1.

Fill in the blanks choosing appropriate answer from the given choices :
(1) .......... suggests that depreciation should be provided by the same method every year.
(a) Cost Concept (b) Going Concern Concept

(c) Consistency Concept

(2) Fixed assets are depreciated based on the Principle of ...........

(a) Accounting Period

(b) Prudence

(c) Going Concern

(3) The reason for valuing work in process on the basis of the cost incurred thereon is .......... Principle.
(a) Prudence

(b) Revenue Recognition

(c) Going Concern

(4) Suggestion to ignore changes in value of fixed assets is from ..........Principle.

(a) Consistency (b) Going Concern (c) Stable Money Value
(5) Adjustments are made for incomes received in advance based on ..........Principle.
(a) Objectivity (b) Prudence (c) Matching Cost with Revenue
(6) The assets like patents and trademarks are written off based on ....Principle.
(a) Prudence
(b) Consistency
(c) Going Concern
(7) Based on .......... Concept, Profit and Loss Account and Balance Sheet are prepared at the end of every
accounting period.
(a) Realisation
(b) Consistency
(c) Accounting Period
(8) Based on ........... Provision is made for contingent liabilities in balance sheet.
(a) Money Measurement Principle
(b) Going Concern Principle
(c) Consistency Principle
(9) Investment Fluctuation Fund is created based on ...........
(a) Realisation Principle (b) Prudence Principle (c) Objectivity Principle!
(10) Based on .......... Concept, joint life policy is shown at its surrender value.
(a) Full Disclosure
(b) Consistency
(c) Going Concern
(11) The real result of the business can be known only after its total closure even then the accounts of business
are prepared for a specific time] period.
(a) Dual Aspect concept
(b) Periodicity concept
(c) Concept of Objectivity

(d) Conservatism concept

(12) Even though the sole trader is the only owner of the business for accounting view point, the business and
the owner are treated separately.
(a) Concept of Objectivity
(b) Conservatism concept
(c) Entity concept

(d) Dual Aspect concept

(13) The profit or loss in accounts shows increase or decrease in equity.

(a) Entity concept
(c) Conservatism concept

(b) Concept of Objectivity

(d) Dual Aspect concept

(14) The record of the amount received is made on the basis of receipt given.
(a) Concept of Objectivity
(c) Concept of Conservatism

(b) Entity concept

(d) Concept of Realisation

(15) One note of Rs. 500 found duplicate from the cash counter; following the accounting entry. By which
principle ?

Miscellaneous Loss A/c. dr

ToCash A/c.
(a) Entity concept
(c) Conservatism concept

500
500
(b) Concept of Objectivity
(d) Dual Aspect concept

(16) Advance amount received against sales order is not credited to Sales A/c.
(a) Concept of Objectivity (b) Realisation concept
(c) Matching concept (d) Entity concept
(17) Doctors or professionals record their fees as revenue at the time of actual receipt.
(a) Matching concept

(b) Realisation concept

(c) Entity concept

(d) Concept of Objectivity

(18) In case of gold mine, as soon as the production of the gold is obtained, If is recorded in the books at its
selling price.
(a) Entity concept

(b) Matching concept

(c) Realisation concept

(d) Concept of Objectivity
(19) The loss by fire, loss by theft or any other loss is matched against the revenue of the accounting period in
which it occurs.
(a) Matching concept

(b) Entity concept

(c) Realisation concept

(d) Concept of Objectivity

(20) Deferred revenue expenses or losses are allocated and matched against the revenue of more than one
accounting year, instead of matching the same in one relevant accounting period.
(a) Dual Aspect concept
(c) Concept of Objectivity

(b) Realisation concept

(d) Matching concept

(21) A firm shows interest on owners capital, recovers interest on his drawings.
(a) Entity concept
(c) Realisation concept

(b) Dual aspect concept

(d) Concept of Objectivity

(22) According to the books of accounts of the firm E + L = A always holds good.
(a) Matching concept
(b) Dual Aspect concept
(c) Entity concept

(d) Objectivity concept

(23) Current - assets like debtors are shown in the balance sheet at net recoverable price.
(a) Matching concept

(b) Dual Aspect concept

(c) Objectivity concept

(d) Conservatism concept
(24) Accounting entry is made in sales return book on the basis of debit note received and credit note given.
(a) Concept of Objectivity
(b) Matching concept
(c) Concept of Conservatism

(d) Dual Aspect concept

(25) Income of interest, rent or commission is recorded as revenue In the accounting period to which it relates.
(a) Realisation concept

(b) Concept of Objectivity

(c) Matching concept

(d) Dual Aspect concept
State the name of the accounting principle, concept or convention with which the following statements are
associated :
(1) Balance Sheet is not a valuation statement.
Ans. Going Concern concept.
(2)

Excellent
quality
of
management
sheet.
Ans. Money Measurement concept.

is

not

directly

shown

in

the

balance

(3) Even if there is a change in purchasing power of money, amount of debentures issued by a company is
shown at the same amount every year in the balance sheet.

Ans. Money Measurement concept.

(4) Value of goods given to a worker at cost price is deducted from the purchases amount.
Ans. Principle of Prudence.
(5) Dividend cannot be distributed out of profit arrived at by revaluing fixed assets.
Ans. Principle of Prudence.
(6) Advance received from a customer cannot be credited to sales account.
Ans. Realisation Concept, Principle of Revenue Recognition.
(7) Generally, no provision is made for discount reserve on creditors.
Ans. Concept of Conservatism.
(8) Prepaid expenses are deducted from the respective expenses in the Profit and Loss Account.
Ans. Matching Cost with Revenue Concept.
(9) Voucher is essential to record expenses and incomes in accounts.
Ans. Principle of Verifiability and Objectivity of Evidence.
(10) Capital is shown on liability side of Balance Sheet.
(11) Independent branch prepares its own trial balance separately.
Ans. Accounting Entity Concept.
(12) Trial balance tallies if the accounts are written correctly.
Ans. Principle of Dual Aspect.
Q.10. Answer the following questions :
(1) The owner of a business takes away goods of Rs. 1,000 for personal use. Where will you debit this ?
According to which Concept ?
Ans. This will be debited to Drawings A/c. according to Entity Concept.
(2) Sold goods of Rs. 5,000 for cash. Which voucher will be used in support of this transaction and which
principle will be applicable ?
Ans. Sales invoice will be the voucher in support of this transaction. This is
according to the Principle of Verifiability and Objectivity of Evidence.
(3) "Fixed assets are shown in the balance sheet at their cost or market price, whichever is less." Is this
statement true or false ? If the same is false, rewrite the correct statement and state the principle associated
with it.
Ans. According to the concept of Going Concern, fixed assets are shown in the balance sheet at their depreciated
values and market values of fixed assets are not taken into account.
(4) At the year end, closing stock is credited to Trading Account and is carried forward to the next year. Why
? Which principle is associated ? Ans. The cost of stock which is not sold cannot be charged against the sales
revenue. This involves the principle of matching cost with revenue.
(5) No documentary evidence is available for provision for depreciation. In this case, how is the requirement of
objectivity fulfilled ? Ans. Under this circumstance, note on policy decision of management is accepted as an
evidence and accordingly vouchers are prepared. The principle of consistency becomes useful to ensure that the
management decisions are free from personal bias or opinions of managers. Objectivity is ensured it' such
decisions are kept free from personal opinions or bias by following consistency in policy
(6) A trader borrowed a loan of Rs. 1,00,000 from a bank on 1-1-2003 at an interest of 12% p.a. Interest is
payable on 31st December. If the accounting year of the trader ends on 31st March, will there be any entry
for interest in the books of the trader for the accounting year 2002-03 ? According to which principle ?
Ans. There will be an entry for Outstanding Interest payable Rs. 3,000 in the accounting year 2002-03 according to
the Principle of Revenue Recognition.
(7) A trader sold goods for Rs. 10,000 on 1-3-2003 and issued bill on the same date. However, the delivery of
goods is yet to be given. For which accounting year can the sales be considered ? According to which
principle ? Ans. The sales revenue cannot be considered as realised or recognised on the day of receipt of payment
for sale but the same shall be recognized as the revenue on the day when the goods are supplied to the customer
according to the Principle of Revenue Recognition.
(8) An employee has filed a suit claiming Rs. 1,00,000 from the company for dismissing him from his job.
According to the estimate of advocate of the company, the sum of Rs. 40,000 is likely to become payable. Will
there be any accounting entry for this in the books of the company ? For how much amount ? According to
which principle ? Ans. According to the principle of conservatism, there will be an entry in the books for contingent
liability for Rs. 40,000 - claim payable.

(9) A company suffered loss of Rs. 10,00,000 due to fire in its building. The Insurance Company accepted a
claim of Rs. 4,00,000. How will this loss due to fire be taken into account in the books of accounts ?
According to which principle ?
Ans. This abnormal loss must be charged against the income of the year during which it has occurred - Profit
& Loss A/c. according to the Principle of Matching Cost with Revenue.