Question

1) You are working in a company as a chief accountant. While preparing the accounts of your company, you are faced
with a number of problems. These are summarized as below. (Suggest suitable principlel assumption)
a) Production manager of the company is interested to reflect the good industrial relations in accounts.
b) The long-term future success of the company is doubtful due to market competition
c) Although the sales have not yet actually taken place, some reliable customers of the company have placed large
orders from which company is expected to earn large profits.
d) One of the shareholders of the company has invested his saving in some shares of another company.
e) At the end of the accounting period, factory rent of the company is outstanding for Rs. 10,000.
f) A debtor who owes an amount to the company is likely to be declared insolvent.

Answer 1

Answer:

Solution :

(i) Money Measurement Concept : Transactions and events that can be measured in money or in money or in money terms are recorded in the books of account . Since , good industrial 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> (v) Accrual Concept : This concept recognises revenues and expenses 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>

Answer 2

Answer:

A) Money Measurement Principle

B) Going Concern Principle

C) Revenue Concept

D) Business Entity Principle

E) Accural Principle

F) Conservatism Principle

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