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Assertion (A): Accounting information is sometimes based on estimations Reason (R): The financial statements always reflects true position of the business. (A) Both A and R are true and R is the correct explanation of A. (B) Both A and R are true but R is not the correct explanation of A (C) A is true but Ris false. (D) A is false but R is true.?
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Assertion (A): Accounting information is sometimes based on estimation...
The correct answer is:
C) A is true but R is false.
It is true that accounting information is sometimes based on estimations, as there may be certain items for which it is not possible to obtain precise and reliable data. For example, a company may need to estimate the useful life of a fixed asset for depreciation purposes, or it may need to estimate the value of its inventory using the retail inventory method.
However, the reason given (that "the financial statements always reflect the true position of the business") is false. Financial statements, such as the balance sheet and income statement, are based on historical data and are prepared in accordance with generally accepted accounting principles (GAAP). While they provide a useful snapshot of a company's financial performance and position at a particular point in time, they do not necessarily reflect the "true" or "real" position of the business, as they are based on estimates and assumptions and may not capture all of the complexities of a company's financial situation.
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Assertion (A): Accounting information is sometimes based on estimation...
Assertion (A): Accounting information is sometimes based on estimations
Reason (R): The financial statements always reflect the true position of the business.
Explanation:
In accounting, estimations are often used to determine certain values or figures that cannot be precisely measured or determined. These estimations are necessary to ensure that financial statements provide a fair representation of the business's financial position and performance.
Accounting Information Based on Estimations:
- Accruals and provisions: Accounting information often includes estimations for accrued expenses, such as salaries, interest, and taxes. Provisions are also made for potential future expenses or losses.
- Depreciation: The value of a fixed asset is allocated over its useful life through depreciation. The calculation of depreciation requires estimations regarding the asset's useful life, residual value, and depreciation method.
- Bad debts: Estimations are made to account for potential bad debts based on historical data, industry trends, and the creditworthiness of customers.
- Inventory valuation: The value of inventory is often determined using estimation methods such as First-In-First-Out (FIFO), Last-In-First-Out (LIFO), or Weighted Average Cost.
Reason for Financial Statements Reflecting True Position:
- Financial statements are prepared based on the Generally Accepted Accounting Principles (GAAP) or International Financial Reporting Standards (IFRS). These standards require the financial statements to present a true and fair view of the business's financial position and performance.
- The financial statements are prepared using accurate and reliable data. However, estimations are necessary when exact figures cannot be determined.
- Estimations are disclosed in the financial statements, ensuring transparency and allowing users to understand the potential impact of these estimates on the financial position.
- Auditing and review processes are in place to ensure the reliability and accuracy of the financial statements.
Conclusion:
Both the assertion and the reason are true. Accounting information is indeed based on estimations, and financial statements aim to reflect the true position of the business. However, the reason does not provide a correct explanation for the assertion. The true position of the business is reflected in financial statements through a combination of accurate data and necessary estimations.
Reason (R): The financial statements always reflect the true position of the business.
Explanation:
In accounting, estimations are often used to determine certain values or figures that cannot be precisely measured or determined. These estimations are necessary to ensure that financial statements provide a fair representation of the business's financial position and performance.
Accounting Information Based on Estimations:
- Accruals and provisions: Accounting information often includes estimations for accrued expenses, such as salaries, interest, and taxes. Provisions are also made for potential future expenses or losses.
- Depreciation: The value of a fixed asset is allocated over its useful life through depreciation. The calculation of depreciation requires estimations regarding the asset's useful life, residual value, and depreciation method.
- Bad debts: Estimations are made to account for potential bad debts based on historical data, industry trends, and the creditworthiness of customers.
- Inventory valuation: The value of inventory is often determined using estimation methods such as First-In-First-Out (FIFO), Last-In-First-Out (LIFO), or Weighted Average Cost.
Reason for Financial Statements Reflecting True Position:
- Financial statements are prepared based on the Generally Accepted Accounting Principles (GAAP) or International Financial Reporting Standards (IFRS). These standards require the financial statements to present a true and fair view of the business's financial position and performance.
- The financial statements are prepared using accurate and reliable data. However, estimations are necessary when exact figures cannot be determined.
- Estimations are disclosed in the financial statements, ensuring transparency and allowing users to understand the potential impact of these estimates on the financial position.
- Auditing and review processes are in place to ensure the reliability and accuracy of the financial statements.
Conclusion:
Both the assertion and the reason are true. Accounting information is indeed based on estimations, and financial statements aim to reflect the true position of the business. However, the reason does not provide a correct explanation for the assertion. The true position of the business is reflected in financial statements through a combination of accurate data and necessary estimations.
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Assertion (A): Accounting information is sometimes based on estimations Reason (R): The financial statements always reflects true position of the business. (A) Both A and R are true and R is the correct explanation of A. (B) Both A and R are true but R is not the correct explanation of A (C) A is true but Ris false. (D) A is false but R is true.?
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Assertion (A): Accounting information is sometimes based on estimations Reason (R): The financial statements always reflects true position of the business. (A) Both A and R are true and R is the correct explanation of A. (B) Both A and R are true but R is not the correct explanation of A (C) A is true but Ris false. (D) A is false but R is true.? for Commerce 2024 is part of Commerce preparation. The Question and answers have been prepared according to the Commerce exam syllabus. Information about Assertion (A): Accounting information is sometimes based on estimations Reason (R): The financial statements always reflects true position of the business. (A) Both A and R are true and R is the correct explanation of A. (B) Both A and R are true but R is not the correct explanation of A (C) A is true but Ris false. (D) A is false but R is true.? covers all topics & solutions for Commerce 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Assertion (A): Accounting information is sometimes based on estimations Reason (R): The financial statements always reflects true position of the business. (A) Both A and R are true and R is the correct explanation of A. (B) Both A and R are true but R is not the correct explanation of A (C) A is true but Ris false. (D) A is false but R is true.?.
Assertion (A): Accounting information is sometimes based on estimations Reason (R): The financial statements always reflects true position of the business. (A) Both A and R are true and R is the correct explanation of A. (B) Both A and R are true but R is not the correct explanation of A (C) A is true but Ris false. (D) A is false but R is true.? for Commerce 2024 is part of Commerce preparation. The Question and answers have been prepared according to the Commerce exam syllabus. Information about Assertion (A): Accounting information is sometimes based on estimations Reason (R): The financial statements always reflects true position of the business. (A) Both A and R are true and R is the correct explanation of A. (B) Both A and R are true but R is not the correct explanation of A (C) A is true but Ris false. (D) A is false but R is true.? covers all topics & solutions for Commerce 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Assertion (A): Accounting information is sometimes based on estimations Reason (R): The financial statements always reflects true position of the business. (A) Both A and R are true and R is the correct explanation of A. (B) Both A and R are true but R is not the correct explanation of A (C) A is true but Ris false. (D) A is false but R is true.?.
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