Accounting - Study Mode

[#1526] Statement I If the going concern concept is no longer valid, then all prepaid assets would be completely written-off immediately. Statement II Also land held as an investment would be valued at its realisable value.
Correct Answer

(D) Statement I is incorrect, but Statement II is correct

[#1527] Match the following: List-I List-II a. At the beginning of each month 1. 5 and 1 / 2 month b. At the end of each month quarter 2. 6 and 1 / 2 month c. At the beginning of each quarter 3. 4 and 1 / 2 month d. At the end of each 4. 7 and 1 / 2 month
Correct Answer

(A) a-2, b-1, c-4, d-3

[#1528] Using 'lower of cost and net realisable value' for the purpose of inventory valuation is the implementation of which of the following concepts?
Correct Answer

(C) The prudence concept

Explanation

Solution: A cash book with cash bank and discount column is commonly referred as The prudence concept. Under the prudence concept, do not overestimate the amount of revenues recognized or underestimate the amount of expenses.

[#1529] The concept of 'separate entity' is applicable to which of the following types of businesses?
Correct Answer

(D) All of the above

Explanation

Solution: Ownership in business entities can be a sole proprietorship, partnership, or corporation. From the accounting perspective and its purpose these types of business are considered separate entities from their owners. The corporation is only one considered as a separate legal entity.

[#1530] Does prudence concept allow a business to build substantially higher reserves or provisions than that are actually required?
Correct Answer

(B) No

Explanation

Solution: Prudence is the application of caution in the exercise of the judgements needed in making the estimates required under conditions of uncertainty, such that assets or income are not overstated and liabilities or expenses are not understated. However, the exercise of prudence does not allow, for example, the creation of hidden reserves or excessive provisions, the deliberate understatement of assets or income, or the deliberate overstatement of liabilities or expenses, because the financial statements would not be neutral and therefore, not have the quality of reliability.