Theory Base of Accounting Test

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Theory Base of Accounting Test - 43

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Question 1
1 / -0

Cost concept envisages the recording of the following/in the books of accounts ________________.

A
An asset at its cost

B
Knowledge acquired by business executive

C
Changes effected because of some political events.

D
None of the above

Solution

The cost concept requires that, all assets are recorded in the book of accounts at their purchase price.
The purchase price includes cost of acquisition, transportation, installation and making the asset ready to use.
In the subsequent years to, the price remains the same (minus depreciation charged). The market price of the asset is not taken into consideration.
Question 2
1 / -0

Assets are depreciated on the basis of expected life rather than on the basis of market value according to _____________.

A
going concern concept

B
cost concept

C
entity concept

D
matching concept

Solution

Going Concern Concept is an accounting principle which states that the operations of the business will not stop in near future and the business will continue to operate,
Therefore, Fixed Assets are not written off after a year and they are depreciated on the basis of expected life rather than on the basis of market value due to going concern concept only.
Question 3
1 / -0

The first account standard (AS-I) issued by the Institute of Chartered Accountants of India is _________________.

A
Valuation of Inventories

B
Revenue Recognition

C
Change in Financial Position

D
Disclosure of Accounting Policies

Solution

To ensure proper understanding of financial statements, it is necessary that all significant accounting policies adopted in the preparation and presentation of financial statements must be disclosed.
Such disclosure should form part of the financial statements.
It would be helpful to the reader of financial statements if they are all disclosed in one place instead of being scattered over several statements, schedules and notes.
Question 4
1 / -0

In accrual basis or mercantile basis of accounting, the financial effect of the transaction is recorded in the books ___________.

A
As and when they occur

B
On the basis of actual receipt and payment of cash

C
On confirmation of orders but before the delivery of goods take place

D
All of the above

Solution

In the accrual system of accounting, a transaction is recorded when as and when they occur.
There are two basis of accounting
1. Cash Basis of Accounting
2. Accrual Basis of Accounting

The accrual basis of accounting is more accurate than the cash basis of accounting.
Question 5
1 / -0

Qualitative transactions are not recorded in accounts due to _______________.

A
Money measurement concept

B
Dual aspect concept

C
Business entity concept

D
Accounting period concept

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, capabilities of its human resources, etc., do not find a place in the accounting records of a firm.
Another important aspect of the concept of money measurement is that the records of the transactions are to be kept not in the physical units but in the monetary unit.
Question 6
1 / -0

Which of the following statements describes GAAP properly?

A
Generally accepted accounting principles (GAAP) compries a set of rules, concepts and guidelines used in preparing financial accounting reports

B
Generally accepted accounting principles (GAAP) incorporate the consensus at any time as to which economic resources and obligations should be recorded as assets and liabilities

C
What information should be disclosed and how it should be disclosed, and which financial statements should be prepared

D
None of the above

Solution

Generally accepted accounting principles (GAAP) comprise a set of rules, concepts and guidelines used in preparing financial accounting reports.
These Principles are issued by Financial Accounting Standard Board (FASB).
These principles are also referred to as concepts and conventions.
Question 7
1 / -0

The underlying accounting principle(s) necessitating amortisation of intangible asset(s) is / are ________________.

A
Cost concept

B
Realisation concept

C
Matching concept

D
Both (a) and (c)

E
Both (b) and (c)

Solution

Amortization of intangible assets means reducing the value of the asset in a systematic manner and charging that value to the revenue of that year.
The matching Concept suggests for amortization or depreciation of the assets.
Matching Concept states that all expenses matched with the revenue of that period should only be taken into consideration
Question 8
1 / -0

Which of the following concepts is also know as 'Prudence'?

A
Conservatism

B
Consistency

C
Full disclosure

D
Materiality

Solution

The concept of conservatism (also called ‘prudence’) 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 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 9
1 / -0

It is one of the basis of the entity concept that money brought by the proprietor into the business is credited to _______ .

A
proprietor's personal

B
capital

C
both (a) and (b)

D
none the above

Solution

The money brought into the business by the owner is called Capital or Owner’s Equity. It is credited to the capital account. The Capital can be brought in cash or assets by the owner. Capital is an obligation of the business that has to be paid back to the owner. Because business is a separate entity from its owner. Therefore, the Capital is shown on the liabilities side of the Balance sheet. The capital account is shown after deducting the Drawings by the owner. Drawings are the amount of cash, goods or assets taken by the owner for personal use from the business.
Question 10
1 / -0

In cash system of accounting, entries are recorded ____________.

A
when income is earned by a business or expenditure is incurred by it

B
on the basis of actual receipt of cash or actual payment of cash

C
when order for goods to be purchased in placed and order for goods to be sold is received

D
All of the above

Solution

Under the Cash System of Accounting, a transaction is recorded when cash is received or paid.
Therefore, a transaction is recorded only when there is an actual receipt or payment of cash.
This method of accounting is very rarely used by the business.

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Theory Base of Accounting Test - 43

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Theory Base of Accounting Test - 43

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Question 1

An asset at its cost

Knowledge acquired by business executive

Changes effected because of some political events.

None of the above

Solution

Question 2

going concern concept

cost concept

entity concept

matching concept

Solution

Question 3

Valuation of Inventories

Revenue Recognition

Change in Financial Position

Disclosure of Accounting Policies

Solution

Question 4

As and when they occur

On the basis of actual receipt and payment of cash

On confirmation of orders but before the delivery of goods take place

All of the above

Solution

Question 5

Money measurement concept

Dual aspect concept

Business entity concept

Accounting period concept

Solution

Question 6

Generally accepted accounting principles (GAAP) compries a set of rules, concepts and guidelines used in preparing financial accounting reports

Generally accepted accounting principles (GAAP) incorporate the consensus at any time as to which economic resources and obligations should be recorded as assets and liabilities

What information should be disclosed and how it should be disclosed, and which financial statements should be prepared

None of the above

Solution

Question 7

Cost concept

Realisation concept

Matching concept

Both (a) and (c)

Both (b) and (c)

Solution

Question 8

Conservatism

Consistency

Full disclosure

Materiality

Solution

Question 9

proprietor's personal

capital

both (a) and (b)

none the above

Solution

Question 10

when income is earned by a business or expenditure is incurred by it

on the basis of actual receipt of cash or actual payment of cash

when order for goods to be purchased in placed and order for goods to be sold is received

All of the above

Solution

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