Question 1 (a)

True/False with reasons

9 marks

Time to write: About 18 minutes
Topic: Accounting concepts and principles
Notes: Crux notes

Question

Question 1 (a) · 9 marks

Attempt any six: state, with reasons, whether each statement below is true or false.

Accounting performs just one function, i.e. the maintenance of systematic accounting records.
Expense incurred for keeping the machine in working condition is capital expenditure.
An expenditure that is intended to benefit the current period is a revenue expenditure.
Accrual means the recognition of revenue as it is earned, and that of costs as they are paid.
As per the principle of consistency, once an accounting policy is adopted for similar items it should be followed consistently from year to year, and it should never be changed in any circumstance.
All enterprises are required to apply the Ind AS.
Going concern, consistency and accrual are the fundamental assumptions of accounting.
Outstanding expense account is a nominal account. (1.5×6)

Reworded from the university paper; the task is the same. The original paper belongs to the University of Delhi. See DU's question bank.

Before you write

Read off the question and its marks

18 minfor 9 marks

Read from the question

any sixAnswer any 6 of the 8, 1½ marks each. Only 6 are marked: a further earns nothing.
true or…A verdict for each (True or False), then the reason that decides it.

Write it in this order

Read each statement; find the word that decides it 1 min
1 Six statements, each verdict + reason 9 marks 16 min
Check: a verdict and a reason for every statement 1 min

Easy marks

Choose the ones you know best: each carries the same marks.

Try it first. About 18 minutes for 9 marks. Write it out, then open the solution.

Solution

Hover or tap a marked figure, like 72,000, to see how it is made and where else it appears.

Six statements are attempted: (i), (ii), (iii), (iv), (vii) and (viii), numbered 1–8 below.

#	Statement (short)	Verdict	Reason
1	Accounting has only a record-keeping function	False	Keeping systematic records is only the first of its functions; accounting also protects the properties of the business, communicates results to interested parties, and meets legal requirements.
2	Expense to keep the machine in working condition is capital expenditure	False	Such expense only keeps the machine working; it does not add to its capacity or life, and its benefit is consumed in the year. Expenditure whose benefit is available only for the present is revenue expenditure.
3	Expenditure intended to benefit the current period is revenue expenditure	True	That is the definition of revenue expenditure: expenditure where the benefit is available only for the present, such as salaries and rent.
4	Accrual: revenue as earned, costs as paid	False	The revenue half is right, but under accrual, costs are recognised when incurred, not when paid: all expenses relating to the period must be taken into account even if they are still unpaid: unpaid rent of the last month is charged and shown as outstanding.
7	Going concern, consistency and accrual are the fundamental assumptions	True	AS-1 names three fundamental accounting assumptions. Going concern and consistency are generally accepted as fundamental, are assumed without being stated, and must be disclosed only if not followed. The third is accrual: charging every expense that relates to the period even if it is unpaid.
8	An outstanding expense account is a nominal account	False	An outstanding expense account records an amount owed to the persons to whom the expense is payable, so it is a personal account, known as a representative personal account, and appears as a liability.

Illustration for statement 4. If eleven months' wages of ₹11,000 have been paid and the twelfth month's ₹1,000 is unpaid, the year's expense is ₹12,000: the unpaid ₹1,000 is charged and carried as wages outstanding.

Where the 9 marks sit

#	Component	Marks
1–6	Six statements, each verdict + reason (1.5 each)	9
	Total	9

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