Financial Accounting - Mms I Mid Term Test

The correct answer is Institute of Chartered Accountants of India. The Institute of Chartered Accountants of India (ICAI) is a statutory body established by an Act of Parliament to regulate the profession of Chartered Accountancy in India. It is responsible for formulating and issuing Accounting Standards in India. These standards provide guidelines and principles for the preparation and presentation of financial statements, ensuring consistency and comparability in financial reporting across different entities. The ICAI plays a crucial role in maintaining the integrity and transparency of financial reporting in India.

Standardizing accounting principles and policies is essential to ensure transparency, consistency, and comparability. Transparency allows stakeholders to have a clear understanding of the financial information and promotes trust in the organization. Consistency ensures that accounting practices are applied uniformly over time, enabling accurate comparisons and analysis. Comparability allows for meaningful comparisons between different companies and industries, facilitating decision-making and benchmarking. Therefore, standardizing accounting principles and policies addresses all the options given, making it the correct answer.

Accounting standards are designed to ensure consistency and comparability in financial reporting. They aim to harmonize accounting policies, eliminate non-comparability of financial statements, and improve the reliability of financial information. However, facilitating manipulation is not a function of accounting standards. Instead, accounting standards are implemented to prevent manipulation and provide transparency and accuracy in financial reporting.

Financial statements do not consider assets and liabilities expressed in non-monetary terms because financial statements are prepared to provide information about the financial position and performance of a company. Non-monetary assets and liabilities, such as goodwill, patents, and trademarks, are not easily quantifiable in monetary terms and therefore are not included in the financial statements. The financial statements focus on presenting information that can be measured and reported in monetary units, such as cash, accounts receivable, and debt.

Bookkeeping is actually a subfield of accounting. It involves recording financial transactions, maintaining financial records, and preparing financial statements. It is an essential part of the accounting process and provides the foundation for other accounting subfields such as financial accounting, management accounting, and cost accounting. Therefore, the given answer is incorrect.

Bookkeeping is primarily focused on the recording of financial data. This involves accurately and systematically documenting all financial transactions that occur within a business, such as sales, expenses, and payments. By maintaining detailed records, bookkeeping ensures that all financial information is properly recorded and organized. This information serves as the foundation for other accounting processes, such as financial analysis, interpretation, and reporting. However, bookkeeping itself does not involve designing systems, interpreting data, or analyzing financial information. Its main objective is to accurately record financial data for future reference and use.

Bookkeeping involves the recording and organizing of financial transactions, while financial statements are the end result of this process. Financial statements, such as the balance sheet, income statement, and cash flow statement, provide a summary of a company's financial performance and position. They are prepared based on the information gathered through bookkeeping, but they are not considered a part of the bookkeeping process itself. Therefore, the statement that financial statements are not a part of bookkeeping is true.

The historical cost of the machinery is Rs. 10,00,000 because it is the original amount that Ms. Gina purchased the machinery for on 1st April 2014. The fact that a similar machinery could be purchased for Rs. 20,00,000 on 31st March 2015 and the estimated realizable value of the machinery purchased on 1st April 2014 was Rs. 15,00,000 does not affect the historical cost. The present discounted value of the future net cash inflows is also not relevant to determining the historical cost.

The financial position of a business is ascertained on the basis of the balance sheet. The balance sheet provides a snapshot of the company's assets, liabilities, and equity at a specific point in time. It shows what the business owns (assets), what it owes (liabilities), and the owner's investment in the business (equity). By analyzing the balance sheet, stakeholders can assess the company's solvency, liquidity, and overall financial health. Therefore, the balance sheet is an essential document in determining the financial position of a business.

The economic life of an enterprise is divided into periodic intervals to measure its performance. This means that the enterprise's financial activities and results are analyzed and reported at regular intervals, such as monthly, quarterly, or annually. By doing so, the enterprise can track its progress, identify trends, and make informed decisions based on the financial information provided at these intervals. This approach helps in evaluating the enterprise's performance over time and comparing it with previous periods or industry benchmarks. Therefore, the concept of "periodicity" is crucial in measuring and assessing the performance of an enterprise.

The correct answer is 32. This means that the Institute of Chartered Accountants of India (ICAI) has issued a total of 32 Accounting Standards. These standards provide guidelines and principles for the preparation and presentation of financial statements, ensuring consistency and comparability in financial reporting. These standards help in improving transparency, reliability, and relevance of financial information, thereby facilitating better decision-making for various stakeholders.

Different accounting policies can be adopted for various aspects of financial reporting, such as depreciation provision, valuation of inventories, and valuation of investments. However, when it comes to debtors, there is generally a standard policy that is followed across organizations. The valuation and treatment of debtors are typically governed by specific accounting standards and regulations, which limit the options for adopting different policies. Therefore, the correct answer is Debtors.

The payment of rent by Mr. Kulkarni on January 1st can be classified as a transaction because it involves the exchange of money for a service, which is the rental of a property. A transaction typically refers to any financial activity that involves the transfer of goods, services, or money between two or more parties. In this case, Mr. Kulkarni is the payer and the landlord is the recipient of the rent payment, making it a transaction.

The correct answer is Creditors & Customers. Both creditors and customers are important users of accounting information. Creditors, such as banks or suppliers, use accounting information to assess the financial health and creditworthiness of a company before extending credit or providing loans. On the other hand, customers may use accounting information to evaluate the financial stability and reliability of a company before making purchasing decisions. Therefore, both creditors and customers rely on accounting information to make informed judgments and decisions regarding their interactions with a company.

The realizable value of the machinery is Rs. 15,00,000. This is because the question states that the realizable value of the machinery purchased on 1st April 2014 was estimated to be Rs. 15,00,000. This means that if the machinery were to be sold, it could fetch Rs. 15,00,000.

Cindrella Enterprises follows the written down value method of depreciation year after year due to consistency. This means that they consistently apply the same method of depreciation year after year, which allows for easier comparison of financial statements over time. By using the same method consistently, it ensures that the depreciation expense is recorded consistently and accurately, making it easier for stakeholders to analyze and compare the company's financial performance over different periods.

DBCL violates the Cost concept. The Cost concept states that assets should be recorded at their historical cost, which is the amount paid to acquire them. In this case, DBCL is valuing the machinery at its market value of Rs. 12,00,000 instead of its historical cost of Rs. 10,00,000. This violates the Cost concept as it is not recording the asset at its original cost.

An accounting system serves several purposes, including interpreting and recording the effects of business transactions, classifying the effects of transactions to facilitate the preparation of reports, and summarizing and communicating information to users. However, it does not dictate the specific types of business enterprise transactions that the enterprise may engage in. This is because the accounting system is designed to record and report on transactions that have already occurred, rather than determining which transactions are allowed or prohibited.

Measurement discipline is a field that focuses on the process of identifying and quantifying objects and events. It involves the use of various techniques and tools to accurately measure and describe the characteristics of these objects and events. Therefore, it can be concluded that the statement "Measurement discipline deals with identification of objects and events" is true.

Accounting is a systematic process of recording, measuring, and communicating financial information to assist in decision making, forecasting, and measurement. Ledger posting, on the other hand, is a specific task within accounting that involves recording transactions in the general ledger. While ledger posting is an important part of the accounting process, it is not a separate function on its own. Therefore, the correct answer is ledger posting.

Assets are held in a business for the purpose of earning revenue. Assets are resources that have economic value and are expected to generate future benefits for the business. By utilizing these assets in the production or provision of goods or services, the business can generate revenue. This revenue is essential for the business to cover its expenses, make a profit, and continue its operations. Therefore, earning revenue is a primary objective of holding assets in a business.

The future value is not a valuation principle because it refers to the calculation of the value of an investment or asset at a future point in time, based on its expected growth or return. Valuation principles, on the other hand, are methods or concepts used to determine the worth or fair value of an asset or liability at a specific point in time. Historical cost, present value, and realizable value are all examples of valuation principles as they are used to determine the value of assets or liabilities based on historical data, current market conditions, or expected future cash flows.

The two primary qualitative characteristics of financial statements are relevance and reliability. Relevance refers to the information being timely and useful for decision-making purposes. It means that the information provided in the financial statements should have predictive or confirmatory value. Reliability, on the other hand, means that the information is accurate, complete, and unbiased. It should be free from errors and faithfully represent the financial position and performance of the entity. These two characteristics are essential for users of financial statements to make informed decisions based on reliable and relevant information.

A change in accounting policy is not justified to comply with management's request because accounting policies should be determined based on the appropriate accounting standards and regulations, not on the preferences or requests of management. Accounting policies should be objective and consistent to ensure the accuracy and reliability of financial statements. Making changes solely to comply with management's request may compromise the integrity of the financial reporting process and potentially mislead stakeholders.

The accounting concept followed by Mr. Nitesh is Matching. The concept of matching states that expenses should be matched with the revenues they helped generate in the same accounting period. In this case, Mr. Nitesh sold goods for Rs. 18,00,000 and incurred expenses of Rs. 2,50,000 during the year 2014-15. By subtracting the expenses from the revenue, he arrived at a net profit of Rs. 3,50,000. This demonstrates that he applied the matching concept by matching the expenses incurred with the revenue earned in the same accounting period.

The present value of the machinery is Rs. 12,00,000. This is because the present discounted value of the future net cash inflows that the machinery was expected to generate in the normal course of business was calculated as Rs. 12,00,000. This means that, taking into account the time value of money, the machinery is worth Rs. 12,00,000 in today's terms.

The fundamental accounting assumption of entity states that a business is considered a separate entity from its owners or shareholders. This means that the financial transactions and records of the business are kept separate from the personal finances of the owners. Consistency, going concern, and accrual are all other fundamental accounting assumptions that are recognized and applied in accounting practices.

Matching is the principle that states that expenses should be recognized in the same accounting period as the revenue they help generate. This principle ensures that the financial statements accurately reflect the expenses incurred to generate revenue during a specific period. By matching expenses with the related revenue, the financial statements provide a more accurate representation of the profitability of the business. This principle helps in making informed decisions regarding the financial health of the company and allows for better analysis and comparison of financial statements over different periods.

The correct answer is 20,00,000 because the question asks for the current cost of the machinery. On 31st March 2015, a similar machinery could be purchased for Rs. 20,00,000, indicating that the current cost of the machinery would be the same amount. The realizable value and discounted value of future cash inflows are not relevant to determining the current cost of the machinery.

Mr. Nitesh violated the concept of Conservatism. Conservatism principle in accounting suggests that when there is uncertainty or doubt about the value of assets or income, it is better to be conservative and report lower values. In this case, Mr. Nitesh valued the closing inventory at cost, ignoring the market value of the remaining goods, which was Rs. 4,00,000. By not considering the market value, he understated the value of the closing inventory, which goes against the principle of conservatism.

The given scenario of Ms. Sumedha having a closing inventory of Rs. 10,000 after selling goods worth Rs. 2,000 is an event. An event refers to a happening or occurrence that affects the financial position of a company. In this case, the change in the value of the closing inventory is an event as it represents a significant change in the assets of the company. However, it is not considered a transaction because a transaction involves an exchange or transfer of goods or services for a consideration, which is not evident in this scenario. Therefore, the correct answer is that it is an event.

Accounting policies are a set of guidelines and procedures that a company follows to record and report its financial transactions. These policies include principles, which are the fundamental rules and concepts that govern the preparation of financial statements, and the methods of applying these principles. In other words, accounting policies outline the specific principles that should be followed and provide guidance on how to implement them in practice. These policies ensure consistency and comparability in financial reporting, allowing users of financial statements to make informed decisions.