Question

State with reason whether the following statements are true or false (No Marks shall be awarded without valid

reason): [2 x 5 =10 Marks]

(i) Change in Method of Depreciation is regarded as change in Accounting Policy of the entity.

(ii) Depreciation is non-cash and non- operating expense which is to be provided for whether there are profits/losses.

(iii) Net Profit is reflected in higher cash balances and net loss is reflected in lower net worth.

(iv) Contingent liability is an ascertained liability but its amount and due date are indeterminate.

(v) Fundamental Assumptions are always required to be disclosed in the financial statements.

(b) Explain the relevant accounting assumption or principle which is an exception to Full Disclosure Principle​

Answer 1

Answer:

(I) true

(ii) true

(iii) true

(iv) false

(v) false

(vi) convention of materiality

Explanation:

(I) it is an accounting principle which affects financial statements so it is an accounting policy

(ii) depreciation is non cash expense as there is no outflow of cash from the business

(iii) profit increases the cash balance and vice versa

(iv) Contingent liablity is not an ascertained liability it is a possible liability which arises based on future uncertain events

(v) based on circumstances