Accounting Equation Effects Test 33

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Accounting Equation Effects Test 33

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Question 1
1 / -0

______ concept is based on double entry book-keeping which means that accounting system is set up in such a way that a record is made of the two aspects of each transaction that affects the records.

A
Money measurment

B
Cost concept

C
Going concern concept

D
Dual aspect concept

Solution

The dual aspect concept is based on double-entry book-keeping which means that the accounting system is set up in such a way that a record is made of the two aspects of each transaction that affects the records.
Question 2
1 / -0

R Ltd. purchased equipment from P Ltd. for Rs. 50,000 on 1st April 2019. The freight and cartage of Rs. 2,000 is spent to bring the asset to the factory and Rs. 3,000 is incurred on installing the equipment to make it possible for the intended use. The market price of machinery on 31st April, 2020 is Rs. 60,000 in financial statements.However, the auditor emphasizes that the machinery should be valued at Rs. 55,000 (50,000+2,000+3,000) according to _____________________.

A
Money measurement principle

B
Historical cost concept

C
Full disclosure principle

D
Revenue recognition

Solution

As per the historical cost concept, an asset shall be recorded at its historical cost which includes the cost of the asset 50000, freight 3000, installation charges 3000 which is equal to 55000.
Question 3
1 / -0

_______ principle required that the same accounting method should be used from one accounting period to the next.

A
Consevatism

B
Consistency

C
Business entity

D
Money measurement

Solution

The accounting information provided by the financial statements would be useful in drawing conclusions regarding the working of an enterprise only when it allows comparisons over a period of time as well as with the working of other enterprises.
Thus, both inter-firm and inter-period comparisons are required to be made. This can be possible only when accounting policies and practices followed by enterprises are uniform and are consistent over the period of time.
Question 4
1 / -0

The cost of a small calculator is accounted as an expense and not shown as an asset in a financial statement of a business entity due to __________________.

A
Convention of materiality

B
Matching concept

C
Periodicity concept

D
Convention of Conservatism

Solution

Materiality states that only only those facts should be disclosed in the financial statement which have an impacts on the decisions making of the users of the financial statement. Here, cost of small calculator would not have an impact on the desicion making of the users of the financial statements. Therefore, they are treated as an expense.
Question 5
1 / -0

Accounting is BEST described as__________.

A
The use of financial data

B
The collection of financial data

C
The collection and use of financial data

D
The collection and use of financial and non- financial data

Solution

As per the Money Measurement Concept, only those transactions are recorded in the books of accounts which can be measured in terms of money. Therefore, in accounting, only financial data is used.
Non-financial data cannot be measured therefore it is not recorded in the books of accounts.
Question 6
1 / -0

Business is treated as a separate entity accounts for __________.

A
Sole trader

B
Partnership

C
Company

D
All of the above

Solution

Separate entity concept defines that the owner and business are having a separate legal entity in the eye of law. Any amount contributed by the owner is considered as liability to the business.
Question 7
1 / -0

Fixed assets are recorded at _______.

A
current cost

B
original cost

C
depreciated cost

D
all of the above

Solution

Fixed assets are those which gives the benefits to the organization on a long term basis. Fixed Assets are recorded in the books of account on the original cost irrespective of their market value as per the cost concept in accounting.
Question 8
1 / -0

The adjusting process is based on two accounting principles; The two accounting principles are _______________.

A
Realization and recognition

B
Revenue recognition and matching

C
Cost and business entity

D
Continuing-concern and realization

Solution

The revenue recognition (realization) principle states that the income should be recognised when it is earned;
the matching principle states that expenses shall be reported in the same time period when the respective revenue is recognised.
Question 9
1 / -0

Assets should be valued at the price paid to acquire them is based on ________________.

A
Realization concept

B
Cost concept

C
Matching concept

D
Periodicity concept

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.
Question 10
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.

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Accounting Equation Effects Test 33

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Accounting Equation Effects Test 33

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SHARING IS CARING

Question 1

Money measurment

Cost concept

Going concern concept

Dual aspect concept

Solution

Question 2

Money measurement principle

Historical cost concept

Full disclosure principle

Revenue recognition

Solution

Question 3

Consevatism

Consistency

Business entity

Money measurement

Solution

Question 4

Convention of materiality

Matching concept

Periodicity concept

Convention of Conservatism

Solution

Question 5

The use of financial data

The collection of financial data

The collection and use of financial data

The collection and use of financial and non- financial data

Solution

Question 6

Sole trader

Partnership

Company

All of the above

Solution

Question 7

current cost

original cost

depreciated cost

all of the above

Solution

Question 8

Realization and recognition

Revenue recognition and matching

Cost and business entity

Continuing-concern and realization

Solution

Question 9

Realization concept

Cost concept

Matching concept

Periodicity concept

Solution

Question 10

Audit fees

Future assurance services.

Management's plans for disposal of assets.

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

Solution

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