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Theory Base of Accounting Test - 46

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Theory Base of Accounting Test - 46
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  • Question 1
    1 / -0
    According to money measurement concept the following will be record in the books of account.
    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 value of machine will be recorded in the books of accounts.
  • Question 2
    1 / -0
    Which of the following concept forms the basis for depreciation accounting?
    Solution
    The calculation of depreciation is based upon Cost principle. This principle requires that the depreciation expense reported on the income statement, and the asset amount that is reported on the balance sheet, should be based on the historical (original) cost of the asset.
  • Question 3
    1 / -0
    A Punching Machine having a life of three years acquired by the owner for personal use for Rs. 100 is debited to the office equipment account which of the accounting convention is being violated?
    Solution
    As the machine is acquired for personal use, therefore, it should not be debited to the office equipment account. the Business entity concept states that the businessman is separate from the business.
    Therefore, the personal expense of the owner shall not be recorded in the business books of accounts.
  • Question 4
    1 / -0
    The convention of conservatism is applicable __________________.
    Solution
    The concept of Conservatism states that a conscious approach should be adopted in ascertaining income so that profits of the enterprise are not overstated. It requires that profits should not be recorded until realised but all losses. 
    The market value of the investment is shown as a footnote in the balance sheet is as per Conservatism.
  • Question 5
    1 / -0
    Insurance prepaid is shown on the asset side of the balance sheet due to __________________.
    Solution
    As per going concern concept, Prepaid insurance is shown on the asset side of the balance sheet. This concept states that business has an indefinate life. Therefore, not all the expenses are shown as expense instead some are shown as asset.
  • Question 6
    1 / -0
    Concept of realization implies __________________.
    Solution
    The realisation concept determines when goods sent on credit to customers are to be included in the sales figure for the purpose of computing the profit or loss for the accounting period When goods are delivered to the customer
  • Question 7
    1 / -0
    The concept of treating the business as a separate entity is called __________________.
    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 8
    1 / -0
    Non financial quantitative information is not recorded in accounts due to _______________.
    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. 
    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 9
    1 / -0
    The convention of conservation is applied to Balance sheet from result of ________________.
    Solution

    The convention of conservatism is 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 10
    1 / -0
    Cost concept envisages the recording of the following in the books of accounts.
    Solution
    The cost concept states that an asset should be recorded at its historical cost and not at the market value.
    As per Cost Concept, the fixed asset is recorded its historical cost or purchase price plus expenses incurred to use it.
    The fixed asset is never recorded at its market price due to this concept only.
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