Solution

CHAPTER 3

Class 11 - Accountancy
Section A
1.
(c) Double Entry System
Explanation: Double Entry System
2.
(d) Dual aspect principle
Explanation: Dual aspect principle
3.
(c) All IAS and SIC
Explanation: IASB ( International Accounting Standard Board ) has replaced IAS and has adopted 41 International
Accounting Standards and SIC (Standards Interpretation Committee). Though there have been certain modifications as per the
changing environment in certain IASB.
4.
(b) principle-based AS
Explanation: Ind-AS are principle-based accounting standards, in India and issued under the supervision of the Accounting
Standards Board (ASB) which was constituted as a body in the year 1977.
Section B
5. State True or False:
(i) (a) True
Explanation: True
(ii) (a) True
Explanation: True
(iii) (a) True
Explanation: True
Section C
6.
(c) iii and iv
Explanation: iii and iv
Section D
7. Fundamental accounting assumptions are presumed to follow for the accounting process.
8. Accounting principles ensure that companies follow certain standards of recording how economic events should be recognised,
recorded, and presented.
9. Accounting data must be comparable. Financial analysts have to analyze and compare the performance and financial position of
the various companies in the same industry. To make them comparable, it is necessary that all the companies of industry must
follow the common accounting policies and practices. Some of the industries may follow different accounting policies which may
not be in accordance with the accepted accounting principles explained above. Following are a few examples of industry practice:
i. In the agricultural industry, crops are often reported at market value because it is difficult to develop accurate cost figures on
individual crops.
ii. Banks and insurance companies in some countries report certain investment securities at market price (rather than cost or
market price whichever is less) as these securities are traded frequently.
10. The concept substance over form means that the transactions recorded in the financial statements must reflect their economic
substance rather than their legal form. The legal form may be different from the substance or commercial reality. According to this
principle, accounting treatment and presentation of business transactions in financial statements should be governed by their
substance and not by their legal form. For example, under hire purchase system, the hire purchaser becomes the owner of the
goods only when he pays the last instalment. This is a legal form. The substance of the hire purchase transaction is that it is a
credit transaction and the goods sold are immediately delivered to the hire purchaser and for all practical purposes he is

1/3
KRISHNA ACADEMY G 19 GOVINDPURAM GHAZIABAD
 considered the owner of the goods from the date of acquisition. Accounting books are prepared on the basis of substance. Thus,
the substance should always be preferred to the form.
11. The basic accounting concepts are referred to as the fundamental ideas or basic assumptions underlying the theory and practice of
financial accounting and are broad working rules for all accounting activities and developed by the accounting profession.
On the other hand, accounting standards are written statements of uniform accounting rules and guidelines or practices for
preparing the uniform and consistent financial statements and for other disclosure affecting the user of accounting information.
However, it is to be remembered that the accounting standards cannot override the provisions of applicable laws, customs, usages
and business environment in the country.Financial statements prepared and presented by a company typically follow an external
standard that specifically guides their preparation. These standards vary across the globe and are typically overseen by some
combination of the private accounting profession in that specific nation and the various government regulators. Variations across
countries may be considerable, making cross-country evaluation of financial data challenging.
Financial accounting is concerned with the preparation of financial statements and provides financial information to various
accounting users. It is performed according to the basic accounting concepts like business entity, money measurement,
consistency, conservatism, etc.For example, there are a number of methods available for calculating stock and depreciation, which
can be followed by various firms.
These concepts allow various alternatives to treat the same transaction. This leads to wrong interpretation of financial results by
external users due to the problem of inconsistency and incomparability of financial results among different business entities. In
order to remove inconsistency and incomparability and to bring uniformity in preparation of the financial statements, accounting
standards are being issued in India by the Institute of Chartered Accountants of India. Accounting standards keep investors,
business owners and regulators on the same page. When all businesses follow the same accounting practices, it easy to evaluate
performance. The rules also discourage businesses from interpreting gray areas of accounting to their own advantage. Hence,
accounting standards and accounting concepts are referred as the essence of financial accounting.
12. No, the accountant is not correct. As per the Money Measurement Concept, only financial transactions are recorded in the books
of accounts.
13. Business is a going concern; the owners cannot wait for a long period to know the results of their business as it may not serve the
purpose of owners and other interested parties. An accounting period is an established range of times during which accounting
functions are performed, aggregated, and analyzed including a calendar year or fiscal year. Normally, the accounting period is one
year. At present accounting, the year is a financial year, i.e., from 1st April - 31st March established by law. The Companies Act
requires yearly reports to be presented to shareholders, and the Income Tax Act requires accounts for all business enterprises to be
submitted annually.
14. Periodicity Concept: Periodicity Concept means dividing the life of the enterprise into smaller periods(normally one year), which
is called 'Accounting Period'. Each accounting period is associated with economic activity. That economic activity must be
recorded, classified, summarised and presented in the financial statements of the enterprise within the Accounting Period only.
Thus, Periodicity concept refers to completing the Accounting Cycle of the firm in an Accounting Period.
For example, management is considering to invest the new projects which is similar to the existing one. In order to make correct
decision, management need to assess and predict the expect gain on the new investment. Normally, they use the two year period
financial performance.
In this case, we can use the periodicity assumption to produce the financial report for management. So that they could make the
correct and accurate decision making.
Dual Aspect Concept: Dual aspect concept means each business transaction is recorded as having a dual aspect. It means each
transaction affects two accounts. If one account is debited, then the other account must be credited. This system of recording is
also known as 'double entry system'. It is because of the dual aspect concept the two sides of the Balance Sheet are always equal
and the Accounting Equation(Assets = Liabilities + Capital)stands always true.
15. Accounting Standards ensure uniformity in the preparation and presentation of financial statements of every type of enterprise.
16. Accounting standards issued by ICAI is 32
17. i. Comparability: It is the level of standardization of accounting information that allows the financial statements of multiple
organizations to be compared to each other. This is a fundamental requirement of financial reporting that is needed by the
users of financial statements.
Financial statements are more comparable when the same accounting policies and standards are applied across multiple
reporting periods, as well as across multiple entities within an industry. For example, if a number of oil and gas firms
consistently apply the same industry-specific accounting standards to their financial statements, then there should be a high
level of comparability within that industry.

2/3
KRISHNA ACADEMY G 19 GOVINDPURAM GHAZIABAD
 ii. Flexibility: using a philosophy that is based on the principles, instead of the rules, this set of standards will have the goal of
arriving at a reasonable valuation with various ways to accomplish a task. Financial statements are more easy to reads and to
use.
iii. Beneficial to small and new investors: IFRS can help new and small investors by making, reporting standards to have better
quality and become simpler, putting these investors in a similar position with professional investors, which was not feasible
with previous standards.
18. Objectives of IASB
The objectives of IASB are as follows:
i. To issue accounting standards which facilitate transparency and comparability to facilitate right decisions.
ii. To promote use of these standards.
iii. To bring uniformity in national accounting standards and IFRS.
19. Accounting standards are authoritative standards for financial reporting and are the primary source of generally accepted
accounting principles (GAAP). Accounting standards specify how transactions and other events are to be recognized, measured,
presented, and disclosed in financial statements. Their objective is to provide financial information to investors, lenders, creditors,
contributors, and others that are useful in making decisions about providing resources to the entity.
Accounting standards are-
i. AS-2 Accounting for inventory.
ii. AS-3 Cash flow statement.

3/3
KRISHNA ACADEMY G 19 GOVINDPURAM GHAZIABAD