Theory Base of Accounting Test

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Theory Base of Accounting Test - 51

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Question 1
1 / -0

If the original and current price of machinery is given, it will be recorded at which value?

A
Historical value

B
Realisable value

C
Market value

D
Original cost

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.
For example, an old plant was purchased for Rs. 50 lakh, which is into the business of manufacturing detergent powder. The following were the other expenses incurred for its installation:
1. Transporting the plant to the factory site- Rs. 10,000
2. Repairs for bringing the plant into running position- Rs. 15,000
3. Installation- Rs. 25,000
The total amount at which the plant will be recorded in the books of account would be the sum of all these, i.e. Rs. 50,50,000.
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. This cost is also called as original cost or historical cost.
Question 2
1 / -0

An auditor should consider which of the following when evaluating the ability of a company to continue as a going concern?

A
Audit fees

B
Future assurance services.

C
Management's plans for disposal of assets.

D
A lawsuit for which judgment is not anticipated for $$18$$months.

Solution

An auditor should consider Management's plans for the disposal of assets when evaluating the ability of a company to continue as a going concern.
Because If the management is thinking to sell off the assets of the business then it means that the business may be closed in the near future
Going Concern Concept states that the business will not stop in near future.
Question 3
1 / -0

Which one of the following is one of the major professional accountancy bodies in the India?

A
Institute of Chartered Accountants of India

B
Chartered Association of Accountants

C
Indian Institute of Chartered Accountants

D
Institute of Company Accountants

Solution

Institute of Chartered Accountants of India is one of the major professional accountancy bodies in India.
Accounting Standards are issued by the Institute of Chartered Accountants of India. The Institute of Chartered Accountants of India was set up by an act of parliament.
Question 4
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Monthly and quarterly time periods are called ______________.

A
Fiscal period

B
Calendar period

C
Quarterly period

D
Interim period

Solution

Monthly and quarterly time periods are called Interim Periods.
The time period assumption states that the economic life of a business can be divided into artificial time periods.
Whereas the Calender period starts from 1st January and ends on 31st December.
Question 5
1 / -0

Double Entry principle means __________________.

A
Writing all entries twice in the book

B
Having debit for every credit and similarly, credit for every debit

C
Maintaining the double account for each business transactions

D
Writing two times the same entry

Solution

Real account is an record of an asset. An asset can be current asset such as cash, a fixed asset such as building and intangible asset such as goodwill. Real account relate to the assets & liabilities of a business.
Question 6
1 / -0

The rule 'every transaction affects two or more ledger accounts' is based or the concept of ___________.

A
Going concern

B
Double entry system of book-keeping

C
Money measurement

D
Periodicity

Solution

Double entry system is based 'on scientific principles therefore, it is used by most of the business houses. This system recognizes the fact that every transaction has two aspects and records both aspects of each and every transaction. For every debit there will be a credit and vice a versa.

For example, goods worth Rs.10000 purchased on cash. It affects two account i.e. goods and cash. Following the rule of real account, the below entry will be passed:

Purchase/Goods A/c Dr.
To Cash A/c
Question 7
1 / -0

Accounting Transactions are recorded in terms of ___________.

A
Money

B
Purpose

C
Characteristics

D
None of these

Solution

Monetary Unit Assumption
In accounting we can communicate only those business transactions and other events which can be expressed in monetary units. This is called monetary unit assumption. Non monetary events like death, dispute etc. may have a great influence on the organization but these factors will not form the part of accounts as they can be calculated on monetary basis. According to this concept each & every accounting transaction is to be recorded in books of accounts in terms of money.
Question 8
1 / -0

Which of the following is an accepted method of accounting?

A
Cash Accounting

B
Accrual or Mercantile Accounting

C
Both Accrual Accounting and Cash Accounting

D
None of the above

Solution

With the accrual method, income and expenses are recorded as they occur, regardless of whether or not cash has actually changed hands. In this type of system cost and revenue are matched on the basis of relevant time period. It is also known as mercantile system of accounting. Further if any cost has lost its utility then it is written off and if the expenses are due, need to be recorded in books irrespective of payment is done or not.

Almost every company uses the accrual accounting method, since it provides the most accurate representation of the company's financial state.
Question 9
1 / -0

General reserve is created on the basis of convention of ______________.

A
Conservatism

B
Uniformity

C
Materiality

D
Full disclosure

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 10
1 / -0

The notion that the life of a business is divisible into equal time periods of equal length is known as the _______________.

A
continuing concern principle

B
time-period principle/ Accounting Period Concept

C
business entity principle

D
recognition principle

Solution

As per Accounting Period Concept the notion that the life of a business is divisible into equal time periods of equal length.
It states that the business should prepare the financial statement after a certain period of time to access the performance of the operations of the business.

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Theory Base of Accounting Test - 51

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Theory Base of Accounting Test - 51

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SHARING IS CARING

Question 1

Historical value

Realisable value

Market value

Original cost

Solution

Question 2

Audit fees

Future assurance services.

Management's plans for disposal of assets.

A lawsuit for which judgment is not anticipated for $$18$$months.

Solution

Question 3

Institute of Chartered Accountants of India

Chartered Association of Accountants

Indian Institute of Chartered Accountants

Institute of Company Accountants

Solution

Question 4

Fiscal period

Calendar period

Quarterly period

Interim period

Solution

Question 5

Writing all entries twice in the book

Having debit for every credit and similarly, credit for every debit

Maintaining the double account for each business transactions

Writing two times the same entry

Solution

Question 6

Going concern

Double entry system of book-keeping

Money measurement

Periodicity

Solution

Question 7

Money

Purpose

Characteristics

None of these

Solution

Question 8

Cash Accounting

Accrual or Mercantile Accounting

Both Accrual Accounting and Cash Accounting

None of the above

Solution

Question 9

Conservatism

Uniformity

Materiality

Full disclosure

Solution

Question 10

continuing concern principle

time-period principle/ Accounting Period Concept

business entity principle

recognition principle

Solution

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