Unit 6: Summary - Accounting Policies | Principles and Practice of Accounting - CA Foundation PDF Download

(Summary)

• Accounting Policies refer to specific accounting principles and methods of applying these principles adopted by the enterprise in the preparation and presentation of financial statements. Policies are based on various accounting concepts, principles and conventions.
• Three major characteristics which should be considered for the purpose of selection and application of accounting policies. viz., Prudence, Substance over form, and Materiality.
• A change in accounting policies should be made in the following conditions:

(a) It is required by some statute or for compliance with an Accounting Standard.
(b) Change would result in more appropriate presentation of financial statement.

Ques 1: A change in accounting policy is justified
(a) To comply with accounting standard and law.
(b) To ensure more appropriate presentation of the financial statement of the enterprise.
(c) All of the above.
Ans: (c)

Ques 2: Accounting policy for inventories of Xeta Enterprises states that inventories are valued at the lower of cost determined on weighted average basis or net realizable value. Which accounting principle is followed in adopting the above policy?
(a) Materiality.
(b) Prudence.
(c) Substance over form. 
Ans: (b)

Ques 3: The areas wherein different accounting policies can be adopted are
(a) Providing depreciation.
(b) Valuation of inventories. 

(c) Both the option.
Ans: (c)

Ques 4: Selection of an inappropriate accounting policy decision may 
(a) Overstate the performance and financial position of a business entity. 

(b) Understate/overstate the performance and financial position of a business  entity.
(c) Overstate the performance of a business entity.
Ans: (b)

Ques 5:  Accounting policies refer to specific accounting
(a) Principles.
(b) Methods of applying those principles.
(c) Both (a) and (b).
Ans: (c)