1. What do you mean by Accounting?

Accounting is the process of recording measuring, classifying, summarizing interpreting and

communicating the financial transactions of a business firm. It gives a clear identification about business
transactions.
2. Define accounting.
The American Institute of Certified Public Accountants (AICPA) defines accounting as "Accounting is
the art of recording, classifying and summarizing in a significant manner and in terms of money
transactions and events which are in part, at least of a financial character and interpreting the results
thereof."
American Accounting Association defined accounting as “The process of Identifying, measuring &
Communicating Economic information to permit informed judgements & decisions by users of the
information”
3. Give any 2 features of accounting.
a. The art of recording the business transactions.
b. All transactions recorded in terms of money.
4. Mention any two objectives of financial accounting.
The two objectives of financial accounting are:
(i) To ascertain whether the business operations have been profitable not;
(ii) To ascertain the financial position of the business.
5. Give any two advantages of accounting.
The two advantages of accounting are:
a) Maintain records of transactions
b) Reveals the result of business
c) Reveals the financial position
d) Control over business
6. State any two Limitations of Accounting.
a) Records only monetary transactions.
b) Historical In Nature.
7. What is book keeping?
Book-keeping is the system of recording business transactions in the appropriate account books in a
systematic manner so as to indicate the profit or loss of the business and present a clear picture of the
financial position of the business.
8. What is Bad debts?
Bad debts are the debts owed to an enterprise by the debtors but which are Irrecoverable.
9. Define Book Keeping.
“Book K eying is defined as “an art of recording business transactions in a systematic manner”.
10. What are the objectives of book keeping?
The objectives of book keeping are as follows:
a) To have permanent record of each transaction of the business and to show is financial effect to the
business.
b) To ascertain the combined effect of all the transactions made during the accounting period upon the
financial of the business as a whole.
11. Distinguish between book keeping and accounting:
Book keeping Accounting
1. It denotes recording of business transaction in 1. It denotes the recording of business transaction in a
appropriate account books. proper books of accounts.
2. It just maintains information about a business in 2. It analysis and interprets the information in the
the books of accounts. books of accounts.
3. It is concerned with the actual records of business 3. It lays down even the principles or rules to be
transaction. followed in the recording of business transaction.
12. What do you mean by entity?
Entity refers to an economic unit which is used to talk about any business that is a single unit from a legal
or financial point of view. Example Reliance industrial, TISCO, Birla Group.
13. State the functions of accounting.
The main functions of accounting are;
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 a) Identification
b) Recording
c) Classifying
d) Summarizing
e) Analyzing and Interpreting
f) Communicating.
14. What is transaction?
The term 'transaction refers to the happenings events which are measurable in terms of money, which
generally, involves exchange of money or money's worth between the business and other parties and
which change the financial position of a business concern..
15. What is capital?
Capital refers to the amount invested in a business by the proprietor or partner.
16. Give the meaning of liabilities.
Liabilities are obligations to outside parties arising from events that have already happened. In simple
liabilities are claims against the entities assets.
17. What are assets?
Assets refer to the properties or things and rights of value owned by a business.
18. Who is a creditor (Trade receivable)?
Creditor is one to who owes a debt or money is owed is a creditor, and he remains a creditor so long as
anything is owing to him. When he is repaid amount owing he is no longer a creditors in respect to that
particular amount.
19. Who is a debtor (Trade receivable)?
One who owes debt or money is a debtor and he remains a debtor so long as he owes something. When
he repaid amount, what he owes, he is no longer a debtor in respect to that particular amount.
20. What do you mean by purchase return?
Purchase Returns are the return outwards bought by the trader, are records in the purchase return book.
Very often trader faces return of goods which are received in a damaged condition, goods received may
be different from those ordered and charged have been more.
21. What is sales?
Sales refers to the value of goods or services which are sold. It consists of cash or credit transactions. In
accounting terminology, sales means the sales of goods, never the sales of assets.
22. Give the meaning of sales return.
Sales Returns are the return inwards sold by the trader are recorded in the sales returns book. Very often
trader faces return of goods which were sold. It is necessary to grant some kind of allowance to the buyer
for shortage, breakage and overcharge.
23. Give the meaning of gain
Gain refers to any profit received on sales of assets owned by the business. It is also an increasing value
of an asset.
24. What do you mean by expenses?
An expense is a cost that has expired, was used up, or was necessary in order to earn the revenues during
the time period indicated in the heading of the income statement.
25. Give the meaning of profit.
Profit is positive gain from an investment or business operation after subtracting for all expenses. It also
refers the financial return or reward that entrepreneurs aim to achieve to reflect the risk that they take.
26. What is stock?
Stock refers to the goods on hand which is to be sold to customers. In that situation, stock means
inventory.
27. What is accounting information?
In accounting information several parties are interested to know about information which are related to
accounting beneficiaries such as Proprietor, Management, Creditors, Government and other parties.
Accounting information are the financial position of the business Taxation policy, Net Profit, Closing
stock etc.
28. Give the meaning of Cost accounting.
Costing is the process of recording the costs and preparation of statistical data for the purpose of finding
out the cost, cost control, ascertainment of profitability and internal reporting for managerial decisions.
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29. Give the meaning of management accounting.
It is the system of accounting which helps the management in carrying out its functions of planning,
organising, controlling and directing by supplying necessary information in such a way that it is helpful to
the management in policy formulation and control
30. What do you mean by accounting principles?
Accounting principles are defined as that rule of actions, which are adopted by the accountant usually
while recording accounting transaction. The accounting principles can be classified into two ways:
accounting concepts and accounting conventions.
31. Write the names of accounting concepts.
The accounting concepts are as follows:
i) Going - concern concept ii) Money measurement concept
iii) Dual - aspect concept iv) Cost concept
v) Business entity concept vi) Accounting period concept
vii) Matching concept viii) Realisation concept
ix) Accrual concept x) Legal aspect concept
32. What are accounting conventions?
The accounting conventions are as follows:
i) Convention of materiality ii) Convention of conservatism
iii) Convention of consistency iv) Convention of full disclosure
33. What do you mean by dual aspect concept?
Dual aspect concept are related to every transaction which is split up into two aspect. One aspects relates
to receiving benefits and other aspect relates to giving benefits. For example, when furniture is bought for
business, it receives furniture with the help of paying cash to the suppliers. This transaction involves two
- fold aspects.
According to this concept, Assets of business will be equal to Liabilities and Capital It is expressed by the
equation.
Assets = Liabilities + Capital
Capital = Assets – Liabilities
34. What is money measurement concept?
Money measurement concept records, only those transactions which can be measured and expressed in
terms of money. It is the monetary transactions.
Example: If a business has got a team of dedicated and trusted employees it is definitely an asset to the
business. But, since their monetary measurement is not possible, they are not shown in the books of
business.
35. What is business entity concepts?
Under this concept the business transactions should be prepared completely separate from the private
affairs of the proprietor because the business enterprise is totally a separate organization and different
from the owner of the business. This can be the proprietor to ascertain the true picture of the business.
36. What are Accounting Standards?
Accounting standards are the guidelines laid down by an apex expert accounting body as to how business
transactions or events are to be recorded in the books of accounts, and the manner in which the business
transactions are to be exhibited in the financial statements.
37. Give importance of Accounting Standards.
They laydown the accounting principles to be followed by all in the preparation and presentation of
financial statement. So they ensure uniformity in accounting records of all and they are comparable for
any purpose.
38. State the nature of accounting standards
The accounting standards may be recommendatory or mandatory in nature. Generally, the accounting
standards are recommendatory in the initial issue of their issue i.e., after they had created requisite
awareness amongst the business houses.
39. Write a note on extra ordinary items to be disclosed as per AS-5.
Extraordinary items are unusual items distinct from the day-to-day operations of the enterprise. AS-5
lays down that, if extraordinary items are included in the income statement of an accounting period,
those items should be separately disclosed in the statement of profit or loss of the current period, stating
their nature and amount.
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 40. List any four accounting standards.
The four accounting Standards are:
AS 1 Disclosure of Accounting Policies
AS 2 Valuation of Inventories
AS 3 Cash Flow Statements
AS 4 Contingencies and Events Occuring after the Balance Sheet Date
41. When do you recognize government grants.
According to AS-12, the government grant can be recognised only when there is a definite assurance that
the enterprise will comply with all the conditions governing the government grant and grant will be
received.
42. What are consolidated financial statements
Financial statements prepared by a Holding company by combining the financial statements of its
subsidiary company as per AS-21 are called consolidated financial statements.
43. What is an Intangible asset as per AS-27?
The AS-27 defines an intangible asset as "an identifiable non-monetary asset without physical substance,
held for use in production and supply of goods and services, for rental to others, or for an administrative
purposes."
44. Which is the Authority issuing Accounting Standards?
Accounting standards are issued by central government and recommended by Institute of Chartered
Accountants of India.
45. What are Intangible Assets? Give Example.
The assets which cannot be physically seen because they have no physical existence are called as
Intangible Assets.
Ex: Goodwill, Patents, Copy Rights.
46. Give the meaning of Profit.
It is the excess of Revenue over Expenses & Losses is termed to be profit. It is a financial gain earned.
47. What is a reserve?
Reserve is a portion of the earnings of the company set aside or appropriated by a business organisation
for a general or specific purpose.
48. Expand GAAP & ICAI
GAAP - Generally Accepted Accounting Principles.
ICAI - Institute of Chartered Accountants of India.
49. Which are the two systems of book keeping.
a) Double Entry System (DES)
b) Single entry System (SES)
50. Which are the bases of Accounting There are three bases of accounting namely.
1) Cash System 2) Mercantile / Accrual basis System. 3) Mixed System
51. What is business?
An organization or economic system where goods and services are exchanged for one another or for
money.
52. Who is Proprietor/owner?
One who runs an organization and invests their money in business. An owner has the right to take any
decision for their business.
53. What is Drawing?
Any withdrawal by the owner from the business in cash or in kind is called drawing.
54. What is Debit?
Debit is adding an amount of cash or fund in to the expenses or assets accounts and subtracting from the
owner's equity, liabilities or income accounts. It is abbreviated as "Dr". It is always operated opposite to
the credit. It is always shown on the left side of the ledger accounts.
55. What is Credit?
Credit is adding an amount of cash or fund in to the owner's equity, liabilities or income accounts and
subtracting from the expenses or assets account. It is abbreviated as "Cr". It is always operated opposite
to the debit. It is always shown on the right side of the ledger accounts.

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56. What is Goods?
Those items which are purchased by business only for sale (not for the use or to consume) and in other
words, those items from which other items will produce.
57. What is Purchase?
When a business buys only goods, then it is the purchase. When a business buys any other assets, then it
will not be the purchase for the business.

SHORT ANSWER QUESTIONS 5 MARKS

1. Explain needs for accounting.
a) The main goals of every business organization is to make a profit. Every business concern must
know its financial position i.e. assets, liability and its own investment in the business (i.e. its own
capital). One needs to have knowledge of whether the business making profit or loss.
b) Profit is made through different types of business transactions such as, goods purchase, goods
sales, payment of expenses, receipt of income, taken loan, give interest etc., Similarly assets are
held and liability are incurred by a business firm through purchase of plant & machinery by cash,
borrowing loan.
c) The business man wants to know how is the financial position of their company he must be
remember all the transaction of his business firm for the year.
d) Human memory it cannot record properly so he need some book where he is systematically
recorded the business transaction whenever he required information about his business he can get
the information easily and fastly. So accounting was introduced as an aid to human memory.
e) If helps permanent and systematic record of business transaction of a firm and help the business
man to know whether the firm as earn a profit or incurred loss.
f) It also helps to know, the financial position of the business.
g) It also helps for planning and decision making to the business firm.
h) Parties may be Shareholders, Debentures holders Employees, Government, Customers, Consumers,
Banks, Creditors, Financial institute, General public Stock exchanges etc.
2. What are the Uses or advantages of accounting information?
The following are the uses or advantages of accounting information to a business -
a) Maintaining systematic record: It is very difficult to remember all the business
transactions which take place in a business. Accounting serves this purpose by
recording all the business transactions in the books of accounts. Hence there is no need
to rely on human memory.
b) Ascertaining the financial results: Accounting information helps in ascertaining
result in the form of profit or loss during a particular period. For this purpose Trading
and Profit and Loss Account or an Income and Expenditure Account is prepared by
matching the items of revenue and expenditure of an accounting period.
c) Ascertaining the financial position: In addition to profit or loss of a business,
accounting information helps to ascertain the financial position i.e., availability of
cash, position of assets and liabilities etc. This can be done by preparing Balance
Sheet.
d) Portray the liquidity position: Financial reporting should provide information about
how an enterprise obtains and spends cash, about its borrowings and repayment of
borrowings, about its capital transactions, cash dividends and other distribution of
resources by the enterprise to owners and about other factors that may affect an
enterprise's liquidity and solvency.
e) Protect business properties: Accounting provides up to date information about the
various assets that the firm possesses and the liabilities the firm owes, so that nobody
can claim a payment which not due to him.
f) Decision making: Accounting information and financial statements helps the
management by providing financial information which helps in making decisions
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 about the steps to be taken in respect of various aspects of business like preparing
budgets for future, for research purpose.
g) Acts as information system: Accounting also acts as information system by
providing information to different persons like Creditors, Investors, Bankers and the
Government.
3. What are the Limitations of Accounting:
a) It does not reflect the current financial position or worth of a business because accounting is
historical in nature.
b) Accounting is limited to monetary transaction only. It does not consider qualitative
elements.
c) Accounting statements do not always present comparable data as accounting principles are not
static.
d) Accounting statements do not show the impact of inflation.
e) Cost concept is found in accounting as price changes are not considered.
f) Possibilities of errors are more under this system of accounting.
g) This system of accounting is costly. Hence, it is not suitable for small firms with limited funds.
4. Who are the Users of Accounting Information?
a) Owners: Owners being businessmen always keep an eye on the returns from the investment,
whether the capital is being employed properly or not. Accounts helps in comparing the accounts
of various years providing necessary information to the owners related to the business.
b) Management: The management is always interested in find whether the business carried on
profitable or not. Here the financial accounting facilitates in drawing future course of action,
further expansion and taking effective decision making.
c) Creditors: The creditors, investors, bankers are interested to know the financial soundness, the
progress and prosperity before granting credit or investing. Here, the financial statements like
profit and loss account and balance sheet helps to know the soundness of the firm.
d) Employees: Payment of bonus depends upon the size of profit earned by the firm. The demand
for wage rise, bonus, better working conditions etc. depends upon the profitability of the firm and
in turn depends upon financial position.
e) Government: Government is interested in the financial statements of firm to know the earnings
for the purpose of taxation, labour and corporate laws.
f) Consumers: Consumers are interested in getting the goods at reduced price. Hence, they wish to
know the establishment of a proper accounting control, which in turn will reduce to cost of
production, in turn less price to be paid by the consumers.
g) Research scholars: Researchers are also interested in accounting for interpretation as accounting
information provided is of great importance to the research scholar who wants to make a study
into the financial operations of a particular firm.
5. Explain the objectives of Accounting
The general objectives of Accounting are
a) To Keep Systematic Record. It is very difficult to remember all the business transactions that
take place. Accounting helps to record all the business trasactions.
b) To ascertain the results: accounting helps in ascertaining Profit earned or loss suffered in
business during a particular period. Therefore Trading A/C, P/L, A/C & B/S are Prepared.
c) To ascertain the financial Positon: In addition to Profit, a businessman must know his financial
position. Therefore accounting helps to know the financial strength of the business.
d) To Protect Business Properties. Accounting Provides up to date information about the various
assets that the firm possesses & the liabilities the firm owes, so that he can know the actual
positon.
e) To Satisfy the requirements of law: All the entities are compulsorily required to maintain
accounts as per law governing their operations such as companies act, societies act & Public trust
Act, etc.,

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 f) To help in decision making Accounting records & financial statements provide financial
information- which help the business in making rational decisions about the steps to be taken in
respect of various aspects of business.
6. Explain Accounting process:
Once a business transaction occurs, a sequence of activities begins to identify and analyze the
transaction, make tire journal entries etc. Because this process repeats over transactions and
accounting periods.
This process is shown in the following diagram

7. Explain the Scope of Accounting:

The scope of accounting is wide and extends in business, trade, government, financial
institutions, individuals and families and every other arena. The functions of accounting are
to keep accounts of those financial transactions.
a. Identification - Identification and recording of business transactions and events.
b. Identifying transaction of financial character - Only these transactions are written
in books which are in terms of money.
c. Recording - Accounting is the art to write all business transaction according to some
rule in the books. The first step in the process of accounting is journalizing.
d. Classifying - After journalizing the next step is posting i.e., entering a transaction into
ledger. It means after recording of the transaction in journal, it can be classified.
e. Summarizing - Summarizing is the art of showing business results in summarize
form. It means it is an art to represent different account at one place that is understand
by manager and other person. Under this after ledger, trial balance and then final
accounts are prepared.
f. Ascertaining of profit and loss - It helps in ascertaining profit and loss and financial
position of the firm.
g. Interpreting of results - It helps in analyzing of business results as shown by our
final accounts. The business results are then conveyed to the various interested groups
such as shareholders, creditors, bankers, govt., research scholars, tax authorities etc.
8. Explain the functions of Accounting
The Important functions of accounting are:
a) Measurement Accounting measures past performance of the business Entity & depicts the exact
current financial position of the business concerns.
b) Forecasting Accounting helps in forecasting the future performance & financial position of the
business by using its past data.
c) Decision making Accounting provides the sufficient information to the users i.e. the proprietors,
investors, managers and accountants to take .quick & proper decisions for the future.
d) Comparison & Evaluation Accounting analyses the past performance of the business using the
accounting data. This helps them in predicting, com paring & evaluating the financial position of the
business.
e) Control Accounting identifies the weaknesses of the operational System & Provides feedbacks
regarding the effectiveness of the business. This helps the managers to have control on the
unnecessary* expenses.
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 f) Government Regulation & Taxation Accounting provides necessary information to the
government to have a proper control on the entity as well as in collection of the tax revenues.
9. State the importance of Accounting Standards.
The importance of Accounting Standards are Explained as below.
a) They laydown uniform accounting policies.
b) They enable easy comparability.
c) They are Prepared as per the guidelines.
d) They Improve & Increase the Credibility.
e) Useful to Investors in judging the risk Involved.
f) They are preferred by Government officials.
g) They are preferred by income - Tax authorities.
10. Distinguish betweien book keeping and accounting.
Book Keeping Accounting
1. Book keeping is a process of accounting 1. Accounting is not only recording the transactions
concerned with recording transactions in the books in the books of accounting but also their
of accounts. interpretation. In short. Accounting is
2. Book keeping has limited scope, and is identificaiton, measurement, recording
concerned with recording, classifying and classification analysis and interpretation.
summarising of business transactions. 2. Accounting has a wide scope and covers book
3. Book keeping is restricted to clerical work, keeping plus analysis and interpretation.
since the scope is limited. 3. Accounting is concerned with all levels of
4. It shows the net result and financial position of management, since it has got wider scope. Lower
the business as the scope extends only up to the level clerks prepare the accounts, medium level
preparation report it and top level interpret it.
of final accounts. 4. It analyses and interprets the operating results and
5. Book keeping depends on accounting for financial position of the business.
making the accounting records more 5. Accounting has to depend on book usefulkeeping
for getting the required information for accounting
records and for making them useful for planning
control and decision making.
11. Explain accounting principles. OR Explain the concept and conventions of accounting.
ACCOUNTING PRINCIPLES
ACCOUNTING CONCEPTS ACCOUNTING CONVENTIONS
1. Money measurement concepts a) Convention of consistency
2. Business entity concepts b) convention of disclosure
3. Going concern concepts c) convention of conservation
4. Cost concepts d) convention of materiality
5. Dual aspect concepts
6. Accounting period concepts
7. matching concepts
8. Accrual concepts
Accounting Concepts: The term accounting concepts refers to the assumptions and conditions on which
accounting system is based. It denotes the propositions on which principles are formulated The principles
are formulated on the basis of economic and political environment of the business.
i) Money Measurement Concepts : While preparing accounts in a business, only those transactions which
are enable to express the term of money alone are recorded.
The money measurement concept helps a concern to express items of diverse nature, such as Bank balance,
Machinery, Stock in trade. Furniture and so on in term of common denominator, viz money and use them up
for the purpose of knowing the total value of assets in a particular period.
Example: A business concern has bank balance ` 1,00,000, 1000 tons of stock in trade 2 type writers 4
machines and 2 buildings, in the absence of a common denominator viz money these diverse items cannot be
added upto give any meaningful figure. But it can be expressed in term of money as bank balance `
1,00,000, stock in trade ` 50,000, 2 typewriters, ` 20,000 machines ? 80,000 and 2 buildings ` 8,00,000.
It is possible to add up the values of all assets to state the total worth of assets in the business of ` 10,50,000
ii) Business Entity Concept: Under this concept the business transactions should be prepared completely
separate from the private affairs of the proprietor because the business enterprise is totally a separate
8
organization and different from the owner of the business. This can enable the proprietor to ascertain the true
picture of the business.
iii) Going Concern Concept: While the accounts are maintained, it is assumed that the business concern
will continue to exist for an indefinite period of time. It facilitates the classification of expenditure into
capital expenditure and revenue expenditure. The capital expenditure benefits the business for a longer
period and the revenue expenditure is related to a shorter duration. The fixed assets are shown at their
original cost and less its depreciation under this concept.
iv) Cost Concepts: Cost Concepts is of special significance only for Fixed Assets, which is recorded in the
books of account at cost i.e at the price actually paid for acquiring the assets. Here cost price .is the actual
price that is agreed upon by both the parties to a contract, than their practical contribution to true accounting
records.
Finally, the cost concept prevents a concern form giving arbitrary value to an asset.
The cost price of assets it stable, where as the market price of an assets is variable.
Example: A Machinery value ` 5, 00,000 are purchased by a concern for ` 4,50,000 The machinery are
recorded in the book of concern only at their cost price of ` 4,50,000 and not at their market price of `
5,00,000
v) Dual aspect Concepts: In this concept, each and every transaction is split up Into two aspects or
equations, One aspect is related to the receiving of benefits and other aspect is related to the giving of
benefits.
Example: Subrata purchase goods for cash she receives goods of some value and gives cash of equal value.
This concept is based on the assumption that for every action there is always an equal opposite reaction.
According to this concept assets of a business will be qual to liabilities and capital is expressed in the form
of equation.
Assets = Liabilities + Capital
Capital = Assets - Liabilities
vi) Accounting Period Concepts: When the business will exist for a longer duration, it is necessary to
maintain accounts with reference to a convenient period.
Thus, the results are ascertained and financial position presented for that period. Usually accounts are
prepared for a period of one year, which may be a financial year. Accounting period is often, referred to as
the accounting year. In English calendar year the accounting year is from 1st January to 31st December
Whereas in India, it is from 1st April to 31st March.
vii) Matching Concepts: One of the objectives of every business firm is to know its results for a given
period time. In order to know the profit or loss of the business, the costs incurred during a given period is
matched against the revenue earned during that period. This helps to known the profit or loss of the business
during a period of time. If the revenue exceeds the cost it represents the profits on the other hand, if cost
exceeds the revenue, it represents the loss.
viii) Accrual Concepts: Accrual concepts emphases the realization concept in regard to both revenues and
expenses. Under this concept, the accountant is required to treat as revenues all those items for which there
is the legal right to receive, although cash might not have been received for them. If revenue is earned, but
no payment, in received, the same should be recorded as revenues. When an expense is incurred, but no
payment is made, the same should be recorded as an expenses. This concept has led to the introduction of
accrual system of accounting as opposed to cash system of accounting.
Accounting Conventions: Accounting Conventions refers to the customs and traditions followed by
Accountants as guidelines while preparing accounting statements. The important accounting conventions are
as follows
i) Convention of Consistency: Convention of consistency implies that the basis followed in different
accounting period should be same. It also signifies that the accounting practice and methods should remain
consistent from one accounting year to another.
When once a particular method of depreciation is adopted for a particular fixed asset, the same method
should be followed for that asset year after year.
ii) Convention of Disclosure: Under the convention of disclosure all significant information about the
business should be disclosed. This convention implies that the accounting records and statement conform to
generally accepted accounting principles.

9
 As regards the investments not only the various securities held by a concern should be disclosed, but also the
mode of their valuation should be stated. Under this convention the financial statements should disclose as
much details as possible.
iii) Convention of Conservation: Convention of conservation refers to the accounting records and in the
financial statements of business where all the prospective losses, risks, and uncertainties should be taken
note of and provided but prospective profits should be ignored. Such transactions related to provision for
doubtful debts, provision for discount on Debtors etc. The importance of this conventions is that the
financial statements should indicate the actual position.
iv) Convention of Materiality: Convention of Materiality implies that transactions which are more
important to the business are recorded and transactions which do not affect the result of the business
drastically should be ignored as the cost of ascertaining such insignificant expenses is more that a trivial
expense incurred. Example: A new Pencil purchased and supplied to the office is not doubt, an asset for the
office. Every day when someone in the office writes with the pencil, a portion of the pencil is used up, and
as such the value of the pencil decreases. The pencil is taken as used up at the time it is purchased or at the
time it is issued to the office.
12. What accounting standard explain its objectives.
Accounting standards may be defined as "the accounting principles and rules which are to be followed for
various accounting treatment while preparing financial statements on uniform basis and which will reveal
the same meaning to all the interested groups who will use the same".
Objectives/ Importance of Accounting Standards : At present, accounting standards are regarded a major
component in the framework of accounting and reporting practices. It helps the accounting practitioners to
apply these accounting practices as and when they applicable.
The main objectives of Accounting Standards are :
1) To bring uniformity in the presentation of accounting statements.
2) To make credibility, reliability and acceptability of accounting.
3) To facilitate inter-firm and intra firm comparison.
4) To eliminate the differences in accounting policies and practices.
5) To provide inference and guidelines on accounting standards.
6) To inform the rules and regulations of financial statements preparation.
7) To improve the transparency in financial statements.
8) To help in determining corporate accountability and managerial effectiveness.
9) To comply with the provisions of various laws such as Companies Act, Income Tax Act etc.,
accounting standards are needed.
13. What are the Advantages of Accounting Standards?
1) Attain uniformity in accounting: Accounting standards provides rules and standard treatment and
recording of transactions which enables to achieve uniformity in accounting methods.
2) Improves reliability of financial statements: Stake holders of the company rely on the financial
statements for their information these potential investors make their investm ent decisions based on
such financial statements which are reliable and trustworthy.
3) Prevent frauds and accounting manipulations: Accounting standards~lay down the accounting
principles and methodologies that all entities must follow. One outcome of this is that the
management of an entity cannot manipulate with financial data because these standards are
compulsory.
4) Assists Auditors: Now the accounting standards lay down all the accounting policies, rules,
regulations in a written format. These policies have to be followed. So, if an auditor or professionals
checks that the policies have been correctly followed it can be assured that the financial statements
are true and fair.
5) Comparability: Since all entities of the country follow the same set of standards theri financial
statements become comparable.
6) Determining managerial accountability: The accounting standards helps to measure the
performance of the management of a entity can help measure the management’s ability to increase
profitability, maintain the solvency of the firm and other financial duties of the management.
7) Helpful to the government: It is useful for the government to make economic plans, market
analysis and estimated budgets.

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 14. Explain the Procedure for issuing the Accounting Standards
Procedure for issuing the Accounting Standards by institute of Chartered Accountant of India.
1. - Identification of the broad areas by accounting standard board.
2. Formulation of the study group.
3. Discussion of accounting standard board with the representative of government public sector
undertaking industry and other organization to gather their views.
4. Preparing the draft and circulate for the comments by the members of the Institute and public at
large.
The draft includes
i Statement of concepts and fundamental accounting principles.
ii. Definition of the terms used.
iii. Application of accounting principle for formulating the standard
iv. Presentation and disclosure requirement.
v. The class of enterprise to which standard will apply
vi The date on which the standard will apply
5. Finalization of the standards and summating of council of institute.
15. Explain the Power of National Financial Reporting Authority
Power of National Financial Reporting Authority
1. Have power to investigate either on their own or on references by central government on the
matters of professional or other misconduct committed by a member or firm of charted
accountant registered under the charted accounts act 1949.
2. Summon and enforce the attendance of persons and examine them.
3. Inspect books of accounts, registers and documents of any persons.
4. Issue commissions for examination of witnesses or documents.
5. Impose the penalty on individual not less than Rs.100000 which may extent upto 5 times of
fees received in case of professional or other misconduct is proved. In case of firms they can
charge upto Rs. 1000000 which can be extend upto 10 times for the same reason
6. They can even debar members.
7. Monitor and enforce compliance with accounting standards and audited standards.
8. Oversee the quality of services of
i. Auditors of listed entities
ii. Unlisted entities with paid up capital not less than 500crores or annual turnover of
1000 crore or above or having aggregates loans, debentures or deposits not less than 500
crores as on 31st march of preceding financial year.
9. Recommend Accounting and auditing standard for approval of central govt.
16. Write a Note on Ind AS
List of IndAS
Ind AS Title of IndAS
101 First time adoption of IndAS
102 Share based payment
103 Business combination
104 Insurance contracts
105 Non-current Asset held for Sale and Discontinued operation
106 Exploration for and evaluation of mineral resources
107 Financial Instruments: Disclosures
108 operating Segments
109 Financial Instrument
110 Consolidated Financial Statement
111 Joint Arrangement
112 Disclosure of interests in Other entities
113 Fair value Measurement
114 Regulatory deferral Accounts
1 Presentation of Financial Statements
2 Inventories .' •
7 Statement of Cash Flow
8 Accounting Policies, Changes in Accounting Estimate and Errors
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10 Event after the Reporting Period
11 Construction Contract
12 income Taxes
16 Property, Plant and Equipment
17 Leases
18 Revenue
19 Employee Benefits
20 Accounting for Government Grants and Disclosure of Government Assistance
21 The effects of changes in Foreign Exchange Rates
23 Borrowing Cost
24 Related Party Disclosure
27 Separate Financial Statement _
28 Investment in Associates and Joint Ventures
29 Financial Reporting hyper inflationary economies
32 Financial Instruments: Presentation
33 Earnings Per Share
34 Interim Financial Reporting
36 Impairment of Assets
37 Provisions, Contingent Liabilities and Contingent Assets
38 Intangible Assets
40 Investment Property
41 Agriculture

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