Tag: accounting standards: concept and objectives

Questions Related to accounting standards: concept and objectives

According to Accounting Standard-2, inventory is to be valued at __________.

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

  1. Actual cost or sales value, which ever is less.

  2. Historical cost.

  3. Net realizable value.

  4. Historical cost or net realizable value, which ever is less.

Show answer
Correct Option: D
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."

According to Accounting Standard-10, gross  book value of a fixed asset may be____________.

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

  1. Fair market value.

  2. Historical cost.

  3. Revaluation amount.

  4. Historical cost or revaluation amount.

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Correct Option: D

Where depreciable assets are revalued, then according to Accounting Standard-6 depreciation amount should be based on____________.

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

  1. Historical cost and profit on revaluation should be transferred to P and L a/c

  2. Revalued amount

  3. Depreciated value of the asset

  4. Accounting Standard-6 does not specify anything in this regard

Show answer
Correct Option: B
Explanation:

AS-6 deals with depreciation on fixed assets hence, depreciable assets are revalued, then depreciation amount should be based on revalued amount of the asset. 

Accounting Standard-6 relating to depreciation is not applicable on ____________.

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

  1. Building

  2. Plant and machinery

  3. Live stock

  4. Patents

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Correct Option: C
Explanation:

Accounting standard-6, relating to depreciation is not applicable to the following items to which special considerations apply:

1. Forest, plantation, and similar regenerative natural resources.
2. Wasting assets including expenditure on the exploration for and extraction of minerals, oil, natural gas, and similar non-regenerative resources. 
3. Expenditure or research and develepoment.
4. Goodwill.
5. Live stock.
The statement also does not apply to land unless it has a limited useful life for the enterprise.

According to Accounting Standard-6 which of the following is not required to be disclosed in the financial statement?

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

  1. Historical cost of the asset

  2. Depreciated value of the asset

  3. Accumulated depreciation

  4. Total depreciation for the period for each class of asset

Show answer
Correct Option: B
Explanation:

AS-6 deals with depreciation of the tangible asset. Hence, only the historical cost, accumulated depreciation on the asset and total depreciation for the period for each class of asset will be recorded. Depreciable value of asset is not to be disclosed according to AS-6.

Inventory of consumable stores and maintenance supplies should ordinarily be valued at __________.

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

  1. Historical cost

  2. Net realizable value

  3. Gross sales value

  4. Historical cost or net realizable value, whichever is lower

Show answer
Correct Option: D
Explanation:

Net realisable value  is the estimated selling price in the ordinary course of business less the estimates 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". 

Accounting Standard-6 relating to depreciation is applicable to___________.

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

  1. Forests and plantations

  2. Mines

  3. Goodwill

  4. Land if it has a limited useful life for the enterprise

Show answer
Correct Option: D
Explanation:

Accounting Standard-6 deals with depreciation accounting and applies to all depreciable assets, except the following items to which special considerations apply:—

(i) forests, plantations and similar regenerative natural resources; 
(ii) wasting assets including expenditure on the exploration for and extraction of minerals, oils, natural gas and similar non-regenerative resources; 
(iii) expenditure on research and development; 
(iv) goodwill and other intangible assets; 
(v) live stock. 
This standard also does not apply to land unless it has a limited useful life for the enterprise.

Accounting Standard-6 relating to depreciation is recommended for use companies___________________.

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

  1. Listed on a recognised stock exchange

  2. Engaged in manufacturing business

  3. Engaged in manufacturing or trading business

  4. All types of business undertakings

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Correct Option: A
Explanation:

Accounting Standards issued by the Institute of Chartered Accountancy of India are issued for better presentation of books of account and to ensure that they show a true and fair view. They are recommended for the used by company listed on a recognised stock exchange. 

Which of the following information relating to fixed assets should be disclosed in the financial statements as per Accounting Standard-10 ?

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

  1. Gross book value of fixed asset at the beginning of the year

  2. Gross book value of fixed asset at the end of the year

  3. Net book value of fixed asset at the beginning and at the end of the year

  4. (A), (B), and (C)

Show answer
Correct Option: D
Explanation:

The following information should be disclosed in the financial statements: 

(i) Gross and net book values of fixed assets at the beginning and end of an accounting period showing additions, disposals, acquisitions and other movements;
 (ii) Expenditure incurred on account of fixed assets in the course of construction or acquisition; and 
(iii) Revalued amounts substituted for historical costs of fixed assets, the method adopted to compute the revalued amounts, the nature of indices used, the year of any appraisal made, and whether an external valuer was involved, in case where fixed assets are stated at revalued amounts.

Accounting standard-10 does not deal with the following fixed assets________.

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

  1. Goodwill

  2. Patents

  3. Trade marks

  4. Live stock

Show answer
Correct Option: D
Explanation:

Accounting standard - 10 (Property, plant and equipment - updated) deals with all the fixed assets like goodwill, patent, trademarks, machinery etc. It does not deal with live stock as it is a (inventory) Current asset and not a fixed asset.