Tag: accounting standards: concept and objectives

Questions Related to accounting standards: concept and objectives

The main objective of Accounting Standards is to ___________.

book keeping and accountancy accounting standards: concept and objectives accounting standards accounting standards (as) and ifrs accounting systems and reporting standards

  1. Prepare the accounting reports which is easily understood by common man

  2. Comply with the legal formalities

  3. Harmonise the diversified accounting practices

  4. Comply with the requirements of the International Accounting Standards (IAS)

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Correct Option: C
Explanation:

The primary objective of accounting standards are:

1. To provide a standard for the diverse accounting policies and principles.
2. To put an end to the non-comparability of financial statements.
3. To provide standards which are transparent for users.
4. To provide a suitable starting point for accounting. etc.
 The primary objective of accounting standards is to harmonize  the different accounting policies. The policies are used in the preparation of financial reports.

Accounting Standards Board of India was established in the year ______.

book keeping and accountancy accounting standards: concept and objectives accounting standards accounting standards (as) and ifrs accounting systems and reporting standards

  1. $1970$

  2. $1972$

  3. $1973$

  4. $1977$

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Correct Option: D
Explanation:

Indian accounting standards is the accounting standard adopted by companies in India and issued under the supervision of accounting standard board (ASB) which was constituted as a body in the year 1977. 

When a fixed asset is acquired in exchange for another asset, its cost is usually determined by reference to the_________________.

book keeping and accountancy accounting standards: concept and objectives accounting standards accounting standards (as) and ifrs accounting systems and reporting standards

  1. Net book value of the asset given up

  2. Gross book value of the asset given up

  3. Net book value of the asset acquired

  4. Gross book of the asset acquired

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Correct Option: A
Explanation:

When a fixed asset is acquired in exchange for another asset, its cost is usually determined by reference to the net book value. Net book value of the asset given up is the cost less depreciation. 

Revenue from service transactions, is usually recognized by a method known as__________.

book keeping and accountancy accounting standards: concept and objectives accounting standards accounting standards (as) and ifrs accounting systems and reporting standards

  1. Accrued method.

  2. Proportionate completion method.

  3. Consistency method.

  4. Matching principle.

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Correct Option: B
Explanation:

Revenues from service transactions, is usually recognised by a method known as proportionate completion method. Proportionate completion method is a method where the revenues or costs of service are recorded as a percentage of work completed. 

Revenue arising from the use by others of enterprise resources yielding interest should be recognized on_____________.

book keeping and accountancy accounting standards: concept and objectives accounting standards accounting standards (as) and ifrs accounting systems and reporting standards

  1. Time proportion basis.

  2. Accrual basis.

  3. Actual receipt basis.

  4. When right to receive payment is established.

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Correct Option: A

An expenditure incurred relating to fixed asset resulting in increase in capacity of the asset should be_____________.

book keeping and accountancy accounting standards: concept and objectives accounting standards accounting standards (as) and ifrs accounting systems and reporting standards

  1. Charges to P&L a/c.

  2. Added to gross book value of asset.

  3. Added to net book value of asset.

  4. Treated as deferred revenue expenditure.

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Correct Option: B
Explanation:

An expenditure incurred relating to fixed asset resulting in increase in capacity of the asset should be added to the gross book value of asset. They are not charged to P & L because they are expected to provide value and can be consumed over a period of time. 

In case of service transactions, when performance consists of the execution of a single act, revenue recognition takes place by____________.

book keeping and accountancy accounting standards: concept and objectives accounting standards accounting standards (as) and ifrs accounting systems and reporting standards

  1. Accrued method.

  2. Proportionate completion method.

  3. Completed service contract method.

  4. Consistency method.

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Correct Option: C

The term 'Inventory' includes any tangible item held_________.

book keeping and accountancy accounting standards: concept and objectives accounting standards accounting standards (as) and ifrs accounting systems and reporting standards

  1. For sale.

  2. For consumption in production of goods/ services for sale.

  3. Either (A) or (B).

  4. All of these.

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Correct Option: C
Explanation:

The term 'Inventory' includes any tangible item held for sale and for consumption in production of goods/services for sale. 

The inventory for sale is the finished goods inventory, whereas the goods for consumption in production of goods/services for sale, is known as raw materials.

Which of the following is an example of 'REVENUE' for the purpose of AS-9?

book keeping and accountancy accounting standards: concept and objectives accounting standards accounting standards (as) and ifrs accounting systems and reporting standards

  1. Appreciation in the value of a fixed asset.

  2. Gain resulting from changes in foreign exchange rates.

  3. Royalties receivable.

  4. Realized gain resulting from the discharge of an obligation at less than its carrying amount.

Show answer
Correct Option: C
Explanation:

AS-9 deals with the bases for recognition of revenue in the statement of profit and loss of an enterprise. The Standard is concerned with the recognition of revenue arising in the course of the ordinary activities of the enterprise from: 

–the sale of goods, 
–the rendering of services, and 
–the use by others of enterprise resources yielding interest, royalties and dividends. 
Revenue is the gross inflow of cash, receivables or other consideration arising in the course of the ordinary activities of an enterprise from the sale of goods, from the rendering of services, and from the use by others of enterprise resources yielding interest, royalties and dividends.

Valuation of inventory is dealt with in ___________.

book keeping and accountancy accounting standards: concept and objectives accounting standards accounting standards (as) and ifrs accounting systems and reporting standards

  1. Accounting Standard-2

  2. Accounting Standard-5

  3. Accounting Standard-6

  4. Accounting Standard-9

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Correct Option: A
Explanation:

As per AS-2, Valuation of inventories prescribed the accounting treatment for inventories and sets the guidance to determine the value at which the inventories are carried in the financial statement. 

Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs. 
The cost of inventories should comprise all costs of purchase, Costs of conversion and other costs incurred in bringing  the inventories to their present location and condition. 
As per AS-2, "Inventories should be valued at the lower of cost and net realisable value."