Theory Base of Accounting Test - 5

According to Revenue Recognition Concept the revenue is earned only when the goods are transferred. It means that profit is deemed to have accrued when property in goods passes to buyer. Thus accounting should take into consideration of profits only when the same have been realised and no anticipated profit should be recorded in the books. Thus order received is not any generation of reveue.

IFRS are to develop in public interest, a single set of high quality, understandable and enforceable global accounting standards that require high quality, transparent and comparable information in financial statements and other financial reporting at fiar value.

According to Comapnies Act, 1956  revenue and costs are recognised as they are earned or incurred ( and not as money is received or paid) and recorded in the financial statements for the periods to which they relate. This concept is called accrual concept.

Financial Statements refer to such statemnets which report the profitability and the financial position of the business at the end of accounting period. And they also hep in the comparison of results from time to time.

According to business entity concept, the task of measuring income and wealth is undertaken by accounting for an identifiable unit or entity. the Unit or entity so identified is treated different and distinct from its owners. 

There are in practice several different methods of calculation or recording of some events in the accounts. The consistency assumption requires that once a particular method of calculation or recording has been decided, the business enterprise will follow the same method for subsequent years for events of same character, to ensure uniformity in accounting processes and policies.

Only those transactions and events are recorded in accounting which are capable of being expressed in terms of money according to money measurement concept. An event which may be importatnt for the business, eq competitor has launched a better product in the market, will not be recorded in the books of the business unless its effect can be measured in terms of moneywith a fair degree of accuracy. Thus, it ignores qualitative aspect of the business.

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.

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.

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.

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.

As per Dual aspect for every debit there is credit. Every transaction should have two sided effect to the extent of same amount.

Accoring to accrual concept revenue is recognized when it is earned and expenses is recognised when an obligation of payment arises. Thus Rent of the month of march 2012, though not paid will be recorded as expenses for the year ended 31st March, 2012.

Accounting equation signifies that the aseets of a business are always equal to the total of capital and liabilities.

This accounting assumption indicates that the revenue is recognized when it is earned and expenses is recognized when obligation if payment arises. We record all expenses or incomes relating to the accounting period when cash has been disbursed or received or not.

IFRS are more comprehensive and market driven since it improves quality of information, increases market efficiency and minimises capital lost. And they are priniciple based accounting standards. At international level.

Market value of an asset keeps on changing from year to year and it will become tedious and costly affair to clacuate the same every year. So businesses practice the policy of cost concept in which the value of an asset is recorded cost i.e. acquired cost and thus market value becomes irrerelevant, the book value does not signify the market value of goods of the asset.

Prudence or conservatism principle states that all the losses should be provided for but we not take credit of anticipated profits. But the above statement is totally opposite and thus completely false.

In cash basis of accounting only amount received or paid in cash are recorded in the books of accounts. Outstanding expenses are the expenses which are due but not paid, so this will not be recorded in the books of accounts following cash basis of accounting.

According to business entity concept , the unit or entity so identified is treated different and distinct from its owner. And we record the transactions from the point of view of business . so accordingly owner is treated as creditors and any capital contributed by him is liabilty for the suiness. similarly Proprietor's private expenses are treated as drawing, it is as good as withdrawal of capital and Life insurance premium is treated as drawing as it is on the personal life of the owner and business will not receive any benefit when the owner dies it will be received by the family of the owners.That is why all three options are correct.

according to the concept of prudencee all anticipated losses should be accounted for and all anticipated profits should be ignored. So the inventory is valued at market price or costs whichever is lower. Thus valuing inventory at market price which is higher than the costs is violation if prudence concept.

Under cash basisi of accounting incomes are not recorded unless they are received in cash. Expenses are only recorded when they are ppaid in the cash. No credit transactions are recorded.

Accounting Statndard is a selected set of accounting policies or broad guidelines issued by an accounting body, regarding the principles and methods to be chosen out of several alternatives. They are norms and not accounting concept as concept is logical consideration and a notion which is generally and widely accepted.

A need was felt to formulate some guidelines which are universally applicable so that the accounting may serve the useful purpose of those dealing with it . accounting standards are the norms of accounting policies and practices to guide the treatment of transactions and events in the accounting process.