Accounting Equation Effects Test 37

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Accounting Equation Effects Test 37

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Weekly Quiz Competition

Question 1
1 / -0

Which accounting principle is followed in adopting policy of making provision for doubtful debts @ 5% on debtors ?

A
Prudence

B
Substance over from

C
Materiality

D
All of these

Solution

The prudence principle is followed in adopting policy of making provision for doubtful debts @5% on debtors. Prudence principle or conservatism principle means all the expenses or possible losses should be recorded in advance, but incomes should not be recorded in advance.
Question 2
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Which of the financial statement represents the accounting equation?

A
Manufacturing account

B
Cash flow statement

C
Balance sheet

D
Profit and loss account

Solution

Balance Sheet represent Accounting Equation as in right side capital and liabilities are recorded whereas in left side of balance sheet Total assets are recorded and this sheet is always self- balanced which proves that Total Asset = Liabilities + Capital
Question 3
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State the case where the going concern concept is applied?

A
When an enterprise was set up for a particular purpose, which has been achieved, or to be achieved shortly

B
When a receiver or liquidator has been appointed in case of as a company which is to be liquidated.

C
Fixed assets are acquired for use in the business for earning revenues and are not meant for resale

D
When an enterprise is declared sick

Solution

Fixed assets are acquired for use in the business for earning revenues and are not meant for resale this is as per Going Concern Concept.
The life span of a fixed asset is more than 1 years and its includes plant, machinery, furniture etc.
Question 4
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Tick mark the correct answer.
The accounting measurement that is not consistent with the going concern concept is?

A
Realisation

B
Historical cost

C
Liquidation value

D
Continuity

Solution

Option C is correct.
Liquidation value is the concept of winding up of a business- no continuation of the activities henceforth- the going concern concept becomes irrelevant.
Question 5
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Which one of the following is not an accounting convention?

A
Consistency

B
Full disclosure

C
Materiality

D
Secrecy
Solution
The common Accounting Conventions are
- Consistency
- Full Disclosure
- Materiality
There is no Accounting convention named as Secrecy.
Question 6
1 / -0

Prepare accounting equation on the basis of the following:-

A
Harsha started business with cash Rs. 2,00,000/-

B
Purchased goods from Naman for cash Rs. 40,000/-

C
Sold goods to Bhanu (costing Rs. 10,000/-) Rs. 12,000/-

D
Bought furniture on credit Rs. 7,000/-

Solution

Accounting Equation is Total Assets = Total Liabilities + Capital
Here, Cash = 200,000 and Capital = 200000
Therefore, 200,000 = 0 + 200, 000.
Question 7
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LIFO inventory method was used in year I, FIFO in year II and weighted average in year III. Which accounting principle is violated?

A
Cost principle

B
Consistency

C
Materiality

D
No principle of accounting is violated

Solution

Consistency is a basic assumption on which it is assumed that various policies or methods adopted by the firms while preparing the accounts are consistent from one period to another. Hence, changing of the method is a violation of the consistency concept.
Question 8
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Window dressing is prohibited due to __________.

A
Convention of conservation

B
Convention of disclosure

C
Convention of materiality

D
Accrual concept

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 order to ensure that the financial statements gives full, fair and true picture of the financial position. Any type of window dressing to give a better picture of the position will violate the convention of disclosure.
Question 9
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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 10
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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.

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Accounting Equation Effects Test 37

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Accounting Equation Effects Test 37

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SHARING IS CARING

Question 1

Prudence

Substance over from

Materiality

All of these

Solution

Question 2

Manufacturing account

Cash flow statement

Balance sheet

Profit and loss account

Solution

Question 3

When an enterprise was set up for a particular purpose, which has been achieved, or to be achieved shortly

When a receiver or liquidator has been appointed in case of as a company which is to be liquidated.

Fixed assets are acquired for use in the business for earning revenues and are not meant for resale

When an enterprise is declared sick

Solution

Question 4

Realisation

Historical cost

Liquidation value

Continuity

Solution

Question 5

Consistency

Full disclosure

Materiality

Secrecy

Solution

Question 6

Harsha started business with cash Rs. 2,00,000/-

Purchased goods from Naman for cash Rs. 40,000/-

Sold goods to Bhanu (costing Rs. 10,000/-) Rs. 12,000/-

Bought furniture on credit Rs. 7,000/-

Solution

Question 7

Cost principle

Consistency

Materiality

No principle of accounting is violated

Solution

Question 8

Convention of conservation

Convention of disclosure

Convention of materiality

Accrual concept

Solution

Question 9

Over statement of Assets

Under statement of Assets

Under statement of Liabilities

Under statement of Provision for bad and doubtful debts

Solution

Question 10

Consistency

Disclosure

Knowing the value

None of the Above

Solution

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