Q: Which of the following is the correct accounting equation?

$$\text{Assets} = \text{Liabilities} + \text{Equity}$$

Question 1

Which of the following best describes the 'Going Concern' assumption in accounting?

Accepted Answer

The business will continue its operations for the foreseeable future and has no intention or necessity to liquidate.

Question 2

A company changes its inventory valuation method from FIFO to Weighted Average. According to accounting principles, this change should be:

Accepted Answer

Disclosed in the financial statements, including the impact on profit and assets, if material.

Question 3

Which of the following is NOT a fundamental accounting assumption?

Accepted Answer

Business Entity

Question 4

A company purchases a machine for $$10,00,000. On the balance sheet date, the market value is 15$$,00,000, and the present value of future cash flows is $$12,00,000. If the company records the machine at 10$$,00,000, which valuation principle is being followed?

Accepted Answer

Historical Cost

Question 5

Which of the following transactions would NOT be recorded in the books of accounts according to the Money Measurement Concept?

Accepted Answer

Appointment of a new CEO

Question 6

A company receives an insurance claim for machinery completely destroyed by fire. This receipt is classified as:

Accepted Answer

Capital Receipt

Question 7

Which accounting concept is violated if a business values its closing inventory at market value when it is lower than cost, but at cost when market value is higher than cost?

Accepted Answer

Conservatism (Prudence)

Question 8

Which of the following best illustrates the Dual Aspect Concept?

Accepted Answer

Every transaction affects at least two accounts, maintaining the equation $$	ext{Assets} = 	ext{Liabilities} + 	ext{Equity}.$$

Question 9

A company incurs $25,000 on overhauling a second-hand machine to bring it into working condition. This expenditure should be classified as:

Accepted Answer

Capital Expenditure

Question 10

Which of the following is a limitation of accounting?

Accepted Answer

It ignores non-monetary factors such as employee morale.

Question 11

Which of the following is NOT a subfield of accounting?

Accepted Answer

Book-keeping

Question 12

A company is facing a lawsuit, and the outcome is uncertain. The possible inflow of economic benefits from the lawsuit is considered a:

Accepted Answer

Contingent Asset

Question 13

Which of the following is the correct accounting equation?

Accepted Answer

$$	ext{Assets} = 	ext{Liabilities} + 	ext{Equity}$$

Question 14

Which of the following is an example of a capital receipt?

Accepted Answer

Proceeds from the issue of shares

Question 15

According to the Matching Concept, which of the following is correct?

Accepted Answer

Expenses incurred to earn revenue are matched with the revenue of the same period.

Question 16

Which of the following is NOT a qualitative characteristic of financial statements?

Accepted Answer

Profitability

Question 17

A company provides for doubtful debts in its accounts. This is an application of which accounting principle?

Accepted Answer

Conservatism (Prudence)

Question 18

Which of the following best describes a 'Provision'?

Accepted Answer

A present liability of uncertain amount, which can be measured reliably by using a substantial degree of estimation.

Question 19

Which of the following is NOT a benefit of accounting standards?

Accepted Answer

They allow for unlimited flexibility in accounting treatments.

Question 20

If a company recognizes revenue only when cash is received, which basis of accounting is it following?

Accepted Answer

Cash Basis

Theoretical Framework and Fundamental Principles of Financial Accounting

Study Guide - Practice Questions

Study Guide - Flashcards