InterviewSolution
Saved Bookmarks
InterviewSolution
| 1. |
While preparing the accounts of company, following issues are faced:(i) ProductionManager is interested in rccording good industrial relations in the accounts.(ii) Long - term succes of the company is doubtful due to market competition. (iii) Although sales have not yet taken place , few reliable customers of the company have placed large orders from which huge profit is expected.(iv)One of the shareholders of the company has invested his savings in shares of another company. (v) At the end of the accounting period , factory of the company is outstanding for Rs.10 ,000.(vi) At present , market price of the fixed assets of the company is very high as compared to the bookvalue and directors are intersted to show the fixed assets in accounts attheir currennt market price.(vii) During the year , the company purchased pencils of Rs.50 . These had all been issued from stock and were srill in use at the end of the year.(viii)Directors are interested to adopt Written Down Value (WDV) Method of charging depreciation in place of Straight Line Method (SLM) in the current accounting period to show higher profit. (ix)A debtor who owesan amount to the company is likely to be declared insolvent. You are required to (a) state which accounting concept you would following in dealing with eachof the above problems and (b) Explain briefly what each concept means. |
| Answer» <html><body><p></p>Solution :(i) Money Measurement Concept : Transactions and events that can be measured in money or in money orin money terms are recorded in the books of account . Since , <a href="https://interviewquestions.tuteehub.com/tag/good-1009017" style="font-weight:bold;" target="_blank" title="Click to know more about GOOD">GOOD</a> <a href="https://interviewquestions.tuteehub.com/tag/industrial-515446" style="font-weight:bold;" target="_blank" title="Click to know more about INDUSTRIAL">INDUSTRIAL</a> relations cannot be measured in money terms , they will not be reflected in the accounts.<br/> (ii)Going Concept : The business will continue for an indefinite period and there is no intention to close the business or downsize its operations significantly . The doubt of success does not lead to the inference that business will not continue for indefinite period and also to the intention that the business will be downsized significantly.<br/>(iii) Realisation Consept : Revenue is recognised when sale has been made or service has been rendered . Therefore , the revenue will be recognised when sale has been affected and not when not when the order is placed.<br/>(iv) Business Entity Concept : Business is treated as a separate and distinct entity from its owners . The investment in another company ' s shares is by a shareholder who is distinct from the business .<br/>(<a href="https://interviewquestions.tuteehub.com/tag/v-722631" style="font-weight:bold;" target="_blank" title="Click to know more about V">V</a>) Accrual Concept : This concept recognises revenues andexpenses as they are earned or incurred respectively ignoring the date of receipt or payment . Since, the factory rent of the company is outstanding , it will be recorded in the books of account.<br/>(vi)Historical Cost Concept : According to the Historical Cost Concept , the asset must be shown at cost price , which is the cost of acquisition less depreciation .As a good accounting practice, they should be continued to be shown at cost.<br/>(vii)Materiality Concept : An item is recorded in the books of account on the basis of materially. Purchased <a href="https://interviewquestions.tuteehub.com/tag/stationary-633001" style="font-weight:bold;" target="_blank" title="Click to know more about STATIONARY">STATIONARY</a> (pencil) is in use but , the amount and nature is not material . Therefore, it is debited to Stationery Account.<br/>(viii)Consistency Assumption or Concept : All accounting principles and methods shoulds be applied in a similar way from one period to the next so that data reportedin financial statement can be compared for one period with that of another period . Method may be changed by the but company but it should be disclosed along with its impact on profit or loss.<br/>(ix) <a href="https://interviewquestions.tuteehub.com/tag/conservatism-424801" style="font-weight:bold;" target="_blank" title="Click to know more about CONSERVATISM">CONSERVATISM</a> Convention or Concept : The concept is stated as " Anticipate no profit , but provide for all possible losses ". Thus , provision for doubtful debts should be made against the amount of debtors.</body></html> | |