## Saturday, 11 May 2019

### Financial Accounting MCQs /page 3

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.]

(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

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).]