CHAPTER 2: THEORY BASE OF ACCOUNTING · Full Q&A

📘 CHAPTER 2: THEORY BASE OF ACCOUNTING
(All previous years' questions – with answers)

🔹 Multiple Choice Questions (1 Mark each)

1. State the accounting concept, if a business charges depreciation under written down value method and it follows the same method in the subsequent 5 years.

(2018 Imp – 1 Mark)

Answer: Consistency concept.

2. As per business entity concept owner of the business is:

a) supplier   b) creditor   c) debtor   d) borrower

(2018 Imp – 1 Mark)

Answer: b) creditor (owner is considered a creditor for capital).

3. While preparing final accounts outstanding wages is added to wages account. Identify the accounting principle related with this statement.

(2019 Mar – 1 Mark)

Answer: Matching principle (expenses of the period are matched with revenues).

4. Which accounting concept specifies the practice of crediting closing stock to the trading account?

a) Cost concept   b) Revenue realization concept   c) Going concern concept   d) Matching concept

(2019 Imp – 1 Mark)

Answer: d) Matching concept.

5. Multiple types of taxes in goods and services were abolished through the introduction of _____ .

a) VAT   b) GST   c) Octroi   d) Income tax

(2020 Mar – 1 Mark)

Answer: b) GST.

6. Name the new tax system introduced in our country, with the slogan 'One country One Tax'.

(2020 Imp – 1 Mark)

Answer: GST (Goods and Services Tax).

7. _____ concept is called prudence.

a) Business entity   b) Matching   c) Conservatism   d) Consistency

(2024 Mar – 1 Mark)

Answer: c) Conservatism.

8. Tax that is levied on the inter state supply of goods and services in India is :

a) Central GST   b) State GST   c) Integrated GST   d) Union Territory GST

(2025 Mar – 1 Mark)

Answer: c) Integrated GST (IGST).

🔹 Short Answer (2 Marks)

9. Identify the accounting principles related to the following:

a. Purchased 10 kg of raw materials for Rs.5,000 was entered in the books of account as Rs.5,000.
b. Assets of business are always equal to the claims of owners and outsiders.

(2018 Mar – 2 Marks)

Answer: a) Cost concept / Money measurement concept; b) Dual aspect concept.

10. Arun constructed a building for Rs.5,00,000 for his new business concern. After 2 years the market value of the building is enhanced to Rs.8,00,000. Which concept prevents the business from recording this increase? Why?

(2018 Mar – 2 Marks)

Answer: Cost concept – assets are recorded at historical cost, not market value.

11. i. State the concept of the policy of anticipate no profit and provide for all possible losses.
ii. Recommend any one practice of applying this concept in accounting.

(2019 Imp – 2 Marks)

Answer: i) Conservatism concept; ii) Creating provision for doubtful debts, valuing stock at cost or market price whichever is lower.

12. Identify the accounting concepts.

(a) A business is separate from its owner
(b) Assets = Liabilities + Capital

(2021 Mar – 2 Marks)

Answer: (a) Business entity concept; (b) Dual aspect concept.

13. 'For every debit, there is an equal credit.' Explain this statement with the applicable accounting principle.

(2021 Imp – 2 Marks)

Answer: Dual aspect concept – every transaction has two effects (debit and credit) that are equal.

14. Expand the following : (i) GAAP (ii) IFRS

(2022 Mar – 2 Marks)

Answer: (i) Generally Accepted Accounting Principles; (ii) International Financial Reporting Standards.

15. Write a note on Business entity concept.

(2022 Imp – 2 Marks)

Answer: Business is treated as separate from its owner. Owner is considered a creditor for capital contributed. Personal transactions are not recorded in business books.

16. A businessman signs a contract on 10th January, 2024 to deliver a software by 31st March, 2024, with a price of Rs.15,000. The software was delivered on 25th March 2024. The client pays the entire amount on 10th April, 2024.

(1) When should the businessman recognize this revenue according to the Revenue Recognition Concept ?
(2) Write a short note about Revenue Recognition Concept.

(2025 Mar – 2 Marks)

Answer: (1) 25th March 2024 (delivery date). (2) Revenue is recognised when it is earned (goods or services provided) and not necessarily when cash is received.

🔹 Short Answer (3 Marks)

17. Royal Furniture received an order for making a dining table on 10th May 2017 and they complete the work on 15th July, 2017. The dining table was delivered to the customer on 20th July 2017 and received the payment on 25th July, 2017. In which date this transaction will be recorded in the books of the Royal Furniture? Why?

(2018 Mar – 3 Marks)

Answer: 20th July 2017 (delivery date). Revenue recognition concept – revenue is recognised when goods are transferred to the buyer (delivery).

18. What are the following terms stand for? a) GAAP b) IFRS c) ICAI

(2018 Imp – 3 Marks)

Answer: a) Generally Accepted Accounting Principles; b) International Financial Reporting Standards; c) Institute of Chartered Accountants of India.

19. Write any 3 advantages of Goods and Service Tax.

(2023 Mar – 3 Marks)

Answer: 1) One nation one tax – uniformity. 2) Removal of cascading effect (tax on tax). 3) Easy online compliance and input tax credit.

20. Briefly explain. (a) Going concern concept (b) Dual aspect concept (c) Matching principle

(2024 Mar – 3 Marks)

Answer: (a) Business will continue indefinitely. (b) Every transaction has two effects – debit and credit. (c) Expenses matched with revenues of the same period.

🔹 Long Answer (4 Marks)

21. State which principles / concepts are applicable in the following cases.

(a) Creation of provision for doubtful debts.
(b) Capital brought by the owner is treated as a liability.
(c) Method of calculation of depreciation is not changing year after year.
(d) Accounting should focus on material facts.

(2020 Mar – 4 Marks)

Answer: (a) Conservatism; (b) Business entity concept; (c) Consistency; (d) Materiality concept.

22. Match the following item given in set A with that of set B (2020 Imp – 4 Marks)

A: (1) Creating provision for doubtful debts
(b) Owner and business are separate and distinct
(c) Business has fairly long life
(d) Qualitative aspects are ignored in accounts

B: (i) Business entity concept, (ii) Money measurement concept, (iii) Conservatism concept, (iv) Consistency concept, (v) Going concern concept

Answer: (1) – (iii); (b) – (i); (c) – (v); (d) – (ii).

23. Match the following :

A	B
(a) The existence of business is separate from its owner	(1) Conservatism Concept
(b) Assets = Liabilities + Capital	(2) Cost Concept
(c) The recording price of assets is its acquisition price	(3) Business Entity Concept
(d) Do not anticipate profit, but provide for all losses	(4) Dual aspect Concept

(2022 Mar – 4 Marks)

Answer: a-3, b-4, c-2, d-1.

24. Match the following :

A: Closing stock is valued at cost price or market price whichever is less	B: Money measurement
B: Every transaction has two aspects	Consistency
C: Accounting records monetary events only	Conservatism
D: Frequent changes in accounting policies are not advisable	Duality

(2022 Imp – 4 Marks)

Answer: Closing stock – Conservatism; Every transaction two aspects – Duality; Monetary events only – Money measurement; Frequent changes not advisable – Consistency.

25. Match the following :

(i) Creating provision for doubtful debt	(a) Dual aspect concept
(ii) Transactions are to be supported by source documents	(b) Conservatism
(iii) Salary outstanding added to salary in P/L A/c	(c) Objectivity
(iv) Every transaction has a two fold effect	(d) Matching concepts

(2023 Mar – 4 Marks)

Answer: (i)-(b); (ii)-(c); (iii)-(d); (iv)-(a).

26. Match the following (2023 Imp – 4 Marks) [similar to previous]

Answer: (likely the same as above).

27. Match the following :

(i) Verifiable evidence : (a) Dual aspect
(ii) Materiality : (b) Fixed assets record at original cost and depreciate in a systematic manner
(iii) Going concern : (c) Ignore insignificant details
(iv) Accounting equation : (d) Voucher

(2024 Mar – 4 Marks)

Answer: (i)-(d); (ii)-(c); (iii)-(b); (iv)-(a).

28. Read the following cases :

Case I - A businessman buys a machinery for Rs.50,000 and records it on the balance sheet at Rs.50,000, regardless of any changes in market value.

Case II - When the owner invests cash Rs.10,000 into the business, it affects two accounts - Cash account and Capital account.

(1) Identify the Accounting concept mentioned in the above two statements.
(2) Briefly explain them.

(2025 Mar – 4 Marks)

Answer: Case I – Cost concept (asset recorded at historical cost). Case II – Dual aspect concept (two-fold effect).

🔹 Long Answer (8 Marks)

29. (a) Give the full form of GAAP.
(b) Write the meaning of GAAP.
(c) Identify the relevant principles and concepts associated with the following :

(1) The quality of manpower is not recorded in the books of accounts.
(2) For every debit there is an equal credit.
(3) Treatment of Outstanding salary.
(4) Business have got indefinite life.
(5) Stock is valued at cost price or market price whichever is less.

(2021 Mar – 8 Marks)

Answer: (a) Generally Accepted Accounting Principles.
(b) Set of rules, conventions and standards for accounting.
(c) (1) Money measurement concept; (2) Dual aspect concept; (3) Matching concept; (4) Going concern concept; (5) Conservatism concept.

30. Explain any four accounting concepts from the following :

(a) Accounting period concept.
(b) Business entity concept.
(c) Money measurement concept
(d) Matching concept
(e) Conservatism concept

(2021 Imp – 8 Marks)

Answer: (Explain any four with meaning and examples). E.g.:
• Accounting period – life divided into periods.
• Business entity – business separate from owner.
• Money measurement – only monetary transactions recorded.
• Matching – match expenses with revenues.
• Conservatism – anticipate losses, not profits.

📌 Note: Answers are based on standard accounting principles and past paper answer keys. For detailed explanations, refer to your textbook.