Theory Base of Accounting Test

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Theory Base of Accounting Test - 36

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Question 1
1 / -0

The basis of revenue recognition often used in hire-purchase transaction is____________.

A
Cash basis

B
Sales basis

C
Production basis

D
None of these

Solution

The basis of revenue recognition often used in hire purchase transaction is cash basis. In case of hire purchase system the amount is received in instalment hence, revenue is recognised on cash basis,
Question 2
1 / -0

Cost concept envisages the recording of which of the following in the books of accounts?

A
An asset at its cost

B
Knowledge and will acquired by the business executive

C
Changes effected because of some political events

D
All of the above

Solution

Cost concept envisages the recording of an asset at its cost. Cost concept also known as historical cost concept states that the asset should be recorded at the cost at which it was acquired i.e., Historical cost. Knowledge acquired can not be recorded in books of accounts because it can not be expressed in monetary terms.
Question 3
1 / -0

During the financial year the plant of the company remained shut down due to major fault leading to stoppage of production for three months.The Accountant is keen to disclose this fact by way of notes to the accounts. He is guided by the concept of

A
Materiality

B
Consistency

C
Disclosure

D
Matching

Solution

The concept of Disclosure states that only those matter should be disclosed in the financial which may change the decision making of the users of the financial statement. Therefore, Only material transactions are to be disclosed as per this concept.
Question 4
1 / -0

Recording of capital contributed by the owner as liability ensures the adherence to principle of __________.

A
Double entry

B
Going concern

C
Separate entity of business

D
Materiality

Solution

According to the Business Entity Concept, a business is treated as a separate legal entity and is distinct from it's owner. When a proprietor introduces capital in his own business, the capital is considered as liability from a business point of view. Similarly, when he withdraws any money for his personal use, it is treated as reduction in liability of the business. This concept is applicable to all types of businesses i.e. sole proprietary concern, Partnership firm, Joint stock company, etc.
Question 5
1 / -0

The entity concept of accounting is applicable to _________.

A
Sole proprietary concern

B
Partnership firm

C
Joint stock company

D
All of the above

Solution

According to Business Entity Concept, a business is treated as a separate legal entity, and is distinct from it's owners. When a proprietor introduces capital in his own business, the capital is considered as liability from business point of view. Similarly, when he withdraws any money for personal use, it is treated as reduction in the liability of business. This concept is applicable to all businesses i.e. sole proprietary concern, Partnership firm, Joint stock company etc.
Question 6
1 / -0

When applied to the balance sheet, the convention of conservatism results in __________.

A
Understatement of assets

B
Understatement of liabilities and provisions

C
Overstatement of capital

D
All of these

Solution

The convention of conservatism mean that the convention of caution, or the policy of playing safe. This principle requires that in the situation of uncertainty and doubt, the business transactions should be recorded in such a manner that the profits and assets are not overstated and losses and liabilities are not understated.
Principle of conservatism should be used very cautiously as it may disclose the lower profits in comparison to the actual profits. Balance sheet will disclose understatement of assets and overstatement of liabilities in comparison to actual values.
Question 7
1 / -0

Recording of fixed assets at cost ensures adherence to _________.

A
Dual aspect concept

B
Materiality concept

C
Cost concept

D
All of the above

Solution

The cost concept requires that all assets are recorded in the book of accounts at their purchase price, which includes cost of acquisition, transportation, installation and making the asset ready to use.
The concept of cost is historical in nature as it is something, which has been paid on the date of acquisition and does not change year after year.
Question 8
1 / -0

Which is the convention of accounting wherein there is no overvaluation of assets and incomes?

A
Uniformity

B
Materiality

C
Conservatism

D
Continuity

Solution

The convention of conservatism mean that the convention of caution, or the policy of playing safe. This principle requires that in the situation of uncertainty and doubt, the business transactions should be recorded in such a manner that the profits and assets are not overstated and losses and liabilities are not understated. The following are some examples:

1. Closing stock is valued at cost price or Net realisable value, whichever is lower.

2. Joint life insurance policy is shown only at surrender value as against the amount paid.

3. Provision for doubtful debt is created in anticipation of bad debts etc.

4. Provision for pending law suit against the firm, which may either be decided in its favour.
Question 9
1 / -0

The Accounting Convention of Matching means __________.

A
Profit for period to be matched with the sales revenue

B
Profit for the period to be matched with the investment

C
Expenses of one period to be matched against the expenses of another period

D
Expenses of a period to be matched against the revenue of the same period

Solution

The process of ascertaining the amount of profit earned or the loss incurred during a particular period involves deduction of related expenses from the revenue earned during that period.
The matching concept emphasises exactly on this aspect. It states that expenses incurred in an accounting period should be matched with revenues during that period.
It follows from this that the revenue and expenses incurred to earn these revenues must belong to the same accounting period.
Question 10
1 / -0

Realisation concept would apply when _________.

A
Money is realized from the debtors

B
Goods are delivered to customer

C
Order is received

D
None of the above

Solution

Realisation concept would apply when goods are delivered to customer. According, to this concept revenue can only be recognised when the underlying goods or services associated with the revenue has been delivered or rendered, respectively.

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Re-Attempt Weekly Quiz Competition

Theory Base of Accounting Test - 36

Result

Theory Base of Accounting Test - 36

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SHARING IS CARING

Question 1

Cash basis

Sales basis

Production basis

None of these

Solution

Question 2

An asset at its cost

Knowledge and will acquired by the business executive

Changes effected because of some political events

All of the above

Solution

Question 3

Materiality

Consistency

Disclosure

Matching

Solution

Question 4

Double entry

Going concern

Separate entity of business

Materiality

Solution

Question 5

Sole proprietary concern

Partnership firm

Joint stock company

All of the above

Solution

Question 6

Understatement of assets

Understatement of liabilities and provisions

Overstatement of capital

All of these

Solution

Question 7

Dual aspect concept

Materiality concept

Cost concept

All of the above

Solution

Question 8

Uniformity

Materiality

Conservatism

Continuity

Solution

Question 9

Profit for period to be matched with the sales revenue

Profit for the period to be matched with the investment

Expenses of one period to be matched against the expenses of another period

Expenses of a period to be matched against the revenue of the same period

Solution

Question 10

Money is realized from the debtors

Goods are delivered to customer

Order is received

None of the above

Solution

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