Accounting Equation Effects Test 21

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Accounting Equation Effects Test 21

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Question 1
1 / -0

Market value of investments is shown as a footnote according to __________.

A
Convention of disclosure

B
Convention of consistency

C
Convention of conservatism

D
All of the above

Solution

According to convention of full disclosure, the financial statements should disclose all reliable and relevant information which is necessary for the users. Various items of facts which do not find place in accounting statements are shown in balance sheet by way of Footnote and it includes a note for contingent liability, Change in method of depreciation, Market value of investment etc.
Question 2
1 / -0

Measurements discipline deals with ____________.

A
Identification of objects and events

B
Selection of scale

C
Evaluation of dimension of measurement scale

D
All of the above

Solution

Primarily transactions and events are measured in terms of Money. Any measurement discipline deals with three basic elements of measurement, viz., identification of objects and events to be measured, selections of standard or scale to be used, evaluation of dimension of measurement standards or scale.
Question 3
1 / -0

Recording of capital contributed by the owner as liability ensures the adherence to principle of __________.

A
Double entry

B
Going concern

C
Separate entity of business

D
Materiality

Solution

According to the Business Entity Concept, a business is treated as a separate legal entity and is distinct from it's owner. When a proprietor introduces capital in his own business, the capital is considered as liability from a business point of view. Similarly, when he withdraws any money for his personal use, it is treated as reduction in liability of the business. This concept is applicable to all types of businesses i.e. sole proprietary concern, Partnership firm, Joint stock company, etc.
Question 4
1 / -0

Under which of the following concept shareholders are treated as creditors for the amount they paid on the shares they subscribed to?

A
Cost concept

B
Duality concept

C
Business entity concept

D
Going concern concept

Solution

Under the business entity concept, shareholders are treated as creditors for the amount they paid on the shares they subscribed for, even though they are the owners of the business. Business entity is an accounting concept which suggests that, business has a separate legal identity from its owner. The concept states that, the enterprise should record transaction separately for those of the business and the owner.
Question 5
1 / -0

The going concern concept is the basis for ___________.

A
Stating fixed assets at their cost

B
Disclosing the market value of assets

C
Disclosing the sales and other operating cost in the income statement

D
None of the above

Solution

Going Concern Concept states that the operations of the business will continue for an infinite period of time. Going concern concept is a fundamental principle of accounting.
Due to Going Concern Concept, depreciation is being charged on the fixed assets as it will be used for many years.
Question 6
1 / -0

Dual aspect concept results in the accounting equation _____________.

A
Capital + Liabilities = Assets

B
Revenue = Expenses

C
Capital + Profit = Assets + Expenses

D
none of these

Solution

Dual aspect is the foundation or basic principle of accounting. This concept states that every transaction has a dual or two-fold effect and should therefore be recorded at two places.

The duality principle is commonly expressed in terms of fundamental Accounting Equation, which is as follows :

Assets = Liabilities + Capital

In other words, the equation states that the assets of a business are always equal to the claims of owners and the outsiders. The claims also called equity of owners is termed as Capital(owners’ equity) and that of outsiders, as Liabilities(creditors equity).
Question 7
1 / -0

Disclosing essential information in accounting observes the principle of _________.

A
Matching

B
Consistency

C
Full disclosure

D
Conservatism

Solution

The principle of full disclosure requires that all material and relevant facts concerning financial performance of an enterprise must be fully and completely disclosed in the financial statements and their accompanying footnotes.
This is to enable the users to make correct assessment about the profitability and financial soundness of the enterprise and help them to take informed decisions.
Question 8
1 / -0

Mr. $$A$$ purchased goods for Rs. $$15,00,000$$ and sold 4/5th of the goods amounting to Rs. $$20,00,000$$ and met expenses amounting to Rs. $$2,50,000$$ during the year. His net profit is Rs. $$5,50,000$$. Which of the accounting concepts was followed by him?

A
Entity

B
Periodicity

C
Matching

D
Conservatism

Solution

As per Matching Concept, all the respective expenses are matched with their revenue.
Here, the cost of goods purchased is 15,00,000 but only 4/5 is sold i.e. 15,00,000x4/5 = 12,00,000.
Other expenses are 250,000.
Revenue for the period is 20,00,000
Therefore, Net Profit = 20,00,000 - 12,00,000-250,000
= 550,000
Therefore, the matching concept is being followed over here as revenues of the period are being matched with respective expenses.
.
Question 9
1 / -0

The underlying accounting principle(s) necessitating amortization of intangible asset(s) is/are __________.

A
cost concept

B
Realization concept

C
Matching concept

D
All of the above

Solution

The underlying accounting principle necessitating amortization of intangible assets is Matching concept.
In accrual accounting, matching concept states that expenses should be recorded during the period in which they are incurred, regardless of when cash transfer incurs.
Question 10
1 / -0

The qualitative aspect of the business is not recorded in the books of accounts according to the basic concept of _________.

A
Money measurement

B
Business entity

C
Going concern

D
Accounting period

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.

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Accounting Equation Effects Test 21

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Accounting Equation Effects Test 21

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Question 1

Convention of disclosure

Convention of consistency

Convention of conservatism

All of the above

Solution

Question 2

Identification of objects and events

Selection of scale

Evaluation of dimension of measurement scale

All of the above

Solution

Question 3

Double entry

Going concern

Separate entity of business

Materiality

Solution

Question 4

Cost concept

Duality concept

Business entity concept

Going concern concept

Solution

Question 5

Stating fixed assets at their cost

Disclosing the market value of assets

Disclosing the sales and other operating cost in the income statement

None of the above

Solution

Question 6

Capital + Liabilities = Assets

Revenue = Expenses

Capital + Profit = Assets + Expenses

none of these

Solution

Question 7

Matching

Consistency

Full disclosure

Conservatism

Solution

Question 8

Entity

Periodicity

Matching

Conservatism

Solution

Question 9

cost concept

Realization concept

Matching concept

All of the above

Solution

Question 10

Money measurement

Business entity

Going concern

Accounting period

Solution

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