Theory Base of Accounting Test - 4

The term IFRS refers to the ' International Financial Reporting Standards' issued by International Accounting Standard Board (IASB).

according to money measurement principle event or transactions which can be measured in the terms of money with a definite accuracy should be recorded in the books of accounts. Thus quality of labour which cannot be measured cannot be recorded in the books of accounts.

Dual Aspect concept states that every business transaction is recorded as having a dual aspect. Thus everything firm owns i.e. assets of the firm will also be owed out to somebody that may be liabilities and capital. Thus Assets= capital + liabilities.

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 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

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 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.

according to Prudence when there are different alternatives for recording a transaction, the one having least favorable immediate effecr on profits or capital should be adopted. Thus we record closing stock at Cost price or market price whichever is lower. As we have to make provision for all anticipated losses but not record anticipated profits.

As per Going concern concept it is assumed that the business will continue to exist for a long period in the future. The transctions are recorded in the books of the business on the assumption that it is a continuing enterprise, unless otherwise.

According to prudence concept, all anticipated losses should be recorded in the books of accounts, but all anticipated or unrealised gains should be ignored. in other words it is the policy of playing safe. Provision is made for all known liabilities and losses even though the amount cannot be determined with certainty.

Over a period of time, a number of Generally Accepted Accounting Principles (GAAP) in the form of concepts and conventions have been developed and accepted to bring comparibility and uniformity in the financial statments of various business entities.

The IFRS refers to the Interantional Financial Reporting Standards' which are issued by IASB i.e International Accounting Standard Board.

Consistency concept states that accounting principlea and methods should remain consistent from one year to another. These should not change from year to year, in order to enable the management to compare the Profit & loass account and Balance Sheet of different periods and draw important conclusion about working of the enterprise. Thus Straight Line method used in one year should be followed next year also.

Money is the only measurement which enables various things of diverse nature to be added up together and dealt with. Thus, in above example Rs 120000/- will be recorded in the books and not 12 television sets.

According to Historical cost concept, assets are recorded in the books of accounts at the price at which it was acquired. As market value keeps changing and it is very difficult and costly affair to determine the market value of the assets every year. therefor assets are recorded at cost and not market value whether low or high.

The proprietor is treated as a creditor of the business to the extent of the capital invested by him in the busniess. Thus we record the transactions between the business and its owner from the point of view of business i.e. capital is treated as liability of the business and any personal withdrawals are treated as withdrwal of capital or as good as payment is made to the owner.

Only those transactions and events are recorded in the accounting which are capable of being expressed in terms of money. An event, even though it may be very important for the business, will not be recorded in the books of the business unless its effect can be measured in  terms of money with a fair degree of accuracy. Thus appointment of Manager though important will not be recorded in the books of accounts as it cannot be measured in terms of money.

Single Entry System of book- keeping in which, as a rule, only records of cash and of personal accounts are maintained; it is always incomplete double entry system. That is why it ignores Dual aspect of double entry accounting system.

An event though may be very important for the business, will not be recorded in the books of business unless its effect can be measured in terms of money with a fair degree of accuracy. Thus the above transaction cannot be recorded in the books of accounts.