Question 1 (c)
Identify the accounting principle
6 marks
- Time to write
- About 12 minutes
- Notes
- Crux notes
Question
Question 1 (c) · 6 marksFor each of the statements below, state the accounting principle involved:
It assumes that a business enterprise will not be liquidated or sold in the near future.
Goodwill that is self- generated is not recorded.
The rift between the production and marketing manager is not directly disclosed in the financial statements.
The value of inventories left unsold is carried forward to the next accounting year.
An advance received from a customer is not recorded as sales.
A bike purchased by the proprietor from the business account is deducted from his capital.
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
Read from the question
- (i)–(vi)6 items, each marked on its own: give each its share.
Write it in this order
The parts stand alone: start with the one you are surest of.
- Read; underline the asks; jot your points 1 min
- 1 Going Concern 1 mark 2 min
- 2 Cost 1 mark 2 min
- 3 Money Measurement 1 mark 2 min
- 4 Matching 1 mark 2 min
- 5 Revenue Recognition 1 mark 1 min
- 6 Business Entity 1 mark 1 min
- Check: every ask answered, key terms underlined 1 min
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 12 minutes for 6 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.
| # | Statement (in brief) | Principle | Why |
|---|---|---|---|
| 1 | The enterprise is assumed not to be liquidated or sold in the near future | Going Concern | The business is assumed to continue in operation for the foreseeable future, so assets used in it are carried at cost less depreciation; forced-sale or current market value is not relevant to a concern that intends to go on using them. |
| 2 | Self-generated goodwill is not recorded | Cost (Historical Cost) | An asset enters the books at the price actually paid for it. Goodwill the firm generated itself cost nothing, so there is no acquisition price to record, however real the reputation is. |
| 3 | A rift between the production and marketing managers is not disclosed | Money Measurement | Only facts capable of being expressed in money are recorded. A dispute between managers cannot be measured in monetary terms, so it stays outside the statements. |
| 4 | Unsold inventory is carried forward to the next year | Matching | Profit for a period is found by matching that period's revenues with the costs of earning them. Goods unsold have not yet produced revenue, so their cost is carried forward to be set against the revenue they will earn next year. |
| 5 | An advance from a customer is not recorded as sales | Revenue Recognition (Realisation) | Revenue is treated as earned only when goods are delivered or services rendered, not when an order is received or cash is taken. Until delivery the receipt is an obligation, so it sits in liabilities. |
| 6 | A bike bought by the proprietor from the business account is deducted from his capital | Business Entity | The business is a unit separate from its owner, and the proprietor's private affairs are not mixed with the firm's. An asset bought for personal use is not a firm asset; it reduces what the firm owes the owner. |
Where the 6 marks sit
| # | Statement → principle | Marks |
|---|---|---|
| 1 | Going Concern | 1 |
| 2 | Cost | 1 |
| 3 | Money Measurement | 1 |
| 4 | Matching | 1 |
| 5 | Revenue Recognition | 1 |
| 6 | Business Entity | 1 |
| Total | 6 |
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