Unit No 1: Accounting Concepts, Convention and Principles and Overview of Emerging Trends in Accounting

 Financial Accounting – I Course Code 112 (Semester – I)

Unit No 1

Accounting Concepts, Convention and Principles and Overview of Emerging Trends in Accounting

MCQ (Multiple Choice Question)

1. Accounting principles are divided into

·      Accounting Concepts

·      Accounting Conventions

·      Fundamental Accounting Assumptions

·      All of the above

 

2. According to which of the following accounting principles, the owners of business are considered as creditors?

·      Money Measurement

·      Cost.

·      Dual Aspect.

·      Separate Legal Entity. (Business and owners are two separate entities)

 

3. Which accounting principle differentiates between owners and management?

·      Going Concern

·      Dual Aspect

·      Separate Entity

·      Conservatism

4. Which of the following is not an Accounting concept?

·      Matching concept

·      Dual Aspect concept

·      True and Fair concept

·      Going concern concept

 

5. According to going concern, a business is assumed as having:

·      a limited life

·      an indefinite life

·      a very long life

·      None of the above

 

6. Accounting concepts are based on:

·      Certain assumptions

·      Certain facts and figures

·      Certain accounting records

·      Government guidelines

 

7. According to money measurement concept, which of the following will be recorded in the books of accounts?

·      Extra profits arising out of revaluation of assets

·      Commission payable to a salesman

·      Quality of the products

·      All of these

 

8. Non-financial quantitative information is not recorded in accounts due to:

·      dual concept

·      accrual concept

·      money measurement concept

·      Entity concept.

 

9. Which of the following is related with money measurement concept?

·      All business transaction should be expressed in money

·      The transactions which cannot be expressed in money, will not be recorded in accounting books

·      Business is treated as separate from proprietor

·      All of the above

  

10. Which of the following is an example of money measurement concept?

·      Dispute between management and labor union

·      Loss of material Rs. 5,000

·      Sales promotion policy

·      Advertisement for fresh appointment

 

11. Contingent liability is shown in the balance sheet because of:

·      Convention of consistency

·      Convention of materiality

·      Convention of full disclosure

·      Convention of conservatism

 

12. In accounting, all business transactions are recorded as having dual aspect due to:

1.    Money measurement concept

2.    Dual aspect concept

3.    Going concern concept

4.    Matching concept

 

13. Accounting equation is an expression of:

·      Money measurement concept

·      Business entity concept

·      Going concern concept

·      Matching concept

 

14. Prepaid expenses are shown as an asset due to:

·      Money measurement concept

·      Business entity concept

·      Going concern concept

·      Matching concept

 

15. According to which assumption assets are shown in the accounting records at cost less depreciation:

·      Money measurement concept

·      Business entity concept

·      Going concern concept

·      Matching concept

 

 16. Fixed assets are recorded at cost less depreciation not at a realizable value because of:

·      Money measurement concept

·      Business entity concept

·      Going concern concept

·      Matching concept

 

17. Point out the correct accounting equation:

·      Assets = Liabilities – Capital

·      Liabilities = Capital + Assets

·      Capital = Assets + Liabilities

·      Liabilities = Assets – Capital

 

18. According to which of the following concepts, even the proprietor of the business is treated as a creditor of the business?

·      Money measurement concept

·      Cost concept

·      Dual aspect concept

·      Business Entity concept

 

19. Final accounts must be prepared on a periodic basis rather than waiting till the business is terminated:

·      Money measurement concept

·      Cost concept

·      Dual aspect concept

·      Accounting Period Concept

 

20. Revenue is considered as being earned on the date at which it is realized:

·      Money measurement concept

·      Realization concept

·      Dual aspect concept

·      Accounting Period Concept

 

21. Entries in accounting records and data reported in financial statements must be based on objectively determined evidence.

·      Money measurement concept

·      Cost concept

·      Dual aspect concept

·      Objective evidence concept

 22. The concept of conservatism takes into account:

·      All future profits and all future losses

·      All future profits but leaves all future losses

·      All future losses but leaves all future profits

·      All of the above

 

23. According the concept of conservatism, the stock is trade is valued at:

·      Market price

·      Cost price

·      Market price or cost price, whichever is lower

·      Market price or cost price, whichever is higher

 

24. Accounting rules, practices and conventions should be observed continuously and applied:

·      Convention of consistency

·      Convention of full disclosure

·      Convention of Conservatism

·      Convention of materiality

 

25. Revenue is considered to be earned when:

·      Cash is received

·      Production is done

·      Sale is effected

·      All of the above

 

26. The concept of conservatism will have the effect of:

·      Over-statement of assets

·      Understatement of assets

·      Understatement of provision for bad and doubtful debts.

·      Overstatement of stock

 

27. According to which of the following concepts, for determining the net income from business, all costs which are applicable to revenue of the period should be charged against that revenue?

·      Matching concept

·      Cost concept

·      Money measurement concept

·      Dual aspect concept

 

28. Which one of the following is not a fundamental accounting assumption?

·      Going concern

·      Consistency

·      Accrual

·      Matching

 

29. An accounting concept according to which all relatively important and relevant items are disclosed in the financial statements is:

·      Materiality

·      Going concern

·      Accrual concept

·      Matching

 

30. Which convention is also known as doctrine of prudence?

·      Convention of consistency

·      Convention of full disclosure

·      Convention of Conservatism

·      Convention of materiality

 

State with reasons whether the following statements are true or false (True or False)

 

1. A principle is a general law or rule action or conduct adopted or professed as a guide to action.

 (True)

 

 2. Accrual Concept implies accounting on cash basis.

 (False) Cash and Credit Basis

3. Utility, objectivity, flexibility and feasibility are the important characteristic of accounting principles.

(True)

 

4. As per dual aspect concept, a business is personified and treated as a separate individual, different from its owner.

(False) (As per business entity concept)

5. Anticipate no profits and provide for all possible losses is the essence of convention of consistency.

(False)  (Convention of convertasim)

 

6. On account of convention of conservatism, the inventory is valued at cost price or market price whichever is more.

(False) (Whichever is less)

 

7. The going concern concept implies that the business will continue for a fairly long time to come.

(True)

 

8. In Financial Accounting, all business transactions are to be recorded as having a dual aspect.

(True)

 

9. The consistency convention, implies that the accounting practices should remain unchanged from one period to another.

(True)

 

10. The periodicity concept implies that every business transaction has double effect of equal amounts.

(False) (Dual aspect concept)

 

11. The convention of continuity, states that the accountant should attach more importance to material details and ignore immaterial details.

(False) (Convention of materiality)

 

12. The accrual concept states that the items like salary, wages, rent etc. for the accounting year should be calculated on accrual basis.

(True)

 

13. The historical cost concept implies that the assets should always be recorded at their market price.

(False) (At cost price)

 

14. Accounting principles helps in inter-firm comparison.

(True)

 

15. Business entity concept implies that business and the businessman are one and the same.

(False) (Are separate and distinct from each other)

 

16. A trader dealing in motor cycle describes an air conditioner in the commercial office as his goods account.

(False) (As his Office Equipment Account)

 

17. Corporate Accounting year must be closed on 31^st December.

 (False) (On 31^st March)

 

18. Accounting concepts are certain ideas that provides a strong support to the practices of accounting.

(True)

 

19. The relatively unimportant facts can be omitted from the books of Financial Accounts.

(True)

 

20. As per realization concept, unearned revenues are also to be considered.

(False) (Are not to be considered)

 

 21. Inflation accounting method is also referred to as price level accounting.

(True)

 

22. Inflation accounting involves recording of business transactions at inflated value.

(False) (At current value)

 

23. Inflation accounting system is not acceptable to income-tax authority.

(True)

 

24. Creative Accounting practices may or may not follow the accounting standards and basic principles.

(True)

 

25. Creative Accounting is not a legal practice but considered to be an ethical one.

(False) (Is not an illegal practice but considered to be unethical one)

 

26. Creative Accounting gets the desired results in short run but hampers the ultimate goal of increasing the stock value.

(True)

 

27. The basic objective of environmental accounting is to identify, environmentally related and revenues within Conventional Accounting.

(True)

 

28. Creative Accounting helps to reduce the cost through energy and resources conservation.

(False) (Environmental accounting)

 

29. Human Resource Accounting provides a sound and effective basis of control on human asset.

(True)

 

30. Concept of Human Resource Accounting is based on value, usefulness and information about human resources.

(True)

 

31. The welfare cost of human resources includes the costs incurred for recruitment, selection and placement

(False) (Acquisition cost)

 

32. Human Resource Accounting helps the individual employee to aspire for promotion and better benefits.

(True)

33. There is no universally accepted method of the valuation of human resources.

(True)

 

34. Forensic Accounting is the investigation of fraud or financial manipulation or top accounting scandals.

(True)

 

35. Forensic Accounting differs from internal auditing.

(True)