Theoretical Framework of Accounting

creditor

According to the money measurement concept in accounting, transactions and events should be recorded in the currency of the country where the books of accounts are being prepared, regardless of where the transaction takes place. This ensures consistency in financial reporting and avoids confusion from multiple currencies in a single set of accounts.

The consistency principle requires that a company use the same accounting methods and procedures from one accounting period to the next, enabling comparability of financial statements over time. Option A incorrectly describes uniformity across different companies rather than consistency over time periods within the same company.

Going concern is one of the three fundamental accounting assumptions specified in AS-1, along with accrual and business entity. Materiality and prudence are important accounting concepts but are not classified as fundamental assumptions in the accounting framework.

Under the accrual basis of accounting, revenue is recognized only when it is earned, not when cash is received. An advance from customers represents a liability (unearned revenue) until the goods are delivered or services are provided, at which point the sale is recognized.

The matching principle requires that expenses incurred in generating revenue should be recognized in the same accounting period as the related revenue. This ensures accurate measurement of net income for the period by matching efforts (expenses) with accomplishments (revenues).

As per the separate entity concept, business and its owner both are separate entities.

The Institute of Chartered Accountants of India (ICAI) is the regulatory body responsible for issuing Accounting Standards in India. These standards provide guidelines for uniform accounting practices and ensure consistency and comparability in financial reporting.

AS-2 (Accounting for Inventories) applies to inventories including stock of goods. However, construction contracts are specifically excluded from AS-2 and are covered under AS-7 (Accounting for Construction Contracts). Steel and coal/petroleum industry stocks would fall under AS-2.

According to AS-1, disclosure of fundamental accounting assumptions (going concern, accrual, business entity) is required only when they are NOT followed. If these assumptions are followed (which is normally the case), no disclosure is necessary in the financial statements.

All the options listed (A, B, and C) are recognized limitations of accounting standards. Since the question asks which is NOT a limitation, and all three listed are actual limitations, option D (all of the above) is the correct answer - meaning all the limitations listed are indeed valid.

Trademarks are intangible assets because they lack physical substance but have value and provide long-term benefits to the business. Unlike tangible fixed assets (like machinery or buildings), trademarks cannot be touched or seen but represent legal rights and brand recognition.

Total cost = Rs. 10,000 (purchase) + Rs. 1,000 (repairs) + Rs. 500 (miscellaneous) = Rs. 11,500. With a 20% margin on selling price, cost represents 80% of selling price. Therefore, selling price = Rs. 11,500 / 0.80 = Rs. 14,375. Margin = Rs. 14,375 - Rs. 11,500 = Rs. 2,875 (20% of Rs. 14,375).

When an account is debited in the journal, it must be debited in the ledger as well. However, the cross-reference (posting reference) should indicate the account that was credited in the transaction, not the debit account. This maintains the dual-entry system's audit trail.

Initial cash: Rs. 50,000. After purchasing goods on credit: Assets = Rs. 50,000 (cash) + Rs. 20,000 (goods) = Rs. 70,000; Liabilities = Rs. 20,000 (creditor M); Equity = Rs. 50,000. After sale: Cash increases by Rs. 3,600, goods decrease by Rs. 3,000 (cost), and profit Rs. 600 increases equity. Final: Assets = Rs. 70,600 (Rs. 53,600 cash + Rs. 17,000 goods); Liabilities = Rs. 20,000; Equity = Rs. 50,600.

Machinery should be valued at historical cost, which includes purchase price plus installation charges. Market value is irrelevant for accounting purposes. Rs. 11,00,000 (10,00,000 + 1,00,000) represents the actual cost incurred.

Income tax is the owner's personal obligation, not a business expense. When paid from business account, it's treated as drawings/debit to capital account. It doesn't appear in business profit/loss calculation.

A contractor can use different accounting methods (completed contract or percentage of completion) for different contracts, but must consistently apply one method to each specific contract. Using both methods on a single contract would violate consistency principles.

Assets are resources controlled by an entity primarily for generating future economic benefits through use in business operations. They're not held for immediate resale or conversion to cash - those would be inventory or investments.

Journal entry for rent payable to landlord:

Rent a/c Dr

To rent payable a/c

Environmental penalties are contingent liabilities because their existence depends on a future uncertain event (legal proceedings or damage assessment). They're not provisions (no present obligation) or reserves.

AS-2 excludes selling and distribution overheads from inventory cost because these occur after production is complete. Only costs incurred to bring inventory to present location and condition (purchase + conversion) are included.