appropriations are minimised

Arithmetic inaccuracies in records can be checked

Possibilities of frauds is reduced

All of the above

Solution

Question 10

Convention of full disclosure

Convention of conservatism

Convention of materiality

Dual aspect concept

Solution

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