Theory Base of Accounting Test

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Theory Base of Accounting Test - 60

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Question 1
1 / -0

When the effect of strike is not directly disclosed in financial statements _________ accounting system is applied.

A
Matching

B
Revenue recognition

C
Money Measurement

D
Cost

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 books of accounts.
Another important aspect of the concept of money measurement is that the records of the transactions are to be kept not in physical units but in the monetary unit.
When the effect of strike is not directly disclosed in financial statements, money measurement accounting system is applied.
Question 2
1 / -0

The accounting policy for inventory of an enterprise discloses that inventories are valued at lower of cost determined on weighted average basis or net realizable value, is the application of _________ concept.

A
Prudence

B
Materiality

C
Substance over form

D
All of the above

Solution

The prudence concept is basically conservatism. This concept makes sure that, the assets and incomes of the business are not be overstated and the liabilities and expense are not understated. Inventories valued on cost or the net realizable value, whichever less, is one of the example of prudence concept.
Question 3
1 / -0

Provision for bad debts is the application of..........Concept.

A
Cost concept

B
Dual concept

C
Conservatism

D
Going run concern

Solution
Question 4
1 / -0

The convention of conservatism is applicable in ___________.

A
Providing for discount on creditors

B
Adopting straight line method as the basis for providing depreciation

C
Showing joint life policy at surrender value as against the amount paid

D
None of the above

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.
Question 5
1 / -0

The use of an accelerated method of depreciation is based on _________.

A
convention of disclosure

B
convention of consistency

C
convention of conservatism

D
none of the above

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 6
1 / -0

On 1st January 08, X paid Rs. 120,000 being rent upto 31.12.08. If the accounts are closed on 31.03.08. Rs. 90,000 will be shown as..........

A
Accrued rent

B
Prepaid rent/Expenses

C
Accrued expenses

D
Accrued income

Solution
Question 7
1 / -0

The proprietor is treated as a creditor to the extent of his capital according to __________.

A
Cost concept

B
Business entity concept

C
Going concern concept

D
All of the above

Solution

According to Business Entity Concept, a business is treated as a separate 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.
Question 8
1 / -0

Making the provision for doubtful debts in anticipation of actual bad debts is on the basis of ___________.

A
Convention of disclosure

B
Convention of consistency

C
Convention of conservatism

D
None of the above

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

Cost concept assumes __________.

A
All the business assets to be recorded at cost price

B
Cost is the basis of all subsequent accounting for the assets

C
None of the above

D
Both (a) & (b)

Solution

The cost concept requires that all assets are recorded in the books 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 after year. However, an important limitation of the historical cost basis is that it does not show true worth of the business and may lead to hidden profits.
During the period of rising prices, the market value or the cost at which the assets can be replaced are higher than the value at which these are shown in the books of accounts leading to hidden profits.
Question 10
1 / -0

________ principles require that revenues which are recognized through the application of the realization principle are then related to relevant and appropriate historical cost.

A
Accounting period

B
Cost concept

C
Matching

D
Realization

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Re-Attempt Weekly Quiz Competition

Theory Base of Accounting Test - 60

Result

Theory Base of Accounting Test - 60

Score

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Rank

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SHARING IS CARING

Question 1

Matching

Revenue recognition

Money Measurement

Cost

Solution

Question 2

Prudence

Materiality

Substance over form

All of the above

Solution

Question 3

Cost concept

Dual concept

Conservatism

Going run concern

Solution

Question 4

Providing for discount on creditors

Adopting straight line method as the basis for providing depreciation

Showing joint life policy at surrender value as against the amount paid

None of the above

Solution

Question 5

convention of disclosure

convention of consistency

convention of conservatism

none of the above

Solution

Question 6

Accrued rent

Prepaid rent/Expenses

Accrued expenses

Accrued income

Solution

Question 7

Cost concept

Business entity concept

Going concern concept

All of the above

Solution

Question 8

Convention of disclosure

Convention of consistency

Convention of conservatism

None of the above

Solution

Question 9

All the business assets to be recorded at cost price

Cost is the basis of all subsequent accounting for the assets

None of the above

Both (a) & (b)

Solution

Question 10

Accounting period

Cost concept

Matching

Realization

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