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Mr. Z purchased goods for Rs. 20,00,00, and sold 4/5th of goods for Rs. 22,00,000, of which he received Rs. 20,00,000 in cash. His expenses amounted to Rs. 2,50,000 during the year. Mr. Z counted the net profit as Rs.1,50,000 for that year. Which concept is violated?
- a)Entity
- b)Periodicity
- c)Conservatism
- d)Accrual
Correct answer is option 'D'. Can you explain this answer?
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Most Upvoted Answer
Mr. Z purchased goods for Rs. 20,00,00, andsold 4/5th of goods for Rs....
Accrual Concept is Violated
Explanation:
The accrual concept is a fundamental principle of accounting that requires revenue and expenses to be recognized in the financial statements when they are incurred, regardless of whether cash has been received or paid. This concept ensures that financial statements provide a true and fair view of the financial position and performance of the entity.
In the given scenario, Mr. Z has violated the accrual concept by counting net profit as Rs. 1,50,000 for the year. This is because the cash received from the sale of goods is not equal to the revenue earned during the year. Mr. Z has received Rs. 20,00,000 in cash, but the total sales revenue is Rs. 22,00,000. Therefore, the uncollected revenue of Rs. 2,00,000 should be recognized as accounts receivable.
Moreover, Mr. Z has not accounted for the expenses incurred during the year, which amount to Rs. 2,50,000. These expenses should be recognized in the financial statements, even if they have not been paid yet.
Therefore, Mr. Z's calculation of net profit of Rs. 1,50,000 violates the accrual concept of accounting.
Conclusion:
The accrual concept is a fundamental principle of accounting that ensures financial statements provide a true and fair view of the financial position and performance of the entity. Mr. Z violated this concept by not recognizing the uncollected revenue and expenses incurred during the year.
Explanation:
The accrual concept is a fundamental principle of accounting that requires revenue and expenses to be recognized in the financial statements when they are incurred, regardless of whether cash has been received or paid. This concept ensures that financial statements provide a true and fair view of the financial position and performance of the entity.
In the given scenario, Mr. Z has violated the accrual concept by counting net profit as Rs. 1,50,000 for the year. This is because the cash received from the sale of goods is not equal to the revenue earned during the year. Mr. Z has received Rs. 20,00,000 in cash, but the total sales revenue is Rs. 22,00,000. Therefore, the uncollected revenue of Rs. 2,00,000 should be recognized as accounts receivable.
Moreover, Mr. Z has not accounted for the expenses incurred during the year, which amount to Rs. 2,50,000. These expenses should be recognized in the financial statements, even if they have not been paid yet.
Therefore, Mr. Z's calculation of net profit of Rs. 1,50,000 violates the accrual concept of accounting.
Conclusion:
The accrual concept is a fundamental principle of accounting that ensures financial statements provide a true and fair view of the financial position and performance of the entity. Mr. Z violated this concept by not recognizing the uncollected revenue and expenses incurred during the year.
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Community Answer
Mr. Z purchased goods for Rs. 20,00,00, andsold 4/5th of goods for Rs....
Purchase= 20lakh
sale=22lakh
closing stock = 4lakh(20lakh - 4/5th of 20lakh)
hence gross profit = 6lakh
expenses are 2.5 lakh
therefore net profit = 3.5 lakh
a.) entity concept has nothing to do with this question as there's no capital mentioned
b.) periodicity- same thing, year isn't mentioned
c.) conservatism - nothing, as there's no provision
coming to option (d) it says that accrual concept has been violated hence, cash basis has been followed
therefore taking this into consideration the sales will be taken as 20lakh and ur GP will be 4lakh and net profit will turn out 1.5 lakh
hence satisfied. correct option is (d)accrual concept has been violated.
sale=22lakh
closing stock = 4lakh(20lakh - 4/5th of 20lakh)
hence gross profit = 6lakh
expenses are 2.5 lakh
therefore net profit = 3.5 lakh
a.) entity concept has nothing to do with this question as there's no capital mentioned
b.) periodicity- same thing, year isn't mentioned
c.) conservatism - nothing, as there's no provision
coming to option (d) it says that accrual concept has been violated hence, cash basis has been followed
therefore taking this into consideration the sales will be taken as 20lakh and ur GP will be 4lakh and net profit will turn out 1.5 lakh
hence satisfied. correct option is (d)accrual concept has been violated.
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Mr. Z purchased goods for Rs. 20,00,00, andsold 4/5th of goods for Rs. 22,00,000, ofwhichhe received Rs. 20,00,000 in cash. His expensesamounted to Rs. 2,50,000 during the year. Mr.Z counted the net profit as Rs.1,50,000 forthat year. Which concept is violated?a)Entityb)Periodicityc)Conservatismd)AccrualCorrect answer is option 'D'. Can you explain this answer?
Question Description
Mr. Z purchased goods for Rs. 20,00,00, andsold 4/5th of goods for Rs. 22,00,000, ofwhichhe received Rs. 20,00,000 in cash. His expensesamounted to Rs. 2,50,000 during the year. Mr.Z counted the net profit as Rs.1,50,000 forthat year. Which concept is violated?a)Entityb)Periodicityc)Conservatismd)AccrualCorrect answer is option 'D'. Can you explain this answer? for CA Foundation 2024 is part of CA Foundation preparation. The Question and answers have been prepared according to the CA Foundation exam syllabus. Information about Mr. Z purchased goods for Rs. 20,00,00, andsold 4/5th of goods for Rs. 22,00,000, ofwhichhe received Rs. 20,00,000 in cash. His expensesamounted to Rs. 2,50,000 during the year. Mr.Z counted the net profit as Rs.1,50,000 forthat year. Which concept is violated?a)Entityb)Periodicityc)Conservatismd)AccrualCorrect answer is option 'D'. Can you explain this answer? covers all topics & solutions for CA Foundation 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Mr. Z purchased goods for Rs. 20,00,00, andsold 4/5th of goods for Rs. 22,00,000, ofwhichhe received Rs. 20,00,000 in cash. His expensesamounted to Rs. 2,50,000 during the year. Mr.Z counted the net profit as Rs.1,50,000 forthat year. Which concept is violated?a)Entityb)Periodicityc)Conservatismd)AccrualCorrect answer is option 'D'. Can you explain this answer?.
Mr. Z purchased goods for Rs. 20,00,00, andsold 4/5th of goods for Rs. 22,00,000, ofwhichhe received Rs. 20,00,000 in cash. His expensesamounted to Rs. 2,50,000 during the year. Mr.Z counted the net profit as Rs.1,50,000 forthat year. Which concept is violated?a)Entityb)Periodicityc)Conservatismd)AccrualCorrect answer is option 'D'. Can you explain this answer? for CA Foundation 2024 is part of CA Foundation preparation. The Question and answers have been prepared according to the CA Foundation exam syllabus. Information about Mr. Z purchased goods for Rs. 20,00,00, andsold 4/5th of goods for Rs. 22,00,000, ofwhichhe received Rs. 20,00,000 in cash. His expensesamounted to Rs. 2,50,000 during the year. Mr.Z counted the net profit as Rs.1,50,000 forthat year. Which concept is violated?a)Entityb)Periodicityc)Conservatismd)AccrualCorrect answer is option 'D'. Can you explain this answer? covers all topics & solutions for CA Foundation 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Mr. Z purchased goods for Rs. 20,00,00, andsold 4/5th of goods for Rs. 22,00,000, ofwhichhe received Rs. 20,00,000 in cash. His expensesamounted to Rs. 2,50,000 during the year. Mr.Z counted the net profit as Rs.1,50,000 forthat year. Which concept is violated?a)Entityb)Periodicityc)Conservatismd)AccrualCorrect answer is option 'D'. Can you explain this answer?.
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