COMPETENCY – BASED TEST ITEMS

CLASS: XI COMMERCE
SUBJECT: ACCOUNTANCY
NAME OF CHAPTER: THEORY BASE OF ACCOUNTING

Q. LEARNING QUESTION MA
NO OUTCOME RK
/ASSESSMENT
OBJECTIVE
1 LO: Able to recognize Assertion (A):- Accounting records business transactions and 1
the accounting process. events which are of financial nature only
Reason (R):- According to money measurement concept only
AO: To assess the financial transactions should be recorded in books of accounts
understanding of a. (A) is correct but (R) is wrong
accounting concepts. b. Both (A) and (R) are correct, but (R) is not the correct
explanation of A
c. Both (A) and (R) are incorrect.
d. Both (A) and (R) are correct, and (R) is the correct
explanation of (A)
2 LO: Able to recognize Ram is an accountant of Garima Pvt. Ltd. He always follows the 1
the accounting Accounting Principles and Accounting Standards in preparation of
qualitative financial statements. The primary qualities that make accounting
characteristics. information useful for decision making by following accounting
principles and accounting standards are:
AO: Understand the A. Relevance and free from bias.
importance of B. Reliability and comparability.
accounting concepts and C. Comparability and consistency.
accounting standards. D. All of the above
3 LO: Identification of Shyam is accountant of a partnership firm. He follows the 1
accounting concepts. accounting concepts and conventions which preparing final
accounts. He makes provision for doubtful debts @ 5% on
AO: Application of debtors every year. Name the two principles followed by Shyam
accounting concepts. in accounting process.
4 LO: Explain the features Assertion (A):- Accounting Standards are based on historical 1
of accounting standards. cost concept.
Reason (R):- Accounting Standards ensure the consistency
AO: Understanding and comparability of financial statements and remove the
importance of effect of diverse accounting policies and practices.
accounting standards. A. (A) is correct but (R) is wrong
B. Both (A) and (R) are correct, but (R) is not the correct
explanation of (A)
C. Both (A) and (R) are incorrect.
D. Both (A) and (R) are correct, and (R) is the correct
explanation of (A)
5 LO: Able to recognize 1. Preparation of accounting standards by Accounting Standard 1
different committees and Board.
institution involved in 2. Approval of accounting standards by Council of Indian
process of preparation of Institute of Chartered Accountants.
accounting standards. 3. Approval of accounting standards by National Advisory
Committee on Accounting Standards.
AO : Understand 4. Recommendation of accounting standards by National
accounting standards Advisory Committee on Accounting Standards to Ministry of
preparation process Affairs.
5. Approval of accounting standards by Ministry of Affairs
 6. Notification of accounting standards in the official gazette.
Right procedure of issuing accounting standards will be:
A. 1,2,3,4,5,6
B. 1,6,3,4,5,2
C. 1,5,6,3,4,2
D. 1,5,6,4,3,2
6 LO: Able to recognize According to Dual Aspect Concept of accounting: 1
dual aspect concept of A. Total assets= Total liabilities + Capital
accounting. B. Total assets = Total liabilities – Capital
C. Total liabilities= Total assets + Capital
AO : Application of D. Capital= Total assets + Total liabilities
preparation of balance by
applying dual aspect
concept.
7 LO: Recognize and Assertion (A):- GST is a value added tax. 1
describe the features of Reason (R):- GST is a value added tax since Input GST is
GST. set-off against Output GST. As a result GST is levied on
incremental value.
AO: Understand features A. (A) is correct but (R) is wrong
of GST. B. Both (A) and (R) are correct, but (R) is not the correct
explanation of (A)
C. Both (A) and (R) are incorrect.
D. Both (A) and (R) are correct, and (R) is the correct
explanation of (A)
8 LO: Able to recognize If the expenses paid during the year are Rs. 30000 including Rs. 5000 1
the accrual basis of as prepaid expenses for next year and Rs. 2000 outstanding expenses
accounting. of previous year. The amount to be recorded as current year expenses
following accrual basis of accounting will be Rs.------------------------
AO : Apply the accrual -.
basis of accounting for
calculating profit/loss
9 LO: Able to recognize Statement-1: Cash basis of accounting is not recognized by Income 1
the cash basis of Tax Act.
accounting Statement-2: Cash basis of accounting does not follow matching
principle and accrual concept.
AO : Understand the A. Only statement -1 is correct.
limitations of cash basis B. Only statement-2 is correct.
of accounting. C. Both statements are correct.
D. Statement-1 is correct but statement-2 is incorrect.
10 LO: Able to recognize Assertion (A):- Accounting Standards are based on historical 1
features of accounting cost concept.
standards. Reason (R):- Accounting Standards ensure the consistency
and comparability of financial statements and remove the
AO : To assess the effect of diverse accounting policies and practices.
importance of A. (A) is correct but (R) is wrong
accounting standards. B. Both (A) and (R) are correct, but (R) is not the correct
explanation of (A)
C. Both (A) and (R) are incorrect.
D. Both (A) and (R) are correct, and (R) is the correct
explanation of (A)
11 LO: Identification of A company purchased goods for Rs. 500000 and sold 80% of such 3
prudence/ conservatism goods during the year. The market value of remaining goods was Rs.
accounting concept. 90000. The accountant Mr. Vinod was newly joined the company
and wanted to show the remaining closing stock at cost Rs. 100000.
AO : Application of Do you agree with Mr. Vinod , if not why give reason.
prudence/conservatism
concept and importance
 of prudence concept.
12 LO: : Identification of Rahul , the proprietor of M/S. R.K. & CO. purchased an air- 3
business entity conditioner and installed it in his residence. The payment was made
accounting concept by issuing a cheque from the account of M/S. R.K. & CO. The
accountant debited the Drawings Account with the amount whereas
AO : Application of Rahul is of the view that it should be debited to the Fixed assets
business entity concept account. In your view , who is correct and why?
and importance of
business entity concept
13 LO: : Identification of On 25th March , 20222 , a fire broke out in the premises of Kamal Ltd. 3
full disclosure And destroyed a part of its plant and machinery. On account of this, a
accounting concept sharp decline in production for next two months is expected unless the
new plant and machinery is being to be purchased. The company did
AO: Importance of full not disclosed this fact in its annual report for the year ended 31st
disclosure concept. March , 2022. What is your opinion about this.
14 LO: Identification of A customer has filed a suit against a trader who has supplied poor 3
prudence/ conservatism quality goods to him. It is known that the court judgment will be in
accounting concept favour of the customer and the trader will be required to pay the
damages. However, the amount of legal damages is not known with
AO : Application of certainty. The accounting year has already been ended and the books
prudence/conservatism are now finalised to ascertain true profit or loss. The accountant of the
concept and importance trader has advised him not to consider the expected loss on account of
of prudence concept. payment of legal damages because the amount is not certain and the
final judgment of the court is not yet out. Do you think the accountant
is right in his approach.
15 LO: Able to assess the Hari was running a small proprietary business of selling bakery 4
basis of accounting. products. Although his sales were good but was always short of funds.
He discussed his problem with Amit, an accountant and apprised him
AO : Understand the of his problems. The gist of their discussion is as follows:
limitations of basis of Hari generally sold gods against cash but to few customers he sold
accounting. goods on credit who paid the bills on weekly basis. The payments
when received were recorded as sales. He did not maintain records of
purchases and sales on daily basis. Although he had many bakery
product such as biscuits, breads, pastries, sandwiches etc, but he did
not have record of each product produced and sold. He did not have
the purchase details of material used for producing the products sold.
Like in the case of goods sold, purchases were recorded as purchases
when payment made. Similarly expenses like electricity, salaries are
recorded as and when paid. Freezer, oven and other equipment were
considered expense on purchase. Some of these assets were purchased
on credit. Also he estimated the closing stock at the year end because
in his view closing stock was negligible and thus estimated it to
include in the accounts.
Based on the above, answer the following questions:

Qn. 1 The basis of accounting followed by Hari is-

a) Accrual basis of accounting
b) Cash basis of accounting
c) Hybrid basis of accounting
d) Non of the above
Qn. 2 His accounts do not show the correct profit or loss for the year
because:
a) Credit transactions are not recorded
b) Distinction is not made between capital and revenue
 expenditure
c) Closing stock is estimated
d) All of the above
Qn. 3 His financial statement do not show the correct liabilities
because:
a) Purchases are accounted when amount is paid
b) Expenses are accounted when amount is paid
c) Assets remaining unpaid were not known from the balance
sheet
d) All of the above
Qn. 4 The accounting concept or assumption not followed is:
a) Accrual concept
b) Consistency concept
c) Money measurement concept
d) Prudence concept

16 LO: Able to recognize Mr. Sudhir is a clerk of a sole proprietor business owned by Mr. Rajan 4
the different accounting . He changes the methods of charging depreciation every. He always
concepts and records investments on the market value and does not make provisions
conventions. for bad and doubtful debts. He do not make records of taking money
by Mr. Rajan from business for his personal use. So that Mr. Rajan
AO : Application and fired him from the job as he was unable to show true profit or loss of
importance of the firm.
accounting concepts and Based on the above, answer the following questions:
conventions.
Qn. 1 which concept was not followed by Mr. Sudhir while charging
the depreciation?

A. Going concerned concept.

B. Consistency concept.
C. Money measurement concept.
D. Business entity concept.
Qn. 2 According to which convention investments should be recorded
at cost value or market value whichever is less ?
A. Convention of full disclosure
B. Convention of materiality
C. Convention of prudence
D. None of the above.
Qn. 3 what is the term used for the amount taken by Mr. Rajan for
his personal use?
A. Drawing
B. Capital
C. Stock
D. Investment
Qn. 4 The term identified in Qn. 3 should be recorded in books by
following which concept
A. Going concerned concept
B. Business entity concept
C. Accrual concept
D. Historical cost concept

17 LO: Able to recognize Reena’s father is the sole proprietor of ‘Friends Gifts’, a firm 4
the different accounting engaged in the sale of gift items. In the process of preparing financial
 concepts and statements, the accountant of the firm Mr. Goyal fell ill and had to
conventions proceed on leave. Reena’s father was urgently in need of the
statements as these had to be submitted to the bank, in pursuance of a
AO : Application and loan of ` 5 lakh applied for the expansion of the business of the firm.
importance of Reena who is studying Accounting in her school, volunteered to
accounting concepts and complete the work. On scrutinising the accounts, the banker found
conventions. that the value of building bought a few years back for ` 7 lakh has
been shown in the books at ` 20 lakh, which is its present market
value. Similarly, as compared to the last year, the method of valuation
of stock was changed, resulting in value of goods to be about 15 per
cent higher. Also, the whole amount of ` 70,000 spent on purchase of
computer (expected life 5 years) during the year had been charged to
the profits of the current year. The banker did not rely on the financial
data provided by Reena.
Based on the above, answer the following questions:
Qn. 1 According to bankers building should be shown in books at
which value?
A. Rs. 20 lakhs
B. Rs. 13 lakhs
C. At a or b whichever is less
D. Rs. 7 lakhs
Qn. 2 Which concept/ convention was not followed while valuation of
stock?
A. Going concerned concept
B. Business entity concept
C. Conservatism convention
D. Dual aspect concept
Qn. 3 Amount identified in qn. 1 should be shown in books because of
following which concept?
A. Historical cost concept
B. Going concerned concept
C. Business entity concept
D. Consistency concept
Qn. 4 Amount spent on purchase of computer can not be charged to
the profits of current year because:
A. It is a revenue expenditure
B. It is a capital expenditure
C. It is deferred revenue expenditure
D. All of the above

18 LO: Able to assess the After completing MDS Mr. A and Mr. B decided to open their dental 6
cash and accrual basis of clinics. Mr. Opened clinic in Palwal and Mr. B opened clinic in
accounting Faridabad. As Palwal was a small town so the customers come to
clinic in small number. Mr. A often received his fee in cash every
AO : Understand and time . If he give his services on credit basis, he don’t take records of
application of cash and it as he knows almost all customers personally. So that he was able to
accrual basis of keep record of his income in a very simple way. He found that his
accounting. accounts were not needed so much time to maintain as he maintains
only a Receipts and Payments account. He does not require the use of
estimates and personal judgements. He also paid his expenses always
in cash and no record for outstanding expenses to be paid in future.
He need not follow the accounting process.
On the other hand Mr. B who was running clinic in Faridabad receive
his fee in cash and he also receive his fee after some time not
immediately. He paid cash for some expenses and some expenses
were also outstanding for some time. He follows proper accounting
process as first he record the transactions in journal then post these
transactions in ledger. After that he prepares the financial statements.
For this purpose his books of accounts were maintained by an
accountant.
After one year they meet and discussed about maintaining their books.
Then Mr. B told to Mr. A that he is not keeping records of his income
and assets properly as he was missing the most important principle of
accounting named matching principle. In the absence of this principle
his clinic income cannot be fairly calculated for the current year. He
also told Mr. A that Indian Company Act 2013 and Tax Authorities
also do not recognize this basis of accounting. So he advised him to
change the basis of accounting.
Based on the above, answer the following questions:
QN. 1 the basis of accounting followed by Mr. A is:
A. Cash basis of accounting
B. Accrual basis of accounting
C. A and B both
D. None of the above
Qn. 2 the basis of accounting followed by Mr. B is:
A. Cash basis of accounting
B. Accrual basis of accounting
C. A and B both
D. None of the above
Qn. 3 what is/are the advantages of basis of accounting followed by
Mr. A:
A. It is very simple
B. It satisfy the conservative instinct of people
C. It does not require the use of estimates and personal judgements.
D. All of the above
Qn. 4 Which accounting principle is not followed in basis of
accounting followed by Mr. A :
A. Going concerned
B. Business entity
C. Matching
D. Historical cost
QN. 5 company Act 2013 will not recognize the basis of accounting
followed by Mr. A because:
A. It does not follow matching principle.
B. It does not give true and fair view of profit or loss and financial
position.
C. A and b both
D. None of the above.
QN. 6 what are disadvantage/s of basis of accounting followed by
Mr. B is/are
A. It is not simple.
B. It requires the use of estimates and personal judgements.
C. It is not so much useful for small businesses.
D. All of the above.
19 LO: Able to assess the 6
cash and accrual basis of
accounting

AO: Understand and

application of cash and From the above information, determine the profit earned or loss
accrual basis of incurred when 1. Cash basis of accounting is followed, and when 2.
accounting.
Cash sales 5,00,000

Credit sales 2,00,000

Outstanding salary and wages 4,000

Insurance paid in advance 2,500

Outstanding electricity expenses 1,000

Income received (excluding income received in 5,000

advance)
income received in advance 1,000

income earned but not received 3,000

Cash purchases 2,75,000

Credit purchases 1,25,000

Salary and Wages paid 44,000

electricity expenses paid 11,000

insurance expenses paid (including prepaid) 10,000

Accrual basis of accounting is followed:

20 LO: To assess the 6

The GST Act came into effect from 1 July 2017 through the
features, history and implementation of the One Hundred and First Amendment of the
rates of GST. Constitution of India by the Indian government. The GST replaced
existing multiple taxes levied by the central and state governments.
AO : to understand the Central level taxes that have merged into IGST are excise duty,
features, history and service tax and central sales tax. State level taxes that have merged
rates of GST helpful in into CGST and SGST are purchase tax, octroi and entry tax,
application of GST. entertainment tax, vat, taxes on lottery and luxury tax.
It is a comprehensive, multistage, destination-based tax:
comprehensive because it has subsumed almost all the indirect taxes
except a few state taxes. Multi-staged as it is, the GST is imposed at
every step in the production process, but is meant to be refunded to all
parties in the various stages of production other than the final
consumer and as a destination-based tax, it is collected from point of
consumption and not point of origin like previous taxes. In sort GST
paid can be set off against GST collected. But GST paid on purchase
of goods and services cannot be set off against GST collected on
restaurant bills, payment of health insurance, purchase of vehicles,
payment of membership fee of any organisation, repairs and
maintenance of building, free gifts to staff and drawings in goods. On
the other hand Input GST ( GST Paid) is reversed in the following
cases: such as purchase return, goods taken owner for personal use,
goods lost or stolen, goods give away as charity or gift and goods
become not saleable. Similarly Output GST ( GST Collected) is
reversed in case of sales returns. Goods and services are divided into
five different tax slabs for collection of tax: 0%, 5%, 12%, 18% and
28%. However, petroleum products, alcoholic drinks,
and electricity are not taxed under GST and instead are taxed
separately by the individual state governments, as per the previous tax
system. There is a special rate of 0.25% on rough precious and semi-
precious stones and 3% on gold.. In addition a cess of 22% or other
rates on top of 28% GST applies on several items like aerated
drinks, luxury cars and tobacco products. Pre-GST, the statutory tax
rate for most goods was about 26.5%; post-GST, most goods are
expected to be in the 18% tax range.
Based on the above, answer the following questions:

QN. 1 When was GST Act came into force?

A. 1ST July 2017

B. 1st July 2018

C. 1st July 2019

D. 1st July2020

QN. 2 GST is a :

A. Comprehensive indirect tax

B. Value added tax

C. A and B both

D. None of the above

QN. 3 which of the following item is not covered under GST:

A. Petroleum products

B. Electricity

C. Alcohol drinks

D. All of the above

QN. 4 input GST can not be set off with:

A. GST paid for purchasing vehicles

B. GST paid for restaurant bills

 C. GST paid for repairs of building

D. All of the above

QN. 5 Out of which following case input GST is reversed ( credited)

A. Purchase returns

B. Goods given away as charity

C. Goods lost by fire

D. All of the above

QN. 6 What is number of tax slabs according to GST Act:

A. Three

B. Four

C. Five

D. Six

ANSWERS:
Q. NO ANSWER
1 D.
2 D.
3 Consistency And Prudence Concepts.
4 B.
5 A.
6 A.
7 D.
8 Rs. 27000
9 C.
10 B.
11 No, Mr. Vinod is violating the convention of prudence or conservatism which states that all
anticipated losses should be recorded in books of accounts, but all anticipated or unrealized
gains should be ignored.
12 The accountant is correct because according to the Business Entity Concept business is
separate and distinct from the owners. Since, the air-conditioner has been installed at the
residence of the proprietor for his personal use , it is drawing by the owner.
13 The company has violated the convention of full disclosure. Loss of plant and machinery is a
material information and should have been disclosed in the books of accounts.
14 No, accountant’s approach is not right . He is violating two conventions 1. Convention of full
Disclosure 2. Convention of Conservatism or Prudence.
According to Convention of Full Disclosure all contingent liabilities should be shown as a note
under balance sheet. Contingent liabilities are those liabilities which may arise in future.
And according to Convention of Prudence/Conservatism provision should be made out of
profits against pending law suit against the firm.
15 QN. 1-B, QN. 2-D, QN. 3-D, QN 4-A
16 QN. 1-B, QN. 2-C, QN. 3-A, QN 4-B
17 QN. 1-D, QN. 2-C, QN. 3-A, QN 4-B
18 QN. 1-A, QN. 2-B, QN. 3-D, QN 4-C, QN 5-B, QN. 6-D
19 1. Net profit as per cash basis= Rs. 166000, 2. Net profit as per cash basis= Rs. 240500
20 QN. 1-A, QN. 2-C, QN. 3-D, QN 4-D, QN 5-D, QN. 6-C