Theory Base of Accounting Test - 2

As the busniess is intended to continue indefinitely for a long period, the true results of the business operations can be ascertained only when the busines is completely wound up. But ascertainement of profit after a very long period will be of little use to the proprietors. The users of financial statements need to know the results of the business at ferquent intervals. Thus, the entire life of the firm is divided into time-intervals for the measurement of the profits.

the concept of materiality states that material details must be given due consideration whereas trivial items should be ignored. Otherwise, accounting information shall be overburned with minute details. The term ' materiality' is relevant e.g. while sending satatement of account to each debtor individually, accuracy upto paise is desiarable but when a statement of total debtors is submitted to top management, the figure may be rounded off to the nearest hundred. And thus the modifying principle will also apply.

The entity or unit is trearted differnetly and distinct from its owners. And we record transactions from the view point of the business. That is why we record capital contributed by the owner in the liability side in the balance sheet and drawings which are personal withdrawls by the owner is deducted from the capital as it is as good as payment is done to the owner

In India The ICAI constituted ASB( Accounting Standards Board) to formulate the accounting standards, taking into consideration the applicable laws, customs, usages and business enviornment, bringing them in line with IASs.

Revenue regcognition means profit should be considered only when realised. And according to the Law the revenue is earned only when goods are transferred. No anticipated profits should be taken credit of. Thus, if a firm receives and order for goods, it will not be included in the sales figure.

According to Prudence principle all anticipated profits should be ignored and all anticipated losses are recorded for., thus overvaluation of assets and revenue will lead to anticipated profits which should not be recorded for.

According to this concept, business is treated as a unit separate and distinct from its owners, creditors, managers, and others. In other words, the owner of a business is always considered as distinct and separate from the business he owns. business unit should have a completely seprate set of books and we have to record business transaction's from firm's point of view and not from the point of view of the proprietor.

According to conservatism all anticipated losses should be recorded in the books of accounts, but all anticipated or unrealized gains should be ignored. Accordingly, Closing stock is valued at cost price or realisable value whichever is less. And thus increased market value is never taken into considersation for valuing stock.

The IASC was reponsible for developing the international accounting standards and promoting the application of these standards worldwide so as to bring the international uniformity in the presentation and methods followed by the orgnaisations. It was founded in JUNE 1973 in london.

IASB  has replaced IAS and has adopted 41 International Accounting Standards and SIC (Standards Interpretation Committee). Though there has been certain modifiactions as per the changing environment in certain IASs.