NCERT Solutions for Class 11 Accountancy Financial Accounting Part-1 Chapter 2

Theory Base of Accounting Class 11

Chapter 2 Theory Base of Accounting Exercise Solutions

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Short answers : Solutions of Questions on Page Number : 37

Q1 :  

Why is it necessary for accountants to assume that business entity will remain a going concern?


Answer :

Going Concern Concept assumes that the business entity will continue its operation for an indefinite period of time. It is necessary to assume so, as it helps to bifurcate revenue expenditure (i.e. expenditure related to current year), and capital expenditure (i.e. expenditure whose benefits accrue over a period of time). For example, a machinery that costs Rs 1,00,000, having an expected life of 10 years, will be treated as a capital expenditure, as its benefit can be availed for more than one year; whereas, the per year depreciation of the machinery, say Rs 10,000, will be regarded as a revenue expenditure.

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Q2 :  

When should revenue be recognised? Are there exceptions to the general rule?


Answer :

Revenue should be recognised when sales take place either in cash or credit and/or right to receive income from any source is established. Revenue is not recognised, in case, if the income or payment is received in advance or the payment is actually received from the debtors. In a nutshell, revenue will be recognised when the right to receive income is established. For example, Mr. A sold goods in January and received payment in February; then revenue is considered to be recognised in the month of January and not in February. However, if Mr A received cash in advance, i.e. in December and goods are sold in January, then the revenue is recognised in January and not in December.

The exceptions to this rule are given below.

1) Hire purchase- When goods are sold on hire-purchase system , the amount received in instalments is treated as revenue.

2) Long term construction contract- The long term projects like construction of dams, highways, etc. have long gestation period. Income is recognised on proportionate basis of work certified and not on the completion of contract.

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Q3 :  

What is the basic accounting equation?


Answer :

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Q4 :  

The realisation concept determines when goods sent on credit to customers are to be included in the sales figure for the purpose of computing the profit or loss for the accounting period. Which of the following tends to be used in practice to determine when to include a transaction in the sales figure for the period. When the goods have been:

a. dispatched

b. invoiced

c. delivered

d. paid for

Give reasons for your answer.


Answer :

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Q5 :  

Complete the following work sheet:

(i)

If a firm believes that some of its debtors may ”²default”², it should act on this by making sure that all possible losses are recorded in the books. This is an example of the ___________ concept.

(ii)

The fact that a business is separate and distinguishable from its owner is best exemplified by the ___________ concept.

(iii)

Everything a firm owns, it also owns out to somebody. This co-incidence is explained by the ___________ concept.

(iv)

The ___________ concept states that if straight line method of depreciation is used in one year, then it should also be used in the next year.

(v)

A firm may hold stock which is heavily in demand. Consequently, the market value of this stock may be increased. Normal accounting procedure is to ignore this because of the ___________.

(vi)

If a firm receives an order for goods, it would not be included in the sales figure owing to the ___________.

(vii)

The management of a firm is remarkably incompetent, but the firms accountants can not take this into account while preparing book of accounts because of ________ concept.


Answer :

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Long answers : Solutions of Questions on Page Number : 38

Q1 :  

'The accounting concepts and accounting standards are generally referred to as the essence of financial accounting'. Comment.


Answer :

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Q2 :  

Why is it important to adopt a consistent basis for the preparation of financial statements? Explain.


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Q3 :  

Discuss the concept-based on the premise 'do not anticipate profits but provide for all losses'.


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Q4 :  

What is matching concept? Why should a business concern follow this concept? Discuss?


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Q5 :  

What is the money measurement concept? Which one factor can make it difficult to compare the monetary values of one year with the monetary values of another year?


Answer :

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<< Previous Chapter 1 : Introduction to Accounting Next Chapter 3 : Recording of Transactions - I >>

Financial Accounting Part-1 - Accountancy : CBSE NCERT Exercise Solutions for Class 11th for Theory Base of Accounting will be available online in PDF book form soon. The solutions are absolutely Free. Soon you will be able to download the solutions.

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