Question

BACHELOR OF COMMERCE YEAR 1 - ACADEMIC AND ASSESSMENT CALENDAR - DISTANCE [100] 10.2.3 ACCOUNTING 1: ASSIGNMENT 2 QUESTION ONE [10] Four alternatives are presented for each of the following questions. Choose the correct alternative for each of the questions/statements. The letter corresponding to your choice must be recorded next to the question number in your solution. Example: Question No. 1.18 Alphabet F 1.1 Financial records are usually maintained using an assumption that the business intends to continue its operations for the foreseeable future. This concept is referred to as the A) Consistency concept B) Going concern concept C) Prudence concept D) Matching concept 1.2 The idea that assets and income should not be overstated, and liabilities and expenses should not be understated is called the: A) Consistence concept B) Going concern concept C) Prudence concept D) Matching concept 1.3 Which one of the following concepts best assists users of financial statements when they need to compare information on financial statements? A) Matching concept B) Accrual concept c) Consistency concept D) Prudence concep

Answer 1

Ans

1.1 (B) Going concern concept

1.2 (C) Prudence concept

1.3 (C) Consistency concept

1.4 (A) Entity principle

Explanation for ans 1.1 to 1.4

• Matching concept states that an expense must be recorded in the same accounting period as the income to which it is related.
• Going concern concept is the fundamental principle of accounting which states that business entity will continue its operations in future and will not liquidate or discontinue its operations.
• Prudence concept states that an entity must not overestimate its revenues, assets and profits, besides this it must not underestimate its liabilities, losses and expenses. It requires recording of expenses and liabilities as soon as possible and revenue only when they are realized.
• Consistency concept states that the accounting methods once adopted must be applied consistently in future. It requires that business must refrain from changing its accounting policies unless there is a statutory requirement or it allows better representation of the accounts accounting policies should be consistent for long periods of time. This allows users to make inter-firm and inter-period comparisons.
• Accrual concept states that transactions are required to be recorded in the books of accounts at the time when they actually occur.

• Entity principle is an accounting principle that separates the transactions carried out by the business from its owner.

• Principle of duality, is an accounting principle that necessitates the recognition of all aspects of an accounting transaction. It states that each transaction will have two effects in order that the accounting equation is kept in balance. The dual aspect concept indicates that each transaction made by a business needs to be recorded in two separate accounts.

Ans: 1.5

(D) Reconcile the net worth of an entity at the beginning of the financial period to the net worth at the end of the financial period

Explanation: Since the closing balances of owner's equity are mentioned in the Balance Sheet, it becomes tough to ascertain what caused the changes in the owner's accounts, especially in bigger corporations.

For that purpose, The Statement of Owner's Equity is prepared to help users of financial statements to identify the factors that caused a change in the owners' equity over the accounting period.

Ans: 1.6

(D) control is essential to recognise a resource as an asset

Explanation: For an asset to be present, a company must possess a right to it as of the date of the financial statements

Option A is incorrect as an asset cannot necessarily be present in physical form it can be both tangible and intangible

Option B is incorrect as for determining the existence of an asset, the right of ownership is not essential for example, property held on a lease is an asset if the entity controls the benefits which are expected to flow from the property, therefore Assets are the resources that are control by the entity.

Option C is incorrect beacuse A liability is a 'present obligation of the entity arising from past events.

Ans: 1.7

(B)Computer Hardware

Explanation:Intangible assets are the assets which does not have a physical presence ,which cannot be touched.

Apart from others,cpmputer harware is the asset which can be touched.it has a physical presence so it is not an example of intangible asset.

Ans:1.10

(C) insures against under subscription of shares and debentures.

Explanation:An underwriter is responsible for assessing and evaluating the risk. When a company is not sure whether the shares or debentures offered for subscription may be taken up by the public it appoints underwriter for the same and it has to pay a commission to such an underwriter. The underwriter provides an assurance against the risk of under subscription .