16. X Ltd., purchased goods for ' 5 lakh and sold 9/10th of the value of goods for ' 6
lakh. Net expenses during the year were ' 25, 000. The
company reported its net profit
as ' 75,000. Which of the following
concept
is violated by the company?
(a) Realization
(b)
Conservation
(c) Matching
(d)
Accrual
[Hints: (c) Matching concept requires the expenses must relate to the goods and
services sold during that
period to arrive at the
net
profits of the enterprise. Hence
matching concept requires the
recognition of revenue and expenses on
a comparable basis. In the above
question that amount
of '
75,000 as net
profit was arrived at by deducting ' 5,00,000 ( being cost of purchases ) + ' 25,000 expenses
from
the sale proceeds of ' 6,00,000.
This does not
follow matching concept
since
the cost of goods sold is to be deducted and not the cost of purchases, since some purchases have been left in stock. So the net profit using matching concept is '
6,00,000 less cost of goods ' 4,50,000
(i.e. ' 5,00,000 x 9/10) less expenses of ' 25,000 =
' 1,25,000.]
17. Accounting does
not
record non- financial transactions because of
(a) Entity Concept
(b)
Accrual
Concept
(c) Cost
Concept
(d)
Money Measurement
Concept
[Hints: (d)
The money measurement concept:
Accounting records only those
transactions which are expressed
in monetary value, though quantitative records are kept.
Hence, accounting
does
not
record non - financial transactions.]
18. Mr. Rohit, owner of Rohit Furniture Ltd.,
owns a personal residence that cost '
6,00,000, but has a market value of ' 9,00,000. During preparation of the financial
statement for the business, the entire value of property was ignored and was not shown
in
the financial statements. The principle that was followed was
(a)
The concept of the Business Entity
(b)
The concept of the Cost Principle
(c) The concept of Going
Concern Principle
(d)
The concept of Duality Principle
[Hints: (a) Business entity concept requires the business to be treated as a separate entity.]
19. Provision for bad debt
is made as
per
the
(a) Entity Concept
(b)
Conservatism Concept
(c) Cost
Concept
(d)
Going Concern Concept
[Hints: (b) Provision for bad debts
is made as per the concept
of conservatism.]
20. Fixed
Assets and Current Assets are categorized as per concept of
(a)
Separate Entity
(b)
Going Concern
(c) Consistency
(d)
Time period [Hints: (b) Going Concern Concept implies that the resources of the concern would continue to be
used for the purposes
for which they
are
meant to be
used. For instance, in a manufacturing concern, the land, building, machinery etc.
are primarily required for
carrying out the
production and selling of certain
products. Going Concern Concept implies that these land, building, machinery, etc.
would continue to be used for this purpose. In fact, it is because these assets are
expected to be with the concern for a long period of time
for production and selling
of end products that these assets are termed as
„Fixed Assets'.
Going Concern Concept is the
basis of the conventional classification for
instance as Fixed Asset/ Current Asset, Long
term/ Current
Liabilities.]
21. Which of the following is NOT a
revenue expenditure?
(a) Petrol consumed in motor vehicles
(b)
Cost of saleable
goods
(c) Bad debts
(d) Premium given on
lease
22. Which of the following statements is true?
(a)
Going Concern Concept assumes that business will be carried on for a definite
period
(b)
The Capital Losses
need not be deducted to ascertain
net
income
(c) Provision for bad and doubtful debts is created in recognition of conservatism concept
(d)
Materiality concept
states that all business transactions are to be recorded
however insignificant they
may be
[Hints: (c) According to the conservatism concept, „anticipate no profit
and
provide for all possible losses'. Thus, in recognition of conservatism concept, provision for bad
and doubtful debts
is created in anticipation of actual
bad debts.
The statements in other
alternatives
are incorrect because going
concern
concept
assumes that
business will be carried on for a indefinite period and not
for definite period (a). The capital losses are to be deducted to ascertain net income (b). Materiality concept states that insignificant events need not be recorded and the
statement in alternative (d) is incorrect. Thus,
the correct answer is
(d).]
23. The expenses
and
incomes pertaining
to full trading
period are taken to the Profit and Loss Account of a business,
irrespective of their payment or receipt. This
is
in recognition of
(a)
Time period Concept
(b)
Going Concern Concept
(c) Accrual
Concept
(d) Duality
Concept
[Hints: (c) The
expenses and incomes for the full trading period are
taken to the Profit &
Loss Account of a business, irrespective
of their payment or
receipt
is in recognition of accrual concept. The
concepts in other alternatives are
incorrect
because according to the Time Period concept
(a)
the income or loss of a business is measured periodically for a specified interval
of time usually one
year
and
it does not speak about how expenses and incomes are accounted for the entire period irrespective of the cash involvement. The Going
concern concept (b), which necessitates distinction between expenditure that will
render benefit over a long period and that whose benefit will be exhausted within the accounting period. The
Duality concept (d) says that every transaction has dual
aspect and explains that Capital + Outside liability =
Assets. This is the basis for
fundamental
equation.
Thus, the correct answer is (c).]
