Question 1 (a)

True or false with reasons (any six of nine)

12 marks

Time to write: About 24 minutes
Topic: Accounting concepts and principles
Notes: Crux notes

Question

Question 1 (a) · 12 marks

For any six of the statements below, state with reasons whether each is true or false

Under accrual accounting, revenues and expenses are recognized when they are earned or incurred, whatever the timing of the cash received or paid.
GST input tax credit allows a business to claim a refund of the GST it has paid on purchases used for business purposes.
Expenditure whose benefit is intended for the current period is revenue expenditure.
Under the consistency principle, businesses may change their methods of accounting without any restriction.
Stock is normally valued at cost or NRV, whichever of the two is higher.
If the useful life of Machinery changes, that is a change in Accounting Estimate.
The Outstanding salary account is a Nominal Account.
A theft loss is an example of extraordinary items.
Using a wrong rate of Depreciation is an example of a prior period item. (6×2=12)

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

24 minfor 12 marks

Read from the question

any sixAnswer any 6 of the 9, 2 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.
exampleExamples are asked for: one short example with each point.

Write it in this order

The parts stand alone: start with the one you are surest of.

A step that gives the answer away stays hidden: tap it to see it.

Read each statement; find the word that decides it 2 min
1 (i) accrual basis: True 2 marks 4 min
2 (iii) revenue expenditure: True 2 marks 4 min
3 (iv) consistency: False 2 marks 3 min
4 (v) stock at cost or NRV: False 2 marks 3 min
5 (vi) change in useful life: True 2 marks 3 min
6 (vii) outstanding salary account: False 2 marks 3 min
Check: a verdict and a reason for every statement 2 min

123456

Easy marks

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

Short on time? A few lines on every part beat a full answer to one: each part is capped at its own marks.

Try it first. About 24 minutes for 12 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), (iii), (iv), (v), (vi) and (vii).

(i)True On the accrual basis, income counts in the year it is earned and an expense in the year it falls due, whether the cash moves in that year, an earlier one or a later one.

(iii)True Spending whose benefit is available only for the present period (salaries and rent, for example) is revenue expenditure; spending that brings a lasting benefit is capital expenditure.

(iv)False Consistency means the same accounting method is followed from one period to the next, so that results stay comparable. It does not tie the firm to one method for ever, but a change is made only after careful consideration, where it gives a fairer view of results and position, and its effect must then be stated. Changes "without any restriction" are therefore not allowed.

(v)False Following conservatism, stock is valued at cost or market price (net realisable value), whichever is lower, not whichever is higher. For example, goods costing ₹100 that can be sold for only ₹80 net are shown at ₹80.

(vi)True A revision of an asset's useful life is a change in an accounting estimate. AS-10 lists useful lives among the estimates for property, plant and equipment whose change is disclosed under AS-5. Its effect is taken to the current and future periods; it is not a change in accounting policy.

(vii)False Outstanding salary is salary due to employees but not yet paid. Its account stands for the persons to whom the amount is owed, so it is a representative personal account (a liability), not a nominal account. The salary expense itself is the nominal account.

Where the 12 marks sit

#	Statement and verdict	Marks
1	(i) accrual basis: True	2
2	(iii) revenue expenditure: True	2
3	(iv) consistency: False	2
4	(v) stock at cost or NRV: False	2
5	(vi) change in useful life: True	2
6	(vii) outstanding salary account: False	2
	Total	12

Keyboard: ← → previous and next question, / search

Report a problemopens an email to admin@getkunji.com with the question ID7369-Q1aalready filled in.