Unit 7: Accounting as a Measurement Discipline, Valuation Principles, Accounting Estimates (Summary) CA Foundation Notes | EduRev

Principles and Practice of Accounting

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CA Foundation : Unit 7: Accounting as a Measurement Discipline, Valuation Principles, Accounting Estimates (Summary) CA Foundation Notes | EduRev

The document Unit 7: Accounting as a Measurement Discipline, Valuation Principles, Accounting Estimates (Summary) CA Foundation Notes | EduRev is a part of the CA Foundation Course Principles and Practice of Accounting.
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(Summary)

  • Measurement is vital aspect of accounting. Primarily transactions and events are measured in terms of money.
  • There are three elements of measurement:

(i) Identification of objects and events to be measured;
(ii) Selection of standard or scale to be used;
(iii) Evaluation of dimension of measurement standard or scale.

  • There are four generally accepted measurement bases or valuation principles. These are:

(i) Historical Cost;
(ii) Current Cost;
(iii) Realizable Value;
(iv)  Present Value.

(Question with Answer)

1. Ques  (i):  Measurement discipline deals with
(a)  Identification of objects and events.
(b)  Selection of scale.
(c)  Both (a) and (b)
Asn: (c)

Ques (ii):  All of the following are valuation principles except
(a)  Historical cost.
(b)  Present value.
(c)  Future value.
Ans: (c)

Ques (iii):  Book value of machinery on 31st March, 2016  Rs 10,00,000
Market value as on 31st March, 2016 if sold  Rs 11,00,000
As on 31st March, 2016, if the company values the machinery at Rs 11,00,000, which of the following valuation principle is being followed?
(a)  Historical Cost.
(b) Present Value.
(c)  Realisable Value.
Ans: (c)

Ques 2: Mohan purchased a machinery amounting Rs 10,00,000 on 1st April, 2001. On 31st March, 2016, similar machinery could be purchased for Rs 20,00,000 but the realizable value of the machinery (purchased on 1.4.2001) was estimated at Rs 15,00,000. The present discounted value of the future net cash inflows that the machinery was expected to generate in the normal course of business, was calculated as Rs 12,00,000.
Ques (i):  The current cost of the machinery is
(a)  Rs 10,00,000.
(b)  Rs 20,00,000.
(c)  Rs 15,00,000.
Ans: (b)

Ques (ii):  The present value of machinery is
(a)  Rs 10,00,000.
(b)  Rs 20,00,000.
(c)  Rs 12,00,000.
Ans: (c)


Ques (iii):  The historical cost of machinery is
(a)  Rs 10,00,000.
(b)  Rs 20,00,000.
(c)  Rs 15,00,000.
Ans: (a)

Ques (iv)  The realizable value of machinery is
(a)  Rs 10,00,000.
(b)  Rs 20,00,000.
(c)  Rs 15,00,000.
Ans: (c)

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