Accounting Principles BCOM 1st Year Short Question Answer Study Notes In English : In this post you will get full information related to BCOM All notes Study Material Sample Model Practice Paper Examination Paper here you will find all the questions of BCOM 1st Year This website parultech.com is very helpful for all students.
SHORT ANSWER QUESTIONS
Q.1. What are the accounting principles? Explain.
Ans. Accounting is the language of business. A business concern communicates to the outside world through its language of accounting. Its communication would be effective only if everyone concerned, understand the language. Accounting principles may be defined as those rules of action or conduct, which are adopted by the accountants universally while recording accounting transactions. They are the body of doctrines commonly associated with the theory and procedures of accounting, serving as an explanation of current practices and as a guide for selection of conventions and procedures where alternatives exist. These principles can be classified into two categories:
1. Accounting concepts.
2. Accounting conventions.
Q.2. What do you mean by accounting standards?
Ans. The term ‘accounting standards’ is defined as written statements issued from time to time by institution of the accounting profession in which they have sufficient involvement and which are established expressly for this purpose. Such accounting institution or bodies are currently found in many countries of the world, e.g. Accounting Standards Board (India), Financial Accounting Standards Board (US), Accounting Standards Committee (UK), and so on. At the international level, International Accounting Standards Committee (IASC), has been created ‘to formulate and publish in the public interest, basic standards to be observed in the presentation of audited accounts and financial statements and to promote their worldwide acceptance and observance Accounting standards mainly deal with financial measurements and disclosures used in producing a set of fairly presented financial statements. They also draw the boundaries within which acceptable conduct lies and in that they are similar in nature to laws.
Q.3. Describe two conventions of accounting. (2014)
Ans. We can describe the two conventions of accounting as follows:
1. Convention of Conservatism: Convention of conservatism is a policy of playing safe and it had its origin as a safeguard against losses in a world of uncertainty. It compels the businessman to wear a ‘risk-proof’ jacket for the working rule ‘anticipate no profit but provide for all possible losses. For example, valuation of closing stock at cost price or market price whichever is lower. If the market price is higher than the cost, the higher amount is ignored in accounts and the closing stock will be valued at cost which is lower than market value. The convention of conservatism therefore, has two aspects:
(a) Recognise revenues only when they are reasonably certain.
(b) Recognise expenses as soon as they are reasonably possible. –
2. Convention of Full Disclosure: According to the convention of full disclosure, all the material nformation should be revealed, while preparing the final accounts. All information which is of material nterest to proprietors, creditors or investors should be disclosed in accounting statement. Full isclosure involves proper classification, summarising and explanation of the business transacuons.
The disclosure convention is gaining momentum due to the fact that business concern are increasingly managed by professional manager, who have the responsibility of making full disclosure to the person who have invested their money as capital in company. The term ‘Full disclosure’ does not mean providing any information required by anybody or revealing trade secrets and strategies.
Q.4. What is meant by convention of consistency?
Ans. According to the convention of consistency, the accounting should be same from one year to another. It states that once an entity has decided to use one method, it should use the same method for all subsequent events of the same character unless it has a sound reason to change methods. This is because the evaluation of performance by the comparison of results of different accounting periods can be significant and useful only if consistent practices are followed in determining them.
For example, there are various methods of charging depreciation on assets and any method may be adopted by the firm. But once any method is adopted, it should not be changed frequently and should be used for a long time. If the method is changed, there will be no consistency in accounting and it will not be possible to make a comparison in the results of different accounting periods.
Q.5. What are the limitations of accounting principles? (2016)
Ans. Followings are the main limitations of accounting principles:
1. Absence of a Complete Set of Principles: The first and foremost deficiency of accounting principles is that no complete set or list of its principles is available. Its main reason is complexity and diversity of business transactions and events due to which it is difficult to formulate its general principles. Besides, there is no permanent body to formulate and clarify these principles.
2. Lack of Agreement on Principles: Accounting principles are ‘generally accepted principles’ and so many accountants follow principles which are different from these accepted principles. Not only this, disagreement is found in respect of accounting principles in two companies of same industry.
3. Differences in the Application of Principles: The application of the accounting principles differs from one unit to another. The reason is that accountants are allowed to follow different alternative methods within the limits of a principle. For example, there are alternative methods of valuation of goodwill and stock, provision for depreciation, etc. which give different results, like valuation of stock. Stock may be valued at cost or market value and cost can be ascertained by FIFO, LIFO or by any other methods. Besides, on account of materiality and conservatism concepts of accounting and specific practices prevalent in a particular trade or industry, differences are found in the application of accounting principles.
Accounting Principles BCOM 1st Year Short Question Answer Study Notes In English
Q.6. Explain the significance of going concern concept. (2014)
Ans. The going concern concept emphasises that unless there is good evidence to the contrary (such as joint venture business), a business unit is viewed as having an infinite life and transactions are recorded from this point of view. This concept implies that the business will exist upto the foreseeable future.
The business has neither the intention nor the necessity of liquidation or of curtailing materially the scale of its operations. As per International Accounting Standards 1 CIAS-11, the enterprise is normally viewed as a going concern, i.e. as continuing in operation for the foreseeable future.
The concept assumes that the business has perpetual life and assets and liabilities are valued on the basis of their potential, not on their market value. Since the business has continued life and the assets purchased can be used for a number of years, the accountant will depreciate its value at a specified rate and that only will be charged to the profit and loss account.
This concept is not universally applicable: If it becomes obvious that the life of the business unit will be terminated, this concept would become invalid and market value would become relevant. But such circumstances are uncommon.
Accounting Principles BCOM 1st Year Short Question Answer Study Notes In English
Q.7. Discuss the importance of accounting standards.
Ans. Accounting standards are important for the following reasons:
1. They lay down uniform accounting policies, which are to be followed by all entities in respect of a particular subject or peculiar events/transaction.
2. Financial statements of various entities become comparable because of uniform accounting standards followed in their presentation.
3. They are more rational and scientific as they are issued by the apex accountancy body rather than the custom-based accounting practices.
4. They keep abreast ofthe international accounting standards and hence, perceive to incorporate the latest trends and principles in the preparation of financial statements.
Q.8. What is the role of accounting standards in India? Discuss.
Ans. The council of the Institute of Chartered Accountants of India (ICAI) constituted the Accounting Standard Board (ASB) in April 1977, recognising the need to harmonise the diverse accounting policies and practice in India and keeping in view the international development in the field of accounting.
The ASB is entrusted with the following functions:
1. To formulate accounting standards which may be established by the council of ICAI. While formulating standards, the ASB is required to take into consideration the applicable laws, customs and usages and business environment, it is also required to give due consideration to International Accounting Standard Committee issued by IASC and to integrate them, to the extent possible, in the light of the conditions and practices prevailing in India.
2. To propagate the accounting standards and persuade the concerned parties to adopt them in the preparation and presentation of financial statements.
3. To issue guidance notes on the accounting standard and give clarifications on issues arising therefrom.
Q.9. Write a short note on AS-3 changes in financial position.
Ans. AS-3 Cash Flow Statements (Revised 1997): The standards deal with the provisions of information about the historical changes in cash and cash equivalents of an enterprise by means of a cash flow statement which classifies cash flow during the period into operating, investing and financing activities. The cash flow statement is an important part of financial statement and helps in assessing the ability of the enterprise to generate cash and cash equivalents and enables users to develop models to assess and compare the present value of future cash flows of different enterprises. The requirement of presentation of cash flow statement would force the management to strive and improve the actual cash flows rather than the profits, which is ultimate goal of any business entity.