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Test: Theory Base of Accounting- Case Based Type Questions


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10 Questions MCQ Test Accountancy Class 11 | Test: Theory Base of Accounting- Case Based Type Questions

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Test: Theory Base of Accounting- Case Based Type Questions - Question 1

Read the following hypothetical Case Study and answer the given questions:

The financial statements, comprising the Trading A/c, Profit & Loss Account, Balance Sheet and Cash Flow Statement, that are prepared from the accounting information are published for the use by different entities, persons, etc. It is therefore essential that the published information is based on defined principles, concrete concepts and conventions. Accounting principles are the basic guidelines that provide standards for accounting practices and procedures to be followed, so that uniformity in accounting transactions is maintained. Accounting concepts are the assumptions on the basis of which financial statements are prepared. Accounting conventions emerge out of the accounting practices that have been followed by various organizations, over a period of time. The generally accepted accounting principles are generally accepted accounting standards. The concepts on the basis of which the financial statements are prepared and are agreed upon by the accountants, acting as a foundation for accounting are called accounting concepts. They are uniform set of rules for uniformity and understandability of accounting information. They are derived from experience. They are not static. It needs to satisfy relevance, objectivity and feasibility. The going concern concept assumes that the enterprise has neither any intention nor any necessity to close the business and will last for a long time. It enables the firms to enter into long term contracts. It enables for the charge or depreciation on assets which have fixed life. Due to this concept prepaid expenses are treated as assets. It helps in the classification of assets and liabilities. According to Consistency concept, the accounting principles and methods should be consistent. It should not vary every year. It enables to compare the financial stability of the business. There needs to be consistency in valuation of stock, depreciation and provisions, to enable better decision making by the management. It doesn’t mean that the accounting methods should not change, but the nature and effect and the reason for change should be stated.

Which of the following is not the purpose served by Accounting standards?

Detailed Solution for Test: Theory Base of Accounting- Case Based Type Questions - Question 1 Accounting Standards (AS) are basic policy documents. Their main aim is to ensure transparency, reliability, consistency, and comparability of the financial statements. They do so by standardizing accounting policies and principles of a nation/economy.
Test: Theory Base of Accounting- Case Based Type Questions - Question 2

Read the following hypothetical Case Study and answer the given questions:

The financial statements, comprising the Trading A/c, Profit & Loss Account, Balance Sheet and Cash Flow Statement, that are prepared from the accounting information are published for the use by different entities, persons, etc. It is therefore essential that the published information is based on defined principles, concrete concepts and conventions. Accounting principles are the basic guidelines that provide standards for accounting practices and procedures to be followed, so that uniformity in accounting transactions is maintained. Accounting concepts are the assumptions on the basis of which financial statements are prepared. Accounting conventions emerge out of the accounting practices that have been followed by various organizations, over a period of time. The generally accepted accounting principles are generally accepted accounting standards. The concepts on the basis of which the financial statements are prepared and are agreed upon by the accountants, acting as a foundation for accounting are called accounting concepts. They are uniform set of rules for uniformity and understandability of accounting information. They are derived from experience. They are not static. It needs to satisfy relevance, objectivity and feasibility. The going concern concept assumes that the enterprise has neither any intention nor any necessity to close the business and will last for a long time. It enables the firms to enter into long term contracts. It enables for the charge or depreciation on assets which have fixed life. Due to this concept prepaid expenses are treated as assets. It helps in the classification of assets and liabilities. According to Consistency concept, the accounting principles and methods should be consistent. It should not vary every year. It enables to compare the financial stability of the business. There needs to be consistency in valuation of stock, depreciation and provisions, to enable better decision making by the management. It doesn’t mean that the accounting methods should not change, but the nature and effect and the reason for change should be stated.

_____________ concept assumes that the enterprise has no intention of closing the business.

Detailed Solution for Test: Theory Base of Accounting- Case Based Type Questions - Question 2 Going concern concept assumes that the enterprise has no intention of closing the business.
Test: Theory Base of Accounting- Case Based Type Questions - Question 3

Read the following hypothetical Case Study and answer the given questions:

The financial statements, comprising the Trading A/c, Profit & Loss Account, Balance Sheet and Cash Flow Statement, that are prepared from the accounting information are published for the use by different entities, persons, etc. It is therefore essential that the published information is based on defined principles, concrete concepts and conventions. Accounting principles are the basic guidelines that provide standards for accounting practices and procedures to be followed, so that uniformity in accounting transactions is maintained. Accounting concepts are the assumptions on the basis of which financial statements are prepared. Accounting conventions emerge out of the accounting practices that have been followed by various organizations, over a period of time. The generally accepted accounting principles are generally accepted accounting standards. The concepts on the basis of which the financial statements are prepared and are agreed upon by the accountants, acting as a foundation for accounting are called accounting concepts. They are uniform set of rules for uniformity and understandability of accounting information. They are derived from experience. They are not static. It needs to satisfy relevance, objectivity and feasibility. The going concern concept assumes that the enterprise has neither any intention nor any necessity to close the business and will last for a long time. It enables the firms to enter into long term contracts. It enables for the charge or depreciation on assets which have fixed life. Due to this concept prepaid expenses are treated as assets. It helps in the classification of assets and liabilities. According to Consistency concept, the accounting principles and methods should be consistent. It should not vary every year. It enables to compare the financial stability of the business. There needs to be consistency in valuation of stock, depreciation and provisions, to enable better decision making by the management. It doesn’t mean that the accounting methods should not change, but the nature and effect and the reason for change should be stated.

________ are the generally accepted rules and assumptions that assist accountants in the preparation of financial statements.

Detailed Solution for Test: Theory Base of Accounting- Case Based Type Questions - Question 3 Accounting concepts are the generally accepted rules and assumptions that assist accountants in the preparation of financial statements.
Test: Theory Base of Accounting- Case Based Type Questions - Question 4

Read the following hypothetical Case Study and answer the given questions:

The financial statements, comprising the Trading A/c, Profit & Loss Account, Balance Sheet and Cash Flow Statement, that are prepared from the accounting information are published for the use by different entities, persons, etc. It is therefore essential that the published information is based on defined principles, concrete concepts and conventions. Accounting principles are the basic guidelines that provide standards for accounting practices and procedures to be followed, so that uniformity in accounting transactions is maintained. Accounting concepts are the assumptions on the basis of which financial statements are prepared. Accounting conventions emerge out of the accounting practices that have been followed by various organizations, over a period of time. The generally accepted accounting principles are generally accepted accounting standards. The concepts on the basis of which the financial statements are prepared and are agreed upon by the accountants, acting as a foundation for accounting are called accounting concepts. They are uniform set of rules for uniformity and understandability of accounting information. They are derived from experience. They are not static. It needs to satisfy relevance, objectivity and feasibility. The going concern concept assumes that the enterprise has neither any intention nor any necessity to close the business and will last for a long time. It enables the firms to enter into long term contracts. It enables for the charge or depreciation on assets which have fixed life. Due to this concept prepaid expenses are treated as assets. It helps in the classification of assets and liabilities. According to Consistency concept, the accounting principles and methods should be consistent. It should not vary every year. It enables to compare the financial stability of the business. There needs to be consistency in valuation of stock, depreciation and provisions, to enable better decision making by the management. It doesn’t mean that the accounting methods should not change, but the nature and effect and the reason for change should be stated.

What are Accounting Principles also called?

Detailed Solution for Test: Theory Base of Accounting- Case Based Type Questions - Question 4 Accounting Principles are also called Generally Accepted Accounting Principles.
Test: Theory Base of Accounting- Case Based Type Questions - Question 5

Read the following hypothetical Case Study and answer the given questions:

A business purchased goods for ₹2,00,000 and sold 75% of such goods during accounting year ended 31st March, 2020. The market value of remaining goods was ₹43,000. Accountant valued closing stock at cost. According to him,

(i) Owner of the business is treated as creditor to the extent of his capital;

(ii) All expenses incurred to earn revenue of a particular period should be charged against that revenue to determine the net income.

Financial statements are prepared on 31st March ever year.

A business purchased goods for ₹2,00,000 and sold 75% of such goods during accounting year ended 31st March, 2020. The market value of remaining goods was ₹43,000. Accountant valued closing stock at cost.’ Identify the concept violated in the above situation.

Detailed Solution for Test: Theory Base of Accounting- Case Based Type Questions - Question 5 Goods purchase Rs 2,00,000

so 75% goods are sold out

Remaining goods at cost = 2,00,000 × 25/100 = 50,000

remaining goods at cost Rs 50,000

Market value of goods is 48,000

Cost of the goods value is higher than market value

This is a Conservatism convention concept

Test: Theory Base of Accounting- Case Based Type Questions - Question 6

Read the following hypothetical Case Study and answer the given questions:

A business purchased goods for ₹2,00,000 and sold 75% of such goods during accounting year ended 31st March, 2020. The market value of remaining goods was ₹43,000. Accountant valued closing stock at cost. According to him,

(i) Owner of the business is treated as creditor to the extent of his capital;

(ii) All expenses incurred to earn revenue of a particular period should be charged against that revenue to determine the net income.

Financial statements are prepared on 31st March ever year.

According to which concept, all expenses incurred to earn revenue of a particular period should be charged against that revenue to determine the net income.

Detailed Solution for Test: Theory Base of Accounting- Case Based Type Questions - Question 6 Matching principle is the accounting principle that requires that the expenses incurred during a period be recorded in the same period in which the related revenues are earned. This principle recognizes that businesses must incur expenses to earn revenues.
Test: Theory Base of Accounting- Case Based Type Questions - Question 7

Read the following hypothetical Case Study and answer the given questions:

A business purchased goods for ₹2,00,000 and sold 75% of such goods during accounting year ended 31st March, 2020. The market value of remaining goods was ₹43,000. Accountant valued closing stock at cost. According to him,

(i) Owner of the business is treated as creditor to the extent of his capital;

(ii) All expenses incurred to earn revenue of a particular period should be charged against that revenue to determine the net income.

Financial statements are prepared on 31st March ever year.

Financial Statements of an entity are prepared at regular intervals in accordance to which accounting concept.

Detailed Solution for Test: Theory Base of Accounting- Case Based Type Questions - Question 7 Accounting Period Concept: Every organization, according to its needs, chooses a specific period of time to complete an accounting cycle.
Test: Theory Base of Accounting- Case Based Type Questions - Question 8

Read the following hypothetical Case Study and answer the given questions:

A business purchased goods for ₹2,00,000 and sold 75% of such goods during accounting year ended 31st March, 2020. The market value of remaining goods was ₹43,000. Accountant valued closing stock at cost. According to him,

(i) Owner of the business is treated as creditor to the extent of his capital;

(ii) All expenses incurred to earn revenue of a particular period should be charged against that revenue to determine the net income.

Financial statements are prepared on 31st March ever year.

Under which concept, owner of the business is treated as creditor to the extent of his capital.

Detailed Solution for Test: Theory Base of Accounting- Case Based Type Questions - Question 8 According to Business Entity Concept, a business is treated as a separate entity and is distinct from it's owners. When a proprietor introduces capital in his own business, the capital is considered as liability from business point of view. Similarly, when he withdraws any money for personal use it is treated as reduction in the liability of business.
Test: Theory Base of Accounting- Case Based Type Questions - Question 9

Pick the odd one out:

Detailed Solution for Test: Theory Base of Accounting- Case Based Type Questions - Question 9 The money measurement concept states that a business should only record an accounting transaction if it can be expressed in terms of money. ... Examples of items that cannot be recorded as accounting transactions because they cannot be expressed in terms of money include: Employee skill level. Employee working conditions.

In simplest terms, a business entity is an organization created by an individual or individuals to conduct business, engage in a trade or partake in similar activities. There are various types of business entities — sole proprietorship, partnership, LLC, corporation, etc.

Accounting period concept is based on the theory that all accounting transactions of a business should be divided into equal time periods, which are referred to as accounting periods. Generally an accounting period is of 12 months (1 year). While the time period is fixed, the month can vary from company to company.

A balance sheet is a financial statement that reports a company's assets, liabilities and shareholders' equity at a specific point in time, and provides a basis for computing rates of return and evaluating its capital structure.

Test: Theory Base of Accounting- Case Based Type Questions - Question 10

Pick the odd one out:

Detailed Solution for Test: Theory Base of Accounting- Case Based Type Questions - Question 10 Full disclosure is the U.S. Securities and Exchange Commission's (SEC) requirement that publicly traded companies release and provide for the free exchange of all material facts that are relevant to their ongoing business operations.

Matching principle is the accounting principle that requires that the expenses incurred during a period be recorded in the same period in which the related revenues are earned. ... If there's no cause and effect relationship, then the accountant will charge the cost to the expense immediately.

Materiality is a concept which refers to the relevance of certain aspects of financial statements. Por Sanz González , María. It is really surprising how in a matter whose nature is inherently quantitative and whose rigor is based on accuracy, an indefinite concept such as “materiality” has as much prominence.

Prudence is defined as the act of being careful, often with money. An example of prudence is checking your bank account before you spend money.

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