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Theory Base of Accounting Test - 25

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Theory Base of Accounting Test - 25
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Weekly Quiz Competition
  • Question 1
    1 / -0
    Depreciation was not recorded because to do so wold result in a net loss for the period. Indicate the accounting principle that is violated___________.
    Solution
    If Depreciation was not recorded because to do so wold result in a net loss for the period. The accounting principle that is violated is consistency principle. According to consistency principle, the company should use same accounting treatment for similar events or transactions. It facilitates better comparison and understanding.
  • Question 2
    1 / -0
    According to the money measurement concept, the following will be recorded in the books of accounts________________.
    Solution
    The concept of money measurement states that only those transactions and happenings in an organisation which can be expressed in terms of money such as sale of goods or payment of expenses or receipt of income, etc. are to be recorded in the book of accounts. 
    All such transactions or happenings which can not be expressed in monetary terms, for example, the appointment of a manager, do not find a place in the accounting records of a firm.
    Hence, in the above case, only commission payable to a salesman will be recorded in the books of accounts.
  • Question 3
    1 / -0
    According to which of the following concepts, while determining the net income from business, all costs which are applicable to revenue of the period should be charged against that revenue____________.
    Solution
    According to matching concepts, while determining the net income from business, all costs which are applicable to revenue of the period should be charged against that revenue.
    In accrual accounting, matching concept states that expenses should be recorded during the period in which they are incurred, regardless of when cash transfer incurs.
  • Question 4
    1 / -0
    LIFO inventory method was used in year I, FIFO in year II and weighed average in year III. Which accounting principle is violated?
    Solution
    LIFO inventory method was used in year I, FIFO in year II and weighed average in year III. The accounting principle violated is consistency principle.
    According to consistency principle, the company should use same accounting treatment for similar events or transactions. It facilitates better comparison and understanding.
  • Question 5
    1 / -0
    The owner of a company included his personal travel expenses in the company's income statements. Indicate the accounting principle that is violated.
    Solution
    The business entity concept states that the transactions associated with a business must be separately recorded from those of its owners or other businesses. Doing so requires the use of separate accounting records for the organisation that completely exclude the assets and liabilities of any other entity or the owner. Without this concept, the records of multiple entities would be intermingled, making it quite difficult to discern the financial or taxable results of single business.
  • Question 6
    1 / -0
    An accounting convention which provides that when doubt, choose the solution least likely to overstate assets and income is_________.
    Solution

    The concept of conservatism (also called ‘prudence’) provides guidance for recording transactions in the books of accounts and is based on the policy of playing safe. 

    The concept states that a conscious approach should be adopted in ascertaining income so that profits of the enterprise are not overstated.  

    The concept of conservatism 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 in the books of accounts.

  • Question 7
    1 / -0
    A business transaction affects ______________.
    Solution
    All transactions are recorded in the books of accounts on the basis of the dual-aspect concept. Thus, every transaction affects at least two accounts in opposite directions. There can be no transactions in a business that affect only one account or have only one aspect because the double-entry system of accounting is followed while recording the transactions in the books of accounts. For example, if furniture is purchased for cash, the transaction will affect two accounts, i.e. Furniture A/c, as furniture is increased and Cash A/c as cash is decreased.
  • Question 8
    1 / -0
    Allocation of depreciable amount of fixed assets to future periods is in accordance with  ____________.
    Solution
    Accounting Standard-6 issued by The Institute of Chartered Accountants of India (ICAI), defines depreciation as “a measure of the wearing out, consumption or other loss of value of depreciable asset arising from use, effluxion of time or obsolescence through technology and market change. 
    Depreciation is allocated to charge a fair proportion of depreciable amount in each accounting period during the expected useful life of the asset. Depreciation includes amortization of assets whose useful life is pre-determined”.
  • Question 9
    1 / -0
    Land was reported at its selling price which is substantially higher than its cost. The increase in value was included in the income statement. Which accounting principle is violated?
    Solution
    If Land was reported at its selling price which is substantially higher than its cost. The increase in value was included in the income statement. The principle which is violated is cost principle. 
    According to cost principle, the amount of gross fixed assets should appear at the historical cost which the cost of acquiring the asset. 
  • Question 10
    1 / -0
    Window dressing is prohibited due to ____________.
    Solution
    As per the convention of disclosure, accountant should show the correct information in the book of account. Same information should be disclosed by him. In window dressing, accountant or businessman changes the information in accounting records for getting benefits from outside parties. So, as per convention of disclosure, it should be prohibited.
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