Accounting Principles and Practice

“Assets should be valued at the price paid to acquire them” is based on cost concept. Assets are entered in the books of account at the price paid to acquire them and this cost rather than market value is the basis for subsequent accounting for the asset. The real worth of an asset changes with the passage of time but the assets are shown in books of account at cost and not at what they are worth.

The materiality concept states that items with insignificant value can be treated as expenses rather than capitalized as assets, for practicality and cost-benefit reasons. A small calculator has immaterial value relative to the business's overall financials, so it's expensed instead of being depreciated as an asset over its useful life.

Under annuity method, goodwill is calculated by discounting future super profits to present value. Summation of discounted super profits = present value of goodwill. Average profit method (option A) uses normal profits, not super profits. Options B and D don't involve discounting.

When preparing a balance sheet after a new partnership agreement, assets and liabilities must be recorded at revalued figures to reflect their current fair value. This ensures that the new partner's capital account is based on accurate asset values, and any appreciation or depreciation is properly adjusted among partners. Original value, realisable value, and current cost accounting concepts are not the correct basis for this revaluation.

The question asks which is NOT a treatment of NPA. Options A, B, and D are all valid NPA treatments: stopping accrual of income, providing for accrued but unrealized income, and making provisions for dues. Option C about reducing NAV by 1% is not a standard SEBI-mandated NPA treatment. While NPAs may impact NAV, there is no fixed 1% reduction rule. Therefore C is the correct answer as the statement that is NOT true.

Closed-end schemes have the advantage of being able to amortize initial issue expenses over the entire life of the scheme (typically 3-5 years or more), unlike open-end schemes which are limited to 5 years.

Unit capital represents the capital contributed by investors and is a liability of the mutual fund scheme, appearing on the liability side of the balance sheet. This reflects the fund's obligation to investors, balanced by the assets held by the scheme.

Real accounts represent tangible and intangible assets (machinery, cash, receivables). Debt represents amounts owed TO us BY others - it's a personal account representing the debtor relationship. Wages is a nominal account (expense). The question asks which is NOT a real account.

NPAs (Non-Performing Assets) are loans where principal or interest payment remains overdue for 90 days or more, not necessarily indicating that the entire amount is unrecoverable. Banks make provisions and continue recovery efforts. Some portion may still be recovered through restructuring, asset sales, or legal action. The statement is too absolute.

NAV is calculated as (Market Value of Assets - Liabilities) divided by Units Outstanding. This gives the per-unit value of the fund's portfolio after deducting expenses and liabilities. Option A incorrectly uses book value, option B is just the face value calculation, and option C uses initial units instead of current outstanding units.

The flats constructed by the real estate developers for sale are held as stock in trade. So, these are treated as inventories as per AS-2 “Valuation of Inventories”.

While preparing cash flow statements, the capital gain tax on sale of land shall be reduced from the cash flows from investing activities as per AS - 2 “Cash Flow Statements”.

In case of fixed capital method, all the adjustments are to be made in the partner's current account. So, interest on partner's capital is debited to partner's current account.

As per AS - 5 net profits, prior period Items and changes in accounting policies issued by the ICAI, the extraordinary items are those items, which are incomes or expenses that we do not expect to re-occur in future. The insurance claim received on loss of stock by fire, and the loss of land and building due to earthquake are extraordinary items.

The share of goodwill of retiring partner is debited to the remaining partner's capital a/c in gaining ratio among the remaining partners.