Accounting Principles and Practice

Current assets are defined not just by convertibility to cash but by the intent to convert them within the operating cycle. Option D is most precise because it captures both the purpose (held for conversion) and the timeframe (operating cycle normally not exceeding 12 months). Options A, B, and C focus only on the time aspect without the purpose element.

The going concern concept assumes the business will continue operating indefinitely rather than being liquidated. This is the FUNDAMENTAL basis for: (1) Stating fixed assets at book value (historical cost less depreciation) rather than break-up value, (2) Allocating costs over time through depreciation, (3) Following accrual accounting, and (4) Carrying assets at historical cost. Options A, B, and C all describe alternative valuation bases (realisable value, market value) or outputs (income statement) that are NOT the underlying basis of going concern. Since none of A, B, or C represent the going concern concept, D is correct.

When a change in accounting policy has NO material effect in the current period but is REASONABLY EXPECTED to have material effect in later periods, AS-10 (Accounting for Changes in Accounting Policies) requires that the FACT of the change should be disclosed. You don't need to quantify the impact (since it's immaterial now), but you must inform users that the policy has changed so they can anticipate future material effects. This ensures transparency and allows users to make informed decisions. Option A (amount of change) suggests quantification, which is not required when current effect is immaterial. Option C (not disclosed) is clearly wrong.

Accounting equation is based on the dual aspect concept (debit and credit). Every transaction has a two sided effect.

This is the correct answer. This principle says that a business should not anticipate any profit but provide for all possible losses.

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The going concern concept assumes the business will continue operating indefinitely rather than being liquidated. This assumption justifies spreading the cost of fixed assets over their useful life through depreciation, rather than valuing them at liquidation value. It forms the basis for periodic reporting and long-term asset accounting.

The going concern concept applies when a business is expected to continue operating indefinitely, making it appropriate to acquire fixed assets for long-term use in revenue generation (Option C). Options A, B, and D describe situations where the going concern assumption is NOT applicable - short-term ventures, liquidation scenarios, and financially distressed enterprises respectively.

According to conservatism, the business should not anticipate any profit but provide for all possible losses. Thus, stocks should be valued as stated above. Consistency concept advocates for following the accounting policies consistently. Realisation concept advocates for recording the change in value of asset only when it is realised. Cost concept states that the asset should be recorded in the books at cost price minus depreciation if any.

“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.

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.