Saturday, 11 May 2019

Financial Accounting MCQs page 2

7.      Only the significant events which affect the business must be recorded as per the principle of
(a)  Separate Entity
(b)  Accrual

(c)   Materiality
(d)  Going Concern
[Hints: (c) The concept of materiality requires that only the significant events that affect the business must be recorded.]

8.      P & L Account is prepared for a period of one year by following
(a)  Consistency Concept
(b)  Conservatism Concept
(c)  Accounting Period Concept
(d)  Cost Concept
[Hints: (c) P&L A/C is prepared for a period of one year by following the concept of
Accounting Period.]

9.      If the Going Concern concept is no longer valid, which of the following is true?
(a)  All prepaid assets would be completely written-off immediately
(b)  Total contributed Capital and Retained Earnings would remain unchanged
(c)   Intangible Assets would continue to be carried at net Amortized historical cost
(d)   Land held as an Investment would be valued at its realizable value
[Hints: (d) Under the Going Concern Concept, it is assumed that the business will exit for a long time and transactions are recorded from this point of view. It is this that necessitates distinction between expenditure that will render benefit over a long period and that whose benefit will be exhausted quickly. If the concept ceases to be valid, then land held as an investment would be valued at its realizable value.]

10.    Under which of the following concepts are shareholders treated as creditors for the amount they paid on the shares they subscribed to?
(a)  Cost Concept
(b)   Duality Concept
(c)   Business Entity Concept
(d)  Since the shareholders own the business, they are not treated as creditors
[Hints: (c) Under business entity concept, the shareholders are treated as creditors of the company. It is also known as separate entity concept.]

11.    The underlying accounting principle(s) necessitating amortization of intangible asset(s) is/are
(a)  Cost Concept
(b)   Realization Concept
(c)   Matching Concept
(d)   Both (a) and (c) above
[Hints: (c) The matching concept requires that all the revenues must be matched with the expenses incurred during the accounting period. The expenses relating to intangible assets are amortized over the periods in which the benefit from intangible assets accrue and therefore the underlying principle is the matching concept.]

12.    Which of the following practices is not in consonance with the convention of
(a)  Creating Provision for Bad debts
(b)  Creating Provision for Discount on Creditors
(c)   Creating Provision for Discount on Debtors
(d)  Creating Provision for tax
[Hints: (b) The principle of conservatism seeks provisions for all the probable losses. Creating provision for discount on creditors tantamount to recognition of probable gain in the form of discount and hence it is not in consonance with conservatism.]

13.    The accounting measurement that is not consistent with the Going Concern concept is
(a)   Historical Cost
(b)   Realization
(c)  The Transaction Approach
(d)   Liquidation Value
[Hints: (d) Liquidation value is the value of the business when the business is wound up and is under liquidation whereas the going concern concept assumes that the business will continue over a long time and therefore the accounting measurement “Liquidation Value" is inconsistent with going concern concept.]

14.    Recording of Fixed Assets at cost ensures adherence of
(a)  Conservatism Concept
(b)  Going Concern Concept
(c)   Cost Concept
(d)   Both (a) and (b) above
[Hints: (c) Cost concept requires the transactions to be recorded in the books of accounts at the amounts actually involved. Suppose a firm purchases a piece of land for ? 1,50,000 but considers its worth ? 3,00,000. The purchase will be recorded at ?
1,50,000. Therefore, recording of fixed assets at cost ensures the adherence of cost concept.]

15.    Omission of paise and showing the round figures in financial statements is based on
(a)  Conservatism Concept
(b)  Consistency Concept
(c)   Materiality Concept
(d)   Realization Concept
[Hints: (c) Omission of paise and showing the round figure in financial statements is based on the concept of materiality.]

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