Question 1 (a)

True or false, with reasons

6 marks

Time to write: About 12 minutes
Topic: Accounting concepts and principles
Notes: Crux notes

Question

Question 1 (a) · 6 marks

State whether the following statements are true or false, with reasons.

All the assets owned by an enterprise are its goods.
Bad Debt that is recovered should be deducted from the bad debts of the current year.
As per the Accrual Principle, the assets and incomes are not overstated and the Liabilities and losses are not understated.
In India, the accounting standards are issued by the Securities and Exchange Board of India (SEBI).
As per Accounting Standard (AS1), Going Concern, Conservatism and Accrual are the fundamental accounting assumptions.
For a manufacturing concern, interest received on investments is non-operating income.

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

12 minfor 6 marks

Read from the question

State whether…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 Statements (i) and (ii): verdict and reason 2 marks 3 min
2 Statements (iii) and (iv): verdict and reason 2 marks 3 min
3 Statements (v) and (vi): verdict and reason 2 marks 3 min
Check: a verdict and a reason for every statement 2 min

123

Short on time? Trim steps 1–3 evenly rather than skip one: each 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.

(i)False Assets are all the resources a business owns, such as land, building, plant and machinery and stock of goods. Goods are only the part of those resources that the business buys and holds for resale, as inventory. A firm's machinery or building is an asset, but it is not its goods.

(ii)False A bad debt recovered is a sum that was earlier written off as lost; when it comes back it is a gain. It is credited to a separate Bad Debts Recovered Account, an indirect income: a sum earlier treated as lost and now recovered is a gain. Being income, it is not set off against the current year's bad debts.

(iii)False The statement describes prudence (conservatism), not accrual. Under prudence, profits are not anticipated, and provision is made for all known liabilities and losses, so assets and income are not overstated and liabilities and losses are not understated. Accrual means income is recognised when earned and expenses when incurred, not when cash is received or paid.

(iv)False In India, accounting standards are formulated by the Accounting Standards Board (ASB), which the Council of the Institute of Chartered Accountants of India (ICAI) constituted in April 1977. SEBI regulates the securities market; it does not issue accounting standards.

(v)False AS 1 names three fundamental accounting assumptions: going concern, consistency and accrual. Conservatism (prudence) is not an assumption. It is one of the major considerations that govern the selection and application of accounting policies.

(vi)True A manufacturing concern earns its operating income from making and selling its products. Interest it receives on its investments arises from investing surplus funds, outside that main activity, so it is non-operating income. It is shown as other income in the Profit and Loss Account.

Where the 6 marks sit

#	Component	Marks
1	Statements (i) and (ii): verdict and reason	2
2	Statements (iii) and (iv): verdict and reason	2
3	Statements (v) and (vi): verdict and reason	2
	Total	6

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