Ch1,2 Solutions

Solution
ACCOUNTANCY TEST - 1,2,4
Class 11 - Accountancy
Section A
1. (a) Evidence in Legal Matters
Explanation: Evidence in Legal Matters is not part of a limitation of accounting.
2.
(d) Communication of information
Explanation: The financial position or financial performance of the business is to be communicated to internal and external
users.
3.
(d) Statement (ii) is correct
Explanation: Book Keeping and Accounting does not mean the same and are not used interchangeably. At the same time, both
these processes are inherently different and have their own sets of advantages.
4.
(d) All of these
Explanation: All of these
5.
(d) Window Dressing
Explanation: The manipulated values shown in books of accounts is known as window dressing. It means to manipulate the
books of account.
6.
(b) Financial Accounting
Explanation: Financial Accounting
7.
(c) Loss
Explanation: When expenses of the business are more and income is less then it is a loss for the business.
Loss = Expenses - Revenue
8.
(c) Quantitative
Explanation: Quantitative
9.
(d) Statement of profit and loss
Explanation: The other name of Profit and loss account is the income statement.
10.
(b) Suppliers of goods and services on credit
Explanation: Suppliers of goods and services on credit
11. (a) Proprietor
Explanation: The proprietor is the owner of the business who invests money in the business and bears the risk of the business.
12. (a) Profit generated during the year
Explanation: Profit generated during the year is the most relevant accounting information for taxation authorities (Government
authority).
13. Non-monetary transactions are not recorded in the book of accounts. For example, the skill level of the human resource an
organisation possesses. The same is not recorded because it can not be measured. It is intangible and just can't be measured or
valued.
14. Yes, I agree that the role of accounting has undergone tremendous change. Earlier the role of accounting was limited only to the
recording of transactions.But, now it has shifted to providing information to managers and other interested parties, to help them
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take appropriate decisions. It is now regarded as an information system.
15. Profit and loss incurred at end of financial period is shown in Profit and loss account.
Section B
16. Qualitative characteristics of accounting information are as mention below:
Reliability, Relevance, Understandability, Comparability
i. Reliability- It means that the user can rely on accounting information. All accounting information is verifiable and can be
verified from the source document (voucher), viz. cash memos, bills, etc. Hence, the available information should be free from
any errors and unbiased.
ii. Relevance- It means that essential and appropriate information should be easily and timely available and any irrelevant
information should be avoided. The users of accounting information need relevant information for decision making, planning
and predicting future conditions.
Section C
17. (b) All of these
Explanation: All of these
18. (d) Event
Explanation: Event
19. (a) iii
Explanation: Giving a motivational speech to the employee
20. (d) Separate uniquely numbered
Explanation: Separate uniquely numbered
21. (d) Accounting principles and standards
Explanation: Accounting principles and standards
22. (c) Framework
Explanation: Framework
23. (a) American Institutes of Certifed Public Accountants
Explanation: American Institutes of Certifed Public Accountants
24. (b) Financial
Explanation: Financial
25. i. Researchers: Researchers are interested in interpreting the financial statements of the concern for a given objective.
Accounting information helps research scholars who wants to make a study into the financial operation of a particular firm.
ii. Government:- Government has to collect sales tax, income tax, excise duty, and other taxes from the business. For this, it is
necessary that proper accounts are made available to the government.Government wants to know earnings or sales for a
particular period for the purpose of taxation. Income tax returns are examples of financial reports which are prepared with
information taken from accounting.Government ensures that a company's disclosure of accounting information is in
accordance with the regulations that are in place to protect the interest of various stakeholders who rely on such information in
forming their decisions
iii. Creditors:- Creditors are those parties that provide a firm with raw material, goods, services and financial resources by either
extending credit or making loans. They are interested in knowing whether an enterprise can settle its obligations on a
scheduled date in time. As a result, the existing cash position, outstanding debts, present and future earnings of an enterprise
are of utmost concern.
iv. Potential Investors: The prospective investors are in need of detailed information about the progress of the concern because
on the basis of the information revealed by the accounting statements they make decisions regarding the investment to be
made in that particular business. They would like to know the data relating to the past and present performance of the business
and details of the decisions taken for future programmes.
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ACCOUNTANCY TEST - 1,2,4

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