Accounting Principles and Practice

The Depletion Method is specifically used for natural resources like mines, oil wells, and quarries. Unlike calendar year methods that allocate depreciation evenly over time, depletion is based on actual extraction or usage of the resource, making it usage-based rather than time-based.

Live stock (animals like cattle, horses) requires periodic revaluation because their value changes due to growth, breeding potential, health, and market conditions. The Revaluation Method assesses actual value at each period-end rather than applying fixed depreciation. This accurately reflects the changing worth of living assets.

When a company has created a sinking fund for debenture redemption, and it purchases some of its own debentures from the open market, any interest received on those debentures is reinvested in the sinking fund. Since the sinking fund is already accumulating for the specific purpose of debenture redemption, the interest earned on own debentures (which are effectively held for redemption) is transferred to the Sinking Fund Account. This increases the fund balance and reduces the ultimate burden on the company at redemption time. It is not taken to Profit and Loss Account as it's capital in nature.

Explanation: The profits of a business is transferred to the owner/partner's capital account. According to the business entity concept, the owner is different from the business he owns for purposes of accounting. So the profits the business earns, the business firm is liable to pay to the owner. Hence, profits is a liability. However, the profits/part of the profits may be retained in the business for developmental activities or for reserves subject to the rules from time to time.

Explanation: Depreciation is charged to the P & L Account to enable the business to replace an asset when the asset completes its life time. The business does not spend anything and cash outgo is not there. It is carved out of the income of the business or charged as an expense. Hence it is a non-cash expense.

Explanation: Assets = Liabilities + Owners equity. This is the fundamental equation in financial accounting. The owner of a business brings capital which is a liability of the business to the owner. The cash brought in as capital will be used for purchase of land, building, furniture besides further investment in current assets. Again, the business may resort to outside borrowing the funds derived there from are used in purchase of assets. So, at any point of time the total assets equal Liabilities (outside) and owners' equity (liability of the business to the owner). Sources of funds and Use of funds are always equal. This is again the principles of Double entry book keeping.

Explanation: Reserves are created out of profits for various purposes right for the contingency needs to a specified purpose of development or investment. When then there are losses, there is no meaning in creating reserves because the word “reserves” means “retained earnings”. However, accumulated reserves could be used for equalizing the dividends, or for wiping the losses etc

Explanation: Receivables which arise on account of sales are generally realizable within a period of one year. (may even for shorter periods) Hence they are treated as current assets.

All are stages of working capital.

Right answer

The Institute of Chartered Accountants of India (ICAI) established its Accountancy Museum in Noida in February 2009. The museum showcases the history and evolution of accounting practices in India, featuring rare documents, books, and artifacts related to the profession.

Both I and II options are answers for this.

Petty cash balance is the same as cash balance.

FIFO: First come first out ensures that the goods at the end have the latest, i.e. highest price.

Book value is the original value utilised for acquiring the asset.