CA Foundation Exam > CA Foundation Notes > Principles and Practice of Accounting > Unit 7: Summary - Accounting as a Measurement Discipline, Valuation Principles, Accounting Estimates
Unit 7: Summary - Accounting as a Measurement Discipline, Valuation Principles, Accounting Estimates | Principles and Practice of Accounting - CA Foundation PDF Download
(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)
The document Unit 7: Summary - Accounting as a Measurement Discipline, Valuation Principles, Accounting Estimates | Principles and Practice of Accounting - CA Foundation is a part of the CA Foundation Course Principles and Practice of Accounting.
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FAQs on Unit 7: Summary - Accounting as a Measurement Discipline, Valuation Principles, Accounting Estimates - Principles and Practice of Accounting - CA Foundation
| 1. What is accounting as a measurement discipline? |  |
Ans. Accounting as a measurement discipline refers to the practice of quantifying and recording financial information in a systematic and consistent manner. It involves measuring and reporting the economic activities of an entity, such as its assets, liabilities, revenues, and expenses, in order to provide useful information for decision-making and financial analysis.
| 2. What are valuation principles in accounting? | |
Ans. Valuation principles in accounting refer to the rules and guidelines used to determine the monetary value of assets, liabilities, and equity. These principles help accountants assign a fair and accurate value to various items reported in the financial statements. Valuation principles include concepts such as historical cost, market value, net realizable value, and present value, among others.
| 3. What are accounting estimates? | |
Ans. Accounting estimates are approximations made by accountants when preparing financial statements. They are used when it is not possible to obtain precise measurements due to uncertainties or the inability to gather all relevant information. Examples of accounting estimates include the estimation of bad debts, useful lives of assets, fair value of investments, and provision for warranty expenses.
| 4. How do accounting estimates impact financial statements? | |
Ans. Accounting estimates can have a significant impact on financial statements as they can affect the reported amounts of assets, liabilities, revenues, and expenses. For example, an increase in the estimated useful life of an asset can result in lower depreciation expenses and higher net income. Similarly, a higher estimated provision for bad debts can reduce the reported accounts receivable and net income.
| 5. How are accounting estimates different from accounting policies? | |
Ans. Accounting estimates and accounting policies are two different aspects of financial reporting. Accounting estimates involve making approximations or judgments about uncertain events or conditions, while accounting policies are the specific principles and methods used to recognize, measure, and present financial information. Accounting estimates are applied when there is a lack of precise data, while accounting policies are consistently applied rules for similar transactions or events.
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