Past Year Questions Theoretical Framework - Accounting for CA Foundation
i) The money measurement concept means transactions are to be recorded at a uniform monetary unit. (15 May 2025)
Answer: False. The Discount column of cash book records the cash discount. Further, Trade discount is not shown in the Cash book/books of accounts.
ii) The matching concept is based on the accrual concept. (12 Jan 2025)
Answer: True. Matching concept is based on accrual concept as it considers the occurrence of expenses and income and do not concentrate on actual inflow or outflow of cash.
(iii) Bookkeeping and accounting are not synonymous terms; they are different from each other. (12 Jan 2025)
Answer: True. Book-keeping and accounting are different from each other. Book-keeping is the recording phase while accounting is concerned with summarising phase of an accounting system. Book keeping provides necessary data for accounting and accounting starts where book keeping ends.
(iv) A ledger is also known as the principal books of accounts. (12 Jan 2025)
Answer: True. Since it classifies all the amounts related to a particular account and then it is used as the base for preparing the trial balance, a ledger is also known as principal books of accounts.
(v) Nominal Accounts are balanced at the end of the Accounting Year. (13 Sep 2024)
Answer: False. Nominal Accounts are not balanced. The balances at the end are transferred to Trading/ Profit & Loss A/c.
(vi) Overhaul Expenses of a second-hand machinery purchased are Revenue Expenditure. (13 Sep 2024)
Answer: False. Overhaul expenses are incurred to put second-hand machinery in working condition to derive endurable long-term advantage. So, it should be capitalised.
(vii)Valuation of inventory at cost or net realizable value is based on Principle of Conservatism. (13 Sep 2024)
Answer: True. The conservatism concept states that one shall not account for anticipated profits but shall provide all prospective losses. Valuing inventory at cost or net realisable value whichever is less, therefore is based on principle of conservatism.
(viii) Accounting Standards can override the statute. (20 Jun 2024)
Answer: False. Accounting standards cannot override the statute. The standards are required to be framed within the ambit of prevailing statutes.
i) What are the objectives of accounting standards?
Answer: i) Accounting Standards standardise diverse accounting policies with an objective to:
(a) eliminate the non-comparability of financial statements and thereby improving the reliability of financial statements; and
(b) provide a set of standard accounting policies, valuation norms and disclosure requirements.
ii) A liability is defined as the present financial obligation of an enterprise, which arises from past events. The settlement of a liability results in an outflow from the enterprises of resources embodying economic benefits.
On the other hand, in the case of contingent liability, either outflow of resources to settle the obligation is not probable or the amount expected to be paid to settle the liability cannot be measured with sufficient reliability.
For example - claims against the enterprise not acknowledged as debts, guarantees given in respect of third parties, liability in respect of bills discounted and statutory liabilities under dispute etc.
In addition to present obligations that are recognized as liabilities in the balance sheet, enterprises are also required to disclose contingent liability in their balance sheets by way of notes.
Answer: The main functions of accounting are as follows:
(a) Measurement: Accounting measures past performance of the business entity and depicts its current financial position.
(b) Forecasting: Accounting helps in forecasting future performance and financial position of the enterprise using past data and analyzing trends.
(c) Decision-making: Accounting provides relevant information to the users of accounts to aid rational decision-making.
(d) Comparison & Evaluation: Accounting assesses performance achieved in relation to targets and discloses information regarding accounting policies and contingent liabilities which play an important role in predicting, comparing and evaluating the financial results.
(e) Control: Accounting also identifies weaknesses of the operational system and provides feedback regarding the effectiveness of measures adopted to check such weaknesses.
(f) Government Regulation and Taxation: Accounting provides necessary information to the government to exercise control on the entity as well as in the collection of tax revenues.
Q 4. (i) Define accounting policy. What are the conditions under which a company can change its accounting policy?
(ii) Explain the following:
(1) Cash Basis of Accounting
(2) Going Concern concept
(4 Marks, 20 Jun 2024)
Answer: (i) Cash Basis of Accounting is the method of recording financial transactions, by which revenues and expenditures and assets and liabilities are reflected in the accounts in the period in which the receipts or payments are actually effected/made.
(ii) Going Concern concept states that the financial statements are normally prepared on the assumption that an enterprise is a going concern and will continue in operation for the foreseeable future. Hence, it is assumed that the enterprise has neither the intention nor the need to liquidate or curtail materially the scale of its operations; if such an intention or need exists, the financial statements may have to be prepared on a different basis and, if so, the basis used needs to be disclosed.
The valuation of assets of a business entity is dependent on this assumption. Traditionally, accountants follow historical cost in the majority of cases.
Q 5. Define Measurement and Valuation Principles in brief. ( 5 Marks, 15 May 2025)
Answer: Measurement in Accounting involves identifying, evaluating and assigning a monetary value to transactions and events.
Three key elements of measurement:
a. Identification of objects and events to be measured
b. Selection of standard or scale to be used
c. Evaluation using that standard or scale
Four generally accepted measurement bases:
1. Historical Cost: Assets recorded at acquisition cost. Liabilities recorded at value of consideration received.
2. Current Cost: Assets valued at cost if acquired currently. Liabilities at present obligation cost.
3. Realisable Value: Assets recorded at sale value. Liabilities at settlement value.
4. Present Value: Assets and liabilities are valued at the discounted value of future cash flows expected to be received or paid.
Q 6. What are the advantages of Double Entry System? ( 5 Marks, 12 Jan 2025)
Answer: According to double entry system, every transaction has two-fold aspects, debit and credit and both the aspects are to be recorded in the book of accounts. The advantages of double entry system are as follows: (i) By the use of this system the accuracy of the accounting work can be established, through the device of the trial balance.
(ii) The profit earned or loss incurred during a period can be ascertained together with details.
(iii) The financial position of the entity or the institution concerned can be ascertained at the end of each period, through preparation of the financial statements.
(iv) The system permits accounts to be kept in as much details as necessary and, therefore provides significant information for the purpose of control and reporting.
(v) Result of one year may be compared with those of previous years and reasons for the change may be ascertained.
Q 7. Differentiate between Book-keeping and Accounting. (4 Marks, Sep 2024)
Answer: The difference between Book keeping and Accounting are as follows: 
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