Theory Base of Accounting Test

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Theory Base of Accounting Test - 57

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Question 1
1 / -0

Valuing the stock in trade at market price or cost price which is less is an example of the convention of _______.

A
Consistency

B
Disclosure

C
Knowing the value

D
None of the Above

Solution

Stock valuation on market price or cost price whichever is less based on the "conservatism concept", which defines that all expected losses should be recorded in books of account.
Question 2
1 / -0

The convention of conservation will have the effect of ______________.

A
Over statement of Assets

B
Under statement of Assets

C
Under statement of Liabilities

D
Under statement of Provision for bad and doubtful debts

Solution

Conservatism convention is based on the policy of "playing safe". On the basis of this convention, all future losses are recorded in books of accounts. In such situation, assets are understated, for example, provision for doubtful debts which is created out of the balance of debtors, stock valuation on market price or cost whichever is lower.
Question 3
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If no information is available, the General Rule for valuation of stock for balance sheet is _______________.

A
Replacement Cost

B
Realizable Value

C
Historical Cost

D
Standard Cost

Solution

Historical cost is a measure of value used in accounting in which the price of of stock on the balance sheet is based on its nominal or original cost when acquired by the company.
Question 4
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According to the money measurement concept, the following will be recorded in the books of accounts of the business ____________________.

A
Health of the managing director of the company

B
Quality of company goods

C
Value of plant and machinery

D
Health of labour in factory

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, the value of plant and machinery, being expressable in terms of money, will be recorded, and the others cannot be recorded.
Question 5
1 / -0

Under which concept it is assumed that the enterprise has neither the intention nor the necessity of liquidation or of curtailing materially the scale of operation?

A
Revenue realization concept

B
Matching cost concept

C
Going concern concept

D
None of these

Solution

The concept of going concern assumes that a business firm would continue to carry out its operations indefinitely, i.e. for a fairly long period of time and would not be liquidated in the foreseeable future. This is an important assumption of accounting as it provides the very basis for showing the value of assets in the balance sheet.
Conversely, this means the entity will not be forced to halt operations and liquidate its assets in the near term at what may be very low fire-sale prices.
Question 6
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The convention of conservatism when applied to the balance sheet results in _________________.

A
Understating the asset

B
Understating the liabilities

C
Overstatement of capital

D
None of these

Solution

The conservatism concept defines that the business should record all anticipated or future losses, but ignore the anticipated revenue or future revenue until it is realized.
Valuation of inventory on the basis of cost or realizable value is one of the examples of the conservatism policy. Not recording the appreciation in the value of land is another example. In both the cases, assets are understated.
Question 7
1 / -0

Showing purchased office equipments in financial statements is the application of which accounting concept?

A
Historical cost convention

B
Materiality

C
Prudence

D
Matching concept

Solution

According to the materiality convention, the business must report all the transactions which are of material nature and ignore the insignificant items. The firm has to make a distinction between the material and immaterial matters.
Purchase of office equipment is a material in nature and to be shown in the financial statement.
Question 8
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"Financial information should be neutral and bias free" is the dictation of which one of the following?

A
Completeness concept

B
Faithful representation concept

C
Objectivity concept

D
Duality concept

Solution

The objectivity principle is the concept that the financial statements of an organization be based on solid evidence. The intent behind this principle is to keep the management and the accounting department of an entity from producing financial statements that are slanted by their opinions and biases.
It requires that accounting transaction should be recorded in an objective and independent manner, free from the bias of accountants and others.
Question 9
1 / -0

Materiality concept tells about ________________.

A
Disclosure of loss

B
Disclosure of profit

C
Disclosure of all information which is important for investor

D
Disclosure of all information which is important for management

Solution

The materiality concept refers to a situation where the financial information of a company is considered to be material from the point of view of the preparation of the financial statements if it has the potential to alter the view or opinion of a reasonable person.
According to this convention, the business should give importance to only those items which are of of material in nature and ignore the insignificant details. Firms have to distinguish the material and immaterial matters. What is material? It depends on the firm or the circumstances. One item may be of material for one firm and immaterial for another firm.
Question 10
1 / -0

Using "lower of cost and net realisable value (Market Value)" for the purpose of inventory valuation is the implementation of which of the following concepts?

A
The going concern concept

B
The separate entity concept

C
The prudence concept

D
Matching concept

Solution

This is the case of the conservatism convention, which is based on "playing safe". The prudence concepts defines that, we should not overestimate the revenues and underestimates the expenses. It is an accounting principle which assumes that, the expenses and losses are to be recorded as soon as they occurs, but the revenues and assets are only to be recorded when they are actually recognized.

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Re-Attempt Weekly Quiz Competition

Theory Base of Accounting Test - 57

Result

Theory Base of Accounting Test - 57

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SHARING IS CARING

Question 1

Consistency

Disclosure

Knowing the value

None of the Above

Solution

Question 2

Over statement of Assets

Under statement of Assets

Under statement of Liabilities

Under statement of Provision for bad and doubtful debts

Solution

Question 3

Replacement Cost

Realizable Value

Historical Cost

Standard Cost

Solution

Question 4

Health of the managing director of the company

Quality of company goods

Value of plant and machinery

Health of labour in factory

Solution

Question 5

Revenue realization concept

Matching cost concept

Going concern concept

None of these

Solution

Question 6

Understating the asset

Understating the liabilities

Overstatement of capital

None of these

Solution

Question 7

Historical cost convention

Materiality

Prudence

Matching concept

Solution

Question 8

Completeness concept

Faithful representation concept

Objectivity concept

Duality concept

Solution

Question 9

Disclosure of loss

Disclosure of profit

Disclosure of all information which is important for investor

Disclosure of all information which is important for management

Solution

Question 10

The going concern concept

The separate entity concept

The prudence concept

Matching concept

Solution

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