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Test: Accounting Standards - CA Foundation MCQ


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15 Questions MCQ Test Principles and Practice of Accounting - Test: Accounting Standards

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Test: Accounting Standards - Question 1

  IASB stands for: 

Detailed Solution for Test: Accounting Standards - Question 1
IASB stands for International Accounting Standards Board.
The International Accounting Standards Board (IASB) is an independent global accounting standard-setting body. It was established in 2001 and is based in London, United Kingdom. The IASB is responsible for developing and issuing International Financial Reporting Standards (IFRS) that are used by companies around the world to prepare their financial statements.
Key Points about IASB:
- The IASB is responsible for setting high-quality, transparent, and globally accepted accounting standards.
- The main objective of the IASB is to develop and promote the use of IFRS to improve the comparability, reliability, and relevance of financial information.
- The IASB works closely with national standard-setting bodies and other stakeholders to ensure the development of global accounting standards that meet the needs of different economies.
- The IASB conducts extensive research, consultation, and due process before issuing new accounting standards.
- The IASB operates under a rigorous governance structure, including oversight by the IFRS Foundation Trustees.
- The IASB's standards are widely adopted by more than 140 countries, including the European Union, Australia, Canada, and Japan.
- The IASB regularly reviews and updates its standards to reflect changes in business practices and evolving accounting issues.
Conclusion:
The International Accounting Standards Board (IASB) plays a crucial role in developing and issuing globally accepted accounting standards. Its standards, known as IFRS, are used by companies worldwide to ensure transparency, comparability, and reliability of financial information.
Test: Accounting Standards - Question 2

Accounting Standards refers to specific accounting : 

Detailed Solution for Test: Accounting Standards - Question 2
Accounting Standards


Accounting Standards refers to the specific guidelines and rules that are followed in the preparation and presentation of financial statements. These standards ensure uniformity, consistency, and comparability in financial reporting. In order to maintain transparency and reliability in financial reporting, it is essential to have a standardized framework in place. Accounting Standards serve as the foundation for accounting practices and provide a common language for financial information. They are developed by accounting standard-setting bodies and are regularly updated to keep up with the changing business environment.
The main purpose of accounting standards is to provide guidance on how to record, classify, and present financial transactions. They help in ensuring that financial statements are prepared in a manner that is understandable, relevant, reliable, and comparable. Accounting Standards cover various aspects of financial reporting, including:
1. Principles
- Accounting Standards establish the fundamental principles that guide the preparation and presentation of financial statements. These principles provide a conceptual framework for accounting and help in ensuring that financial information is accurate and reliable.
2. Methods of applying those principles
- Accounting Standards also provide specific guidelines on how to apply the accounting principles in practice. They outline the methods and procedures that should be followed in recording, measuring, and reporting financial transactions.
3. Disclosure requirements
- Accounting Standards specify the information that should be disclosed in financial statements. They require companies to provide relevant and reliable information about their financial position, performance, cash flows, and other significant aspects of their operations.
4. Presentation format
- Accounting Standards provide guidelines on the format and structure of financial statements. They determine the order and classification of various items in the financial statements, ensuring consistency and comparability across different companies and industries.
5. Industry-specific guidance
- Accounting Standards also provide industry-specific guidance for certain sectors or types of transactions. This ensures that companies operating in different industries or engaging in specialized activities follow specific accounting practices that are relevant to their operations.
In conclusion, Accounting Standards encompass both the principles and methods of applying those principles. They provide a standardized framework for financial reporting, ensuring consistency, comparability, and transparency in the preparation and presentation of financial statements.
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Test: Accounting Standards - Question 3

Match the following 
(A) AS 26     (i) Impairment of Assets 
(B) AS 10     (ii) Discounting operations 
(C) AS 28     (iii) Intangible assets 
(D) AS 24     (iv) Accounting for Fixed Assets 
The Correct alternative is:

Detailed Solution for Test: Accounting Standards - Question 3

The correct alternative is (D) - (A) - (iii), (B) - (iv), (C) - (i), (D) - (ii).
Let's break down the given alternatives and match them with the correct accounting standards:
A: AS 26 - Impairment of Assets
B: AS 10 - Accounting for Fixed Assets
C: AS 28 - Impairment of Assets
D: AS 24 - Intangible assets
Now let's match the alternatives with the correct accounting standards:
(A) - (iii): AS 26 - Impairment of Assets
(B) - (iv): AS 10 - Accounting for Fixed Assets
(C) - (i): AS 28 - Impairment of Assets
(D) - (ii): AS 24 - Intangible assets
Therefore, the correct alternative is (D) - (A) - (iii), (B) - (iv), (C) - (i), (D) - (ii).
Test: Accounting Standards - Question 4

AS 2 is on :

Detailed Solution for Test: Accounting Standards - Question 4
AS 2: Valuation of Inventories
Introduction: AS 2 is an accounting standard that provides guidelines for the valuation of inventories. It is applicable to all entities that prepare financial statements under the accrual basis of accounting.
Key Points:
- Objective: The main objective of AS 2 is to prescribe the method of determining the cost of inventories, its subsequent recognition as an expense, and its measurement at the lower of cost and net realizable value.
- Scope: AS 2 applies to all inventories, except for work in progress arising under construction contracts, financial instruments, and biological assets related to agricultural activity.
- Valuation Methods: AS 2 allows the use of various methods for the valuation of inventories, including specific identification, first-in, first-out (FIFO), and weighted average cost.
- Cost of Inventories: The cost of inventories consists of all costs incurred in bringing the inventories to their present location and condition. It includes the cost of purchase or production, conversion costs, and other costs necessary to bring the inventories to their present condition.
- Net Realizable Value: Inventories should be measured at the lower of cost and net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion, disposal, and transportation.
- Recognition as an Expense: The cost of inventories should be recognized as an expense in the period in which the related revenue is recognized. Any write-down of inventories to net realizable value should be recognized as an expense in the period in which the write-down occurs.
- Disclosure Requirements: AS 2 requires certain disclosures in the financial statements, including the accounting policies adopted for the valuation of inventories, the carrying amount of inventories, and any write-downs recognized as an expense.
Conclusion: AS 2 provides guidance on the valuation of inventories, ensuring that they are carried at the lower of cost and net realizable value. It helps in presenting accurate and reliable financial statements by ensuring consistent accounting treatment for inventories across different entities.
Test: Accounting Standards - Question 5

All of the following are limitations of Accounting Standards except

Detailed Solution for Test: Accounting Standards - Question 5
Limitations of Accounting Standards:

  • The choice between different alternative accounting treatments is difficult.

  • There may be a trend towards rigidity.

  • Accounting Standards cannot override the statute.


Explanation:

  • The choice between different alternative accounting treatments is difficult: Accounting standards provide guidelines for how financial transactions should be recorded and reported. However, there may be different ways to interpret and apply these standards, leading to a lack of consistency and difficulty in choosing the most appropriate treatment.

  • There may be a trend towards rigidity: Accounting standards are designed to promote consistency and comparability in financial reporting. However, this can sometimes lead to a rigid framework that does not allow for flexibility in adapting to unique circumstances or changing business environments.

  • Accounting Standards cannot override the statute: Accounting standards are developed by professional accounting bodies and are not legally binding. They cannot override the requirements of statutory laws and regulations that govern financial reporting.


Conclusion: Accounting standards have certain limitations, such as the difficulty in choosing between alternative treatments, the potential for rigidity, and the inability to override statutory requirements. However, they play a crucial role in promoting consistency and comparability in financial reporting.
Test: Accounting Standards - Question 6

Which of the following provide framework and accounting policies so that the financial statements of different enterprise become comparable ?

Detailed Solution for Test: Accounting Standards - Question 6
Framework and Accounting Policies for Comparable Financial Statements
The correct answer is B: Accounting standards.
Explanation:
Accounting standards provide a framework and set of accounting policies that ensure the financial statements of different enterprises are comparable. These standards are established by professional accounting bodies and regulatory authorities to promote consistency and transparency in financial reporting. Here are some key points to consider:
- Accounting standards: These are a set of rules and guidelines that dictate how financial transactions should be recorded, measured, and reported in the financial statements. They provide a common language and structure for financial reporting, making it easier to compare the financial performance and position of different companies.
- Framework: Accounting standards provide a conceptual framework that outlines the objectives, assumptions, principles, and constraints underlying financial reporting. This framework helps guide the development and application of accounting policies, ensuring consistency and comparability across different enterprises.
- Comparability: The main purpose of accounting standards is to ensure that financial statements are comparable. This means that users of financial statements can make meaningful comparisons between different companies, industries, or time periods. Comparable financial statements enable investors, creditors, and other stakeholders to make informed decisions based on reliable and consistent information.
- Other options: Business standards and market standards do not specifically address the framework and accounting policies for comparable financial statements. While they may have their own guidelines and regulations, they are not specifically focused on financial reporting and comparability.
In conclusion, accounting standards play a crucial role in providing a framework and accounting policies that ensure the financial statements of different enterprises become comparable. They promote consistency, transparency, and reliability in financial reporting, benefiting users of financial statements in making informed decisions.
Test: Accounting Standards - Question 7

Accounting for Fixed Assets: 

Detailed Solution for Test: Accounting Standards - Question 7
Accounting for Fixed Assets:
AS 10:
- AS 10 is the relevant accounting standard for accounting for fixed assets.
- It provides guidance on the recognition, measurement, presentation, and disclosure of fixed assets.
- The standard defines fixed assets as tangible assets that are held for use in the production or supply of goods or services, for rental to others, or for administrative purposes.
- AS 10 requires fixed assets to be initially recognized at cost, including all directly attributable costs for bringing the asset to its working condition.
- It further provides guidance on the subsequent measurement of fixed assets, including depreciation, revaluation, and impairment.
- AS 10 also requires disclosure of significant accounting policies related to fixed assets, as well as information about the carrying amount, accumulated depreciation, and impairment losses of fixed assets.
AS 6, AS 3, and AS 2:
- AS 6: AS 6 deals with depreciation accounting and provides guidance on the methods of depreciation, useful life of assets, and treatment of depreciation in financial statements. It is not specifically related to accounting for fixed assets as a whole.
- AS 3: AS 3 deals with cash flow statements and provides guidance on the preparation and presentation of cash flow statements. It is not directly related to accounting for fixed assets.
- AS 2: AS 2 deals with valuation of inventories and provides guidance on the measurement of inventories and their subsequent recognition as expenses. It is also not directly related to accounting for fixed assets.
Conclusion:
Based on the information provided, the relevant accounting standard for accounting for fixed assets is AS 10. AS 10 provides comprehensive guidance on the recognition, measurement, presentation, and disclosure of fixed assets.
Test: Accounting Standards - Question 8

Accounting Standards

Detailed Solution for Test: Accounting Standards - Question 8
Accounting Standards
A: Harmonise accounting policies.
- Accounting standards aim to harmonize accounting policies across different organizations, industries, and countries.
- This ensures consistency in financial reporting and facilitates comparability between companies.
B: Eliminate the non-comparability of financial statements.
- Accounting standards address the issue of non-comparability by providing a common set of rules and principles for preparing financial statements.
- This allows users of financial statements to make meaningful comparisons between different companies and industries.
C: Improve the reliability of financial statements.
- Accounting standards establish guidelines and procedures that enhance the reliability and accuracy of financial statements.
- By following these standards, companies can ensure that their financial information is presented in a consistent and transparent manner.
D: All of the above.
- The correct answer is D because accounting standards encompass all of the mentioned objectives.
- Harmonizing accounting policies, eliminating non-comparability, and improving the reliability of financial statements are all key goals of accounting standards.
In conclusion, accounting standards play a crucial role in promoting consistency, comparability, and reliability in financial reporting. These standards help ensure that financial statements are prepared in a standardized manner, allowing users to make informed decisions based on the information provided.
Test: Accounting Standards - Question 9

Accounting Standards in India are issued by

Detailed Solution for Test: Accounting Standards - Question 9
Accounting Standards in India are issued by:
The correct answer is C: Institute of Chartered Accountants of India.
- Institute of Chartered Accountants of India (ICAI):
- ICAI is the premier accounting body in India and is responsible for formulating and issuing accounting standards in the country.
- It is a statutory body established under the Chartered Accountants Act, 1949.
- ICAI sets the accounting standards in India based on international accounting standards and best practices.
- These standards are known as the Indian Accounting Standards (Ind AS) and are applicable to all companies in India.
- Other options and their roles:
- Central Govt: The Central Government of India is responsible for various regulatory functions, but it does not issue accounting standards.
- State Govt: State governments in India are responsible for governing their respective states and do not have the authority to issue accounting standards.
- Reserve Bank of India (RBI): RBI is the central bank of India and is primarily responsible for monetary policy and regulation of banks and financial institutions. It does not issue accounting standards.
In conclusion, accounting standards in India are issued by the Institute of Chartered Accountants of India (ICAI), which is the professional body for chartered accountants in the country.
Test: Accounting Standards - Question 10

How many Accounting Standards have been issued by ICAI?

Detailed Solution for Test: Accounting Standards - Question 10
Number of Accounting Standards issued by ICAI:
ICAI (Institute of Chartered Accountants of India) has issued a total of 32 Accounting Standards.
Explanation:
- The ICAI, which is the national professional accounting body in India, has established the Accounting Standards Board (ASB) to develop and issue accounting standards.
- These accounting standards provide a framework for consistent and transparent financial reporting by various entities in India.
- The ASB has issued a total of 32 Accounting Standards in order to align with the International Financial Reporting Standards (IFRS) and to meet the evolving needs of the business environment.
- These Accounting Standards cover various aspects of financial reporting, including recognition, measurement, presentation, and disclosure of financial transactions and events.
- The Accounting Standards issued by ICAI are mandatory for certain entities, such as companies listed on stock exchanges in India, banking companies, insurance companies, and large-sized entities.
- The Accounting Standards are periodically reviewed and updated by the ASB to ensure their relevance and alignment with the latest developments in accounting practices.
Therefore, the correct answer is option C: 32.
Test: Accounting Standards - Question 11

 Consistency with reference to application of accounting principles refer to the 

Detailed Solution for Test: Accounting Standards - Question 11
Consistency with reference to application of accounting principles refers to:
- Accounting methods and procedures used have to be consistently applied from year to year. This means that once a company chooses a specific accounting method or procedure, it should continue to use the same method in subsequent years. This ensures comparability of financial information over time.
- All the companies in the same industries should use identical procedures and methods. While it is ideal for companies in the same industry to use similar accounting methods, consistency does not require all companies to use identical procedures. Different companies may have unique circumstances that require them to use different methods.
- Income and assets have not been overstated. While consistency helps in providing reliable financial information, it does not directly ensure that income and assets are not overstated. Overstating income and assets would be a violation of accounting principles, regardless of consistency.
- Any accounting method or procedure can be utilized. This is incorrect as consistency requires companies to use the same accounting methods and procedures over time, rather than allowing for arbitrary changes.
In summary, consistency with reference to application of accounting principles means that a company should consistently apply the same accounting methods and procedures from year to year. This ensures comparability of financial information and helps stakeholders make informed decisions.
Test: Accounting Standards - Question 12

 It is essential to standardize the accounting principles and policies in order to ensure

Detailed Solution for Test: Accounting Standards - Question 12
Importance of standardizing accounting principles and policies

Standardizing accounting principles and policies is crucial for several reasons:


1. Transparency



  • Standardization ensures that financial statements are prepared and presented in a consistent and transparent manner.

  • Investors, creditors, and other stakeholders can easily understand and compare financial information across different companies.

  • Transparency helps in building trust and confidence in the financial reporting process.


2. Consistency



  • Standardized accounting principles and policies provide a consistent framework for recording, measuring, and reporting financial transactions.

  • Consistency enables accurate and reliable financial statements, reducing the risk of errors and misinterpretation.

  • Financial information prepared using consistent principles allows for effective analysis, decision-making, and evaluation of a company's performance over time.


3. Comparability



  • Standardization facilitates the comparison of financial information between different companies, industries, and time periods.

  • Investors and other users of financial statements can assess the financial performance and position of companies by comparing key metrics and ratios.

  • Comparability supports benchmarking, industry analysis, and identification of trends and patterns in financial data.


4. All of the above



  • All the three points mentioned above are interconnected and collectively contribute to the importance of standardizing accounting principles and policies.

  • Transparency, consistency, and comparability work together to enhance the credibility, reliability, and usefulness of financial information.


In conclusion, standardizing accounting principles and policies is essential to ensure transparency, consistency, and comparability in financial reporting. These factors are crucial for stakeholders to make informed decisions, assess performance, and maintain confidence in the financial markets.

Test: Accounting Standards - Question 13

 AS – 8 on Accounting for Research and Development: 

Detailed Solution for Test: Accounting Standards - Question 13


Accounting Standard (AS) – 8 on Accounting for Research and Development:



  • Statement A: Is replaced by AS – 26

  • Statement B: Is applicable only to listed companies

  • Statement C: Is mandatory for Research Institutions

  • Statement D: Is still in use


The correct answer is Statement A: Is replaced by AS – 26


Explanation:



  • AS – 8 on Accounting for Research and Development has been replaced by AS – 26 on Intangible Assets.

  • AS – 8 is no longer applicable and has been superseded by AS – 26.

  • AS – 8 was applicable to all enterprises, regardless of whether they were listed or unlisted, and not specifically restricted to listed companies.

  • It was not mandatory for Research Institutions, but applicable to all entities.

  • Therefore, the statement that is correct is Statement A: Is replaced by AS – 26.

Test: Accounting Standards - Question 14

 Accounting Standards ________ the statue:

Detailed Solution for Test: Accounting Standards - Question 14
Accounting Standards and their relationship with statutes:
Introduction:
Accounting standards play a crucial role in financial reporting and ensure consistency and comparability in the financial statements of different entities. However, the relationship between accounting standards and statutes is a complex one and requires a deeper understanding.
Explanation:
Accounting standards are developed by accounting standard-setting bodies, such as the International Financial Reporting Standards (IFRS) Foundation or the Financial Accounting Standards Board (FASB). These standards provide guidelines and principles for preparing and presenting financial statements.
Statutes, on the other hand, are laws enacted by legislative bodies that govern a particular jurisdiction. They are legally binding and must be followed by all entities operating within that jurisdiction.
When it comes to the relationship between accounting standards and statutes, the following points should be considered:
1. Primacy of statutes: Statutes have a higher legal authority compared to accounting standards. Therefore, if there is a conflict between an accounting standard and a statute, the statute will prevail.
2. Adoption of accounting standards: Many jurisdictions have adopted accounting standards as part of their legal framework. In such cases, accounting standards become legally binding and must be followed by entities operating in those jurisdictions. In these cases, accounting standards may over-ride conflicting provisions in statutes.
3. Modification of accounting standards: In some instances, statutes may modify or supplement certain provisions of accounting standards to align them with the specific legal requirements of a jurisdiction. In such cases, the modified provisions in the statutes will take precedence over the original accounting standards.
4. Disclosure requirements: Statutes may impose additional disclosure requirements that entities must comply with, regardless of the accounting standards they are following. These requirements are aimed at providing users of financial statements with relevant information for decision-making.
5. Interpretation and enforcement: The interpretation and enforcement of accounting standards and statutes are typically carried out by regulatory bodies, such as the Securities and Exchange Commission (SEC) in the United States. These bodies ensure compliance with both accounting standards and statutes.
Conclusion:
In summary, accounting standards do not have the authority to over-ride statutes unless they have been adopted as part of the legal framework of a jurisdiction. Statutes have primacy in the legal hierarchy and must be followed by entities operating within that jurisdiction. However, accounting standards play a vital role in guiding entities on how to prepare and present financial statements in a consistent and comparable manner.
Test: Accounting Standards - Question 15

 The purpose of Accounting Standards is to : 

Detailed Solution for Test: Accounting Standards - Question 15

 

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