Question by CA (Dr.) G.S.GREWAL – Series 1

True / False

  1. Transactions and events that cannot be measured in money terms are not recorded in the books of accounts. It is due to Money Measurement Concept.

Fill in the Blank

  1. The system of recording transactions based on Dual Aspect Concept is known as ________________.

Multiple Choice Question

  1. The proprietor is treated as a creditor to the extent of his capital according to:

(a)     Cost Concept

(b)     Business Entity Concept

(c)     Going Concern Concept

(d)     Materiality Concept

Answer – Series 1

  1. True

Reason Money Measurement Concept holds that only those transactions and events be recorded in the books of accounts which can be measured in money terms.

Correct Statement: Transactions and events that can be measured in money terms are recorded in the books of accounts. It is due to Money Measurement Concept.

  1. Double Entry System
  2. (b)

Reason: Business Entity Concept requires that business be considered as separate and distinct from its owner. Thus, the proprietor is considered to be a creditor to the extent of his capital.

Question – Series  6

  1. Accounting principles and policies once adopted should be followed year after year unless there is a change in law or accounting standards. It is based on Materiality Concept.
  1. An accountant has not posted few certain cash transactions in the ledger account. As a result trial balance does not agree in this case _________________ Concept is not followed.
  1. Ajay, a customer had placed an order for purchase of furniture of ₹ 50,000 against which he advances ₹ 5,000. The businessman wants to record it as sale. By doing so, which of the following accounting concepts will be violate?

(a)     Money Measurement Concept

(b)     Accounting Period Concept

(c)     Going Concern Concept

(d)     Matching Concept

Answer – Series 6

  1. False

Reason Consistency Concept is the fundamental accounting concept which requires the entity to follow the same accounting principles and policies year after year.

  1. Dual Aspect
  2. (b)

Reason: Matching Concept holds that if revenue is recognised its corresponding cost should also be recognised. In the present situation, the business has not incurred any cost to earn the revenue, it is only an order that has been received and is yet to be executed. If he recognises it as revenue not matched with corresponding cost, Matching Concept will be violated.

Question – Series 20

  1. Current Liabilities means liabilities that are payable after 12 months from the date of Balance Sheet.
  1. If the Owner’s Equity is ₹ 2,40,000 and other Liabilities are ₹ 1,20,000, Cash in Hand is ₹ 60,000, total assets of the firm will be _________________.
  1. Accounting policies once applied should be consistently followed from one period to another period because of:

(a)     Full Disclosure Concept

(b)     Conservatism Concept

(c)     Matching Concept

(d)     Consistency Concept

Answer – Series 20

  1. False

Reason: Current liabilities are those liabilities which are payable in the near future i.e., within a period of 12 months from the date of Balance Sheet.. Examples of Current Liabilities are: Creditors, Bills Payable, Expenses Payables etc.

  1. ₹ 3,60,000
  2. (d)

Reason:  Accounting policies once applied should be consistently followed from one period to another because of consistency concept or prescribes that once an accounting policy adopted, it should be followed consistently year after year, unless the change is required by law, accounting standard or it will result in better presentation of accounts.

Question – Series 22

  1. Business Entity Concept is not a fundamental accounting concept.
  1. The concept of conservatism when applied to the balance sheet may results in _______________ of assets.
  1. Decrease in the amount of creditors means

(a)     Increase in cash

(b)     Decrease in cash

(c)     Increase in assets

(d)     No change in assets

Answer – Series 22

  1. True

Reason: Because there are three fundamental accounting assumption in the financial statements they are

–        Going Concern

–        Consistency

–        Accrual

Three fundamental accounting concepts recognised by the accounting bodies are:

–        Consistency Concept

–        Going Concern Concept and

–        Accrual Concept

  1. understatement
  2. (b)

Reason:  Decrease in creditors means they have been paid. If they have been paid it will result in decrease in cash.

Question – Series 24

  1. Profit and Loss Account shows the financial position of the business.
  1. Balance Sheet should show true and fair view of assets and liabilities amongst others. Liability provided in excess results in creation of _________________ Reserve.

    3.Out of the following which approach is an application of a caution so that expenses and liabilities are not understated and income and assets are not overstated:

(a)     Conservatism Concept

(b)     Disclosure Principle

(c)     Materiality Concept

(d)     Consistency Concept

Answer – Series 24

  1. False

Reason: Balance Sheet shows the financial position of the business as it is the statement of assets and liabilities of the enterprise. Profit and Loss Account shows the financial performance i.e., profit earned or loss incurred.

  1. Secret
  2. (a)

Reason: According to Conservatism Concept anticipated expense and losses should be recorded i.e., neither expenses nor liabilities should be understated. Whereas anticipated incomes should not be recorded i.e., income and assets should not be overstated.

Question – Series 33

      1. Fixed Assets can be tangible fixed assets or intangible fixed assets.

  1. According to Historical Cost Concept of Accounting the value of money does not _____________.

Multiple Choice Question

  1. Accounting equation is based on:

(a)     Going Concern Concept

(b)     Dual Aspect Concept

(c)     Money Measurement Concept

(d)     Accrual Concept

Answer – Series 33

  1. True

Reason: Fixed Assets enhance the earning capacity of the business. They are tangible fixed assets if they have physical existence like land, building, computers etc. they can be intangible fixed assets if they do not have physical existence like patents, trade marks etc.

  1. change
  2. (b)

Reason: Accounting equation i.e., Assets = Capital + Liabilities is always true. It is based on the Dual Aspect Concept of Accounting which holds that for every debit there is a credit of equal amount and vice versa. Under the concept, debit side will always be equal to the credit side.

Question – Series 38

  1. Profit and Loss Account shows the financial position of the business.
  2. Accounts are made for a fixed period usually a year, this concept is based on _____________.
  3. Revenue is recognised when the property is transferred against which amounts becomes due. Out of the following which concept is applicable?

(a)     Accrual Concept

(b)     Realisation Concept

(c)     Separate Entity Concept

(d)     Materiality Concept

Answer – Series 38

  1. False

Reason: Balance Sheet shows the financial position of the business as it is the statement of assets and liabilities of the enterprise.

  1. Periodicity Concept
  2. (b)

Reason: Realisation Concept holds that revenue be recognised in the period when property is transferred or service is rendered against which amount becomes due.

Question – Series 39

  1. The nature of drawings of goods is Expense.
  2. The system of recording transactions based on dual aspect concept is known as _________________.
  3. Financial Accounting, Management Accounting and Cost Accounting are ______________ of Accounting.

(a)     Sources

(b)     Branches

(c)     Principles

(d)     Policies

Answer – Series 39

  1. False

Reason: Drawing of goods means goods taken by the proprietor or partner of the firm for personal use. It is thus, withdrawal of Capital.

  1. Double Entry System
  2. (b)

Reason: Accounting has three branches namely: Accounting, Management Accounting and Cost Accounting.

Question – Series 40

  1. The resources of an accounting entity are called Cash.
  2. The policy of ‘anticipate no profit and provide for all possible losses’ is followed due to ________________________.
  3. Each transaction has double effect of equal amounts on both the side of account, is based on:

(a)     Business entity concept

(b)     Dual aspect concept

(c)     Periodicity concept

(d)     Cost concept

Answer – Series 40

  1. False

Reason: Assets are the resources of an accounting entity. it is so because the assets are acquired to increase the earning capacity of the business.

  1. Conservatism Concept
  2. (b)

Reason: According to Dual Aspect concept foe every debit there is a credit of equal amount and vice versa. Thus, each transaction has double effect of equal amount on both the side of amount.

Question Series – 48

  1. The effect of strike is not directly disclosed in financial statements, because of Cost Concept..
  2. The determination of expenses for an accounting period is based on the principle of ______________.
  3. Revenue is generally recognised when earning process is virtually complete and significant risks and rewards have been exchanged. This is an application of __________________ principle.

(a)     Matching

(b)     Conservatism

(c)     Consistency

(d)     Materiality

Answer Series – 48

  1. False

Reason: Money Measurement Concept requires that those transactions which can be measured in terms of money will be entered in the books of the accounts. Therefore the direct effect of strike is not disclosed in books of accounts.

  1. Matching
  2. (c)

Reason: The principle of revenue realisation states that revenue is recognised when the revenue is earned by the completion of earning process, also when the risks and rewards being exchanged.

Question – Series 55

  1. The essence of Conservatism Concept is to anticipate no profit and provide for all possible losses.

2 Withdrawal of money by the owner is not an expense but a reduction of _______________.

  1. According to Going Concern Concept, a business is viewed as having

(a)     A limited life.

(b)     A very long life

(c)     An indefinite life

(d)     A shorter life.

Answer – Series 55

  1. True

Reason: Conservatism concept refers to “Do not anticipate a profit but provide for all possible losses. In other words, prospective losses are accounted while prospective incomes are not accounted. The application of this concept ensures that the financial statements do not paint a better picture than what actually is.

  1. cash and capital
  2. (c)

Reason: According to the concept, it is taken that the business will continue for a foreseeable future and there is no intention to close down the business or scale down its operations significantly.

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