ACCOUNTANCY

CHAPTER 3 worksheet -2 2024-2025

THEORY BASE OF ACCOUNTING
Multiple Choice Questions
1. As per this concept under accounting concepts/assumptions, business is assumed to
continue for a long period of time in future and there is no intention of closing it. Which
concept is highlighted here?
(a) Consistency concept
(b) Going concern concept
(c) Accrual concept
(d) None of the above
2. According to the consistency concept, which of the following statements is correct?
(i) Accounting principles should be changed year to year to benefit the organisation.
(ii) Accounting principles or methods should remain the same from year to year.
(iii) Business firms can change accounting methods according to the changed
circumstances of business.
(a) Only (ii) (b) Only (iii)
(c) Only (i) and (iii) (d) Only (ii) and (iii)
3. In accrual concept, revenue is recorded when ……… .
(a) cash is received
(b) sales are made
(c) goods are delivered
(d) None of the above
4. Going concern concept is indispensable for the proper working of the business. Which of
the following events are based on the concept of going concern?
(a) Outside parties purchase the debentures and shares of the enterprise
(b) Prepaid expenses, which have no realisable value are shown as assets in balance
sheet
(c) Classification of current and fixed assets is made in accounting books
(d) All of the above
5. Which of the following methods need not remain consistent from year to year?
(a) Method of depreciation : Straight line or Written down value
(b) Method of stock valuation : LIFO, FIFO or HIFO
(c) Both (a) and (b)
(d) None of the above
6. Even after the existence of consistency concept, if the accountant feels that change in a
particular method will lead to the better disclosure of profits and the financial position of the
business, the changed method may be adopted.
(a) True
(b) False
(c) Partially true
(d) Partially false
7. According to the business entity principle, business is treated as a unit separate and distinct
from its ……… .
(a) owners (b) promoters
(c) shareholders (d) All of these
8. Principle of separate entity is applicable to only sole proprietorship business.
(a) True (b) False
(c) Partially false (d) Can’t say
9. Goods used from stock of the business for business purposes are treated as the ……… of
business but similar goods used by proprietors for his personal use are treated as ……… .
(a) inventory, expenditure
(b) drawings, expenditure
(c) drawings, inventory
(d) expenditure, drawings
10. Accrual concept is based on ……… .
(a) matching principle
(b) dual aspect principle
(c) cost principle
(d) going concern concept
11. Accounting concepts are basic assumptions which are taken for any business and business
are considered to be following them. From the given options, identify which of the following
cannot be considered a fundamental accounting assumption?
(a) Going concern (b) Consistency
(c) Accrual (d) Materiality
12. According to ……… principle, an event, even though it may be very important for the
business, will not be recorded in the books of business unless its effect can be measured in
terms of money with a fair degree of accuracy.
(a) materiality
(b) money measurement
(c) full disclosure
(d) dual aspect
13. Which of the following will be recorded in the books of account?
(i) Competitor placing better product in market.
(ii) Strike by labour union.
(iii) Labours being pair.
(a) (i) and (ii) (b) (ii) and (iii)
(c) Only (iii) (d) All of these
14. As per the law, which of the following is the correct accounting period?
(a) 1st April to 31st December
(b) 1st April to 31st March
(c) 1st January to 31st December
(d) Both (b) and (c)
15. According to ………, the entire life of business should be divided into time-intervals for
the measurement of the profits of business.
(a) going concern concept
(b) accounting period principle
(c) consistency concept
(d) principle of prudence
16. The proforma and contents of balance sheet and profit and loss account are prescribed by
Companies Act so that companies show all the relevant information while preparing the
financial statements. This is done to ensure that ……… is followed.
(a) accrual concept
 (b) dual aspect principle
(c) principle of full disclosure
(d) principle of materiality
17. Pick the odd one out.
(a) Accounting period principle
(b) Financial period principle
(c) Periodicity principle
(d) Time period principle
18. Which of the following is correct about the value of investments of a firm?
(a) Market value of investments are not shown anywhere and only book value is
shown in balance sheet
(b) Both market value and book value is shown in balance sheet and the higher of the
two is accounted for
(c) Market value of investments is shown in balance sheet and book value is not
shown anywhere
(d) Market value of investments is shown in footnote and book value of investment is
reflected in balance sheet
19. Due to which principle, contingent liabilities are shown in the balance sheet?
(a) Dual aspect principle
(b) Principle of full disclosure
(c) Principle of materiality
(d) Going concern concept
20. An item is considered to be material if there is a reason to believe that knowledge of it
would influence the decision of an informed investor.
(a) True
(b) False
(c) Partially true
(d) Partially false
21. For large manufacturing, the costs of small tools used is not relevant whereas it is very
relevant for a small roadside workshop. This fallacy can be explained by which principle?
(a) Principle of conservation
(b) Principle of full disclosure
 (c) Principle of materiality
(d) Matching principle
22. All anticipated losses and gains should be recorded in the books of accounts.
(a) True (b) False
(c) Partially true (d) Can’t say
23. As per principle of conservatism, which of the following is incorrect?
(a) Provision for doubtful debts is created in anticipation of actual bad debts
(b) Closing stock is always valued at the realisable value
(c) Joint life insurance policy is shown at the surrender value
(d) None of the above
24. According to principle of prudence,
(a) outstanding expenses are accounted for
(b) provision for bad debts is created
(c) depreciation is charged on assets
(d) All of the above
25. The junior accountant in a fortune 500 company decided to omit the ‘paisa’ in certain
figures and showed the rounded off figures in financial statements. The act was found to be
correct by senior accountant because of
(a) principle of full disclosure
(b) going concern concept
(c) materiality principle
(d) consistency concept
26. Principle of …… is an exception to the principle of full disclosure
(a) money measurement
(b) materiality
(c) matching
(d) None of the above
27. When there are different alternatives for recording a transaction, the one having least
favourable immediate effect on profits or capital should be adopted.
(a) True (b) False
(c) Partially true (d) Can’t say
28. According to the cost principle, an asset bought is recorded in books at price ……… .
(a) at which it was acquired
(b) which is prevailing in market
(c) higher of (a) and (b)
(d) lower of (a) and (b)
29. Cost/Historical cost principle means that assets will be continuously shown at their
acquisition cost, even if the asset is depreciable.
(a) True (b) False
(c) Partially false (d) Can’t say
30. During periods of inflation, the figure of net profit disclosed by profit and loss account
will be distorted because of ……… .
(a) matching principle
(b) historical cost principle
(c) principle of prudence
(d) dual aspect principle
31. Which of the following transactions/ events/entries can be attributed to matching
principle?
(i) Outstanding expenses, though not paid in cash, are shown in the profit and loss
account.
(ii) When insurance premium is paid partly for next year also, the part relating to next
year will be shown as expense only next year and not this year.
(iii) Depreciation is charged as per straight line method each and every year.
(a) Only (i) (b) Only (ii)
(c) (i) and (ii) (d) All of these
32. Recognition of cost in the same period as associated revenues is called ………
(a) Cost principle
(b) Dual aspect principle
(c) Full disclosure principle
(d) Matching principle
33. Incomes receivables must be …… in revenues and income received in advance must be
…… from revenues as per matching principle.
(a) deducted, added (b) ignored, added
 (c) added, deducted (d) None of these
34. ‘Double entry system’ is based on which accounting principle concept?
(a) Going concern concept
(b) Business entity principle
(c) Matching principle
(d) Dual aspect principle
35. Everything a firm owns, it also owes to somebody. This co-existence is explained by
……… .
(a) accrual concept
(b) dual aspect principle
(c) consistency concept
(d) matching principle
36. Match the columns.

(a) (iii) (ii) (i) (iv) (b) (i) (ii) (iii) (iv)
(c) (iii) (ii) (iv) (i) (d) (iii) (i) (ii) (iv)
37. Cash basis of accounting does not require the use of estimates and personal judgements.
(a) True (b) False
(c) Partially true (d) Can’t say
38. In ………, unpaid expenses are recorded in books of accounts.
(a) cash basis of accounting
 (b) accrual basis of accounting
(c) Both (a) and (b)
(d) Can’t be determined
39. Which of the following methods of accounting is/are recognised by Companies Act,
2013?
(a) Cash basis of accounting
(b) Accrual basis of accounting
(c) Both (a) and (b)
(d) Can’t be determined
40. Which basis of accounting makes a distinction between revenue and capital items?
(a) Cash basis of accounting
(b) Accrual basis of accounting
(c) Both (a) and (b)
(d) Can’t be determined
41. Which of these is/are the objectives of accounting standards?
(a) Better understanding of financial statements
(b) Minimise diverse accounting policies and practices with an aim to eliminate them
to possible extent
(c) Enhance reliability of financial statements
(d) All of the above
42. Which AS deals with ‘Financial Instruments: Disclosures’?
(a) AS-29 (b) AS-30
(c) AS-31 (d) AS-32
43. AS does not apply to purely charitable organisations.
(a) True (c) Partially true
(b) False (d) Can’t say

44. International Financial Reporting Standards (IFRS) are issued by ……… .

(a) IFRS Committee
(b) International Accounting Standards Board
(c) international Accounting Committee
 (d) None of the above
45. Accounting Standard-26 deals with
(a) inventories valuation
(b) plant, property and equipment
(c) consolidated financial statements
(d) intangible assets
46. Serial number of AS and Ind-AS correspond with each other with respect to title.
(a) True (b) False
(c) Partially false (d) Can’t say
47. Ind-AS 1 deals with
(a) statement of cash flows
(b) disclosure of accounting policies
(c) plant, property and equipment
(d) None of the above
48. Consolidated financial statement is dealt under which IFRS?
(a) IFRS - 1 (b) IFRS -5
(c) IFRS - 10 (d) IFRS - 15
49. Match the columns.

(a) (i) (ii) (iv) (iii) (b) (i) (ii) (iii) (iv)
(c) (ii) (i) (iii) (iv) (d) (ii) (i) (iv) (iii)
50. On which of these items, GST is not applicable?
(a) Sanitary pads
 (b) Medicines
(c) Alcoholic liquor
(d) Books
51. ……… is levied in the course of interstate supply of goods and services.
(a) Central GST
(b) State GST
(c) Union Territory GST
(d) Integrated GST
52. Identify the GST applicable in case X Ltd. sells goods from Naisk to a vendor in Mumbai.
(a) Central GST (b) State GST
(c) Both (a) and (b) (d) Integrated GST
53. Central GST and Union Territory GST is applicable in such a way that if the prescribed
rate is 18%, …… GST will be levied by centre and …… GST will be levided by the union
territory.
(a) 10%, 8%
(b) 8%, 10%
(c) 9%, 9%
(d) Can’t be determined
54. In how many categories is GST divided?
(a) 2 (b) 4
(c) 3 (d) 6
55. Which of the following is/are objectives of GST?
(a) To maximise tax rate slabs
(b) To restrict the movement of goods across the country
(c) To eliminate classification dispute between goods and services
(d) All of the above
Assertion-Reasoning MCQs
Direction (Q. Nos. 56 to 60) There are two statements marked as Assertion (A) and Reason
(R). Read the statements and choose the appropriate option from the options given below.
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct
explanation of Assertion (A)
 (b) Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct
explanation of Assertion (A)
(c) Assertion (A) is false, but Reason (R) is true
(d) Assertion (A) is true, but Reason (R) is false
56. Assertion (A) NOP Ltd. purchased machinery of Rs. 20,000 which is supposed to last for
20 years. The accountant decides to spread the cost of machinery for the next 20 years for
calculation of profit and loss.
Reason (R) According to the consistency concept, accounting principles and methods should
remain consistent from one year to another.
57. Assertion (A) A claim of a very big sum pending in a court of law against the enterprise
should be brought to the notice of the users of financial statements, otherwise the statements
would be misleading.
Reason (R) According to the principle of full disclosure, all significant information relating
to the economic affairs of the enterprise should be completely disclosed.
58. Assertion (A) Capital = Liabilities Assets.
Reason (R) According to the dual aspect principle, every business transaction is recorded as
having a dual aspect, one aspect is debit and the other aspect is credit.
59. Assertion (A) Cash basis of accounting is accounting which records only cash
transactions, i.e. only those incomes and expenses are recorded which have been received and
paid in cash respectively. Thus, cash basis of accounting violates GAAP.
Reason (R) Cash basis of accounting makes a distinction between capital and
revenue items.
60. Assertion (A) The goods supplied from Chennai to Lucknow would fetch Integrated
GST.
Reason (R) Integrated GST is levied in the course of inter-state supply of goods
and services.
Case Based MCQs
Direction Read the following case study and answer questions 61 to 65 on the
basis of the same.
Olly and Robin are two friends who graduated from a top college of the country. After
college, they decide to build a startup in their hometown, Bengaluru. They decided to start a
subscription service for fruits in the nearby cities.
For obtaining high-quality fruits, they made 5-year contracts with farmers in and
around Karnataka. They also decided to purchase machinery for cleansing and quality check
of the fruits. The business of the company started booming. Two years down the line, they
had built a strong brand and reputation. To leverage the same, the company decided to
venture into other states as well with the similar service line.
They first expanded to Tamil Nadu and got great demand. While accounting, the
company usually booked a normal loss to account for spoiled fruits that they might get.
Moreover, they charged depreciation on the machinery to ensure that expenses are distributed
over the years. With all these good practices, after four more years of operations, the
company obtained a unicorn status.
61. Which concept is highlighted in the fact that the company made long-term contracts with
the farmers?
(a) Going concern concept
(b) Accrual concept
(c) Consistency concept
(d) Both (a) and (b)
62. Which AS will be applicable to evaluate the reputation and brand value of firm?
(a) AS-20 (b) AS-26
(c) AS-30 (d) AS-2
63. “They first expanded to Tamil Nadu and got great demand.” Which type of
GST is applicable on this supply to Tamil Nadu?
(a) Centre GST (b) State GST
(c) Integrated GST (d) Both (a) and (b)
64. Which principle is highlighted in the line, “While accounting, company
usually booked a normal loss to account for spoiled fruits that they might get”?
(a) Business entity principle
(b) Prudence principle
(c) Materiality principle
(d) Full disclosure principle
65. The principle highlighted in the line, “Moreover, they charged depreciation on the
machinery to ensure that expenses are distributed over the years” is a matching principle.
(a) True
(b) False
(c) Partially false
(d) Can’t say
Direction: Read the following case study and answer questions 66 to 70 on the basis of
the same.
Golu Plastic Ltd (GPL) is a leading plastic articles manufacturing company. It was listed on
the Indian stock market in 1999. The founders and promoters of the company hold the highest
number of shares of the company, approximately around 55%. All these founders belong to a
single family. Unfortunately, all of them died in a car accident recently. However, the
company continued to exist and grow. In the year 2004, the company imported multiple
machines for producing low-cost plastic sheets. The machines were recorded at the price
prevailing in 2004 and have been subjected to depreciation year on year based on a written
down value method. The depreciation is treated as a non-cash expense while preparing the
cash flow statement. When GST was implemented in 2017, it benefited the company by
streaming the processes. A single rate of GST was charged on the supply of the goods and the
process of filing was very simple.
66. Which principle is highlighted in the fact that the company continued even after death of
the founders?
(a) Business entity principle
(b) Money measurement principle
(c) Duality principle
(d) Historical cost principle
67. Which principle is highlighted in the line, ‘‘The machines were recorded at the price
prevailing in 2004”?
(a) Full disclosure principle
(b) Conservatism principle
(c) Duality principle
(d) Historical cost principle
68. Which principle/concept is highlighted in the line,” … and have been subjected to
depreciation year on year based on a written down value method.”?
(a) Full disclosure principle
(b) Business entity principle
(c) Consistency concept
(d) Accrual concept
69. Which AS is required to be followed to prepare cash flow statements?
(a) AS-1 (b) AS-2
(c) AS-3 (d) AS-4
70. “A single rate of GST was charged on the supply of the goods …”. Who levy GST on this
common base?
 (a) Centre government
(b) State government
(c) Union territory government
(d) Both (a) and (b)
Direction Read the following case study and answer questions 71 to 75 on the
basis of the same.
Dukuma is an MSME business in the Alwar district of Rajasthan. It is a 40 years old business
of selling hardware parts to local traders of the district and some other retailers of Rajasthan.
The company has multiple SKUs and the inventories are valued by their accountant. The
accountant of the enterprise also happens to be a good friend of the owner of the enterprise.
Therefore, the fees of the accountant was not paid in the year when the pandemic set in as the
firm was going through a cash-crunch. However, the accountant entered the amount of his
fees as an expense even though cash was not paid. He justified his act by stating some
accounting concepts. The accountant further completed the books of accounts for the year
ended 31st December, 2020. Over the years, the company has developed a reputation in the
market by supplying high quality products and customer-friendly service. The owner of the
firm asked the accountant to enter this fact but the accountant denied and gave the correct
reasons. The owner was contended.
71. The supplies of the company would be subjected to Integrated GST.
(a) True (b) False
(c) Partially true (d) Can’t say
72. Which AS would have been followed by an accountant to value inventories?
(a) AS-1 (b) AS-2
(c) AS-3 (d) AS-4
73. Which principle/concept of accounting is highlighted in the line, “Therefore, the fees of
the accountant was not paid in the year when pandemic set in as the firm was going through a
cash-crunch. However, the accountant entered the amount of his fees as expense even though
cash was not paid”?
(a) Dual aspect principle
(b) Accrual concept
(c) Consistency concept
(d) Cost principle
74. The company follows the calendar year as an accounting year. Which principle is
highlighted in the fact that a firm divided the whole life of a firm into small financial years?
(a) Dual aspect principle
(b) Materiality principle
 (c) Prudence principle
(d) Accounting period principle
75. “The owner of the firm asked the accountant to enter this fact but the accountant denied
and gave the correct reasons.” Which principle was used by the accountant to explain the
owner?
(a) Dual aspect principle
(b) Money measurement principle
(c) Full disclosure principle
(d) Accounting period principle