Page 45 - DMGT104_FINANCIAL_ACCOUNTING

Unit 2: Principles of Accounting

intangible assets like patents and other legal rights and claims. Assets are presumed to entail Notes
probable future economic benefits to the owner.
Book Value: It is the value of the asset maintained in the books of the account. The book value of
the asset could be computed as follows:
Book Value = Gross (Original) value of the asset – Accumulated depreciation
Liabilities: Amounts owed to others relating to loans, extensions of credit, and other obligations
arising in the course of business.

2.6 Review Questions

1. Accounting is the process of recording, classifying and summarizing of accounting
transactions. Explain.

2. The entire accounting system is governed by the practice of accountancy. What are the key
principles used in accounting?
3. What are the key assumptions of going concern concept?
4. Every debit transaction is appropriately equated with the transaction of credit. Define.

5. Classify the various kinds of values in accounting process.
6. Distinguish between material and immaterial transactions of business.
7. Singania Chartered Accountants Firm established in the year 1956, having very good
number of corporate clients. It continuously maintains the quality in audit administration
with the clients since its early inception. The firm is eagerly looking for promising students
who are having greater aspirations to become auditors. The firm is having an objective to
recruit freshers to conduct preliminary auditing process with their corporate clients.
For which the firm would like to select the right person who is having conceptual
knowledge as well as application on the subjects. It has given the following Balance sheet
to the participants to study the conceptual applications. The participants are required to
enlist the various concepts and conventions of accounting.
(a) List out the various accounting concepts dealt in the above balance sheet.
(b) Explain the treatment of accounting concepts.
8. Why does the accounting equation remain in balance?
9. Liability is defined as currently existing obligations which a business enterprise requires
to meet sometime in future. Explain.
10. What are the key accounting conventions?

Answers: Self Assessment

1. Money or money’s worth 2. Dual effect
3. Horizontal Consistency 4. Realization

5. Accumulated depreciation 6. Debtors
7. Contingent liability 8. Capital
9. Capital Expenditure 10. Revenue Expenditure
11. Capital Receipts 12. Revenue Receipts

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