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is no longer valid, which of the following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
conservatism?
(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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