NIOS Class 10 Accountancy Chapter 2 Accounting concepts and conventions

NIOS Class 10 Accountancy Chapter 2 Accounting concepts and conventions Solutions to each chapter is provided in the list so that you can easily browse through different chapters NIOS Class 10 Accountancy Chapter 2 Accounting concepts and conventions and select need one. NIOS Class 10 Accountancy Chapter 2 Accounting concepts and conventions Question Answers Download PDF. NIOS Study Material of Class 10 Accountancy Notes Paper 224.

NIOS Class 10 Accountancy Chapter 2 Accounting concepts and conventions

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Also, you can read the NIOS book online in these sections Solutions by Expert Teachers as per National Institute of Open Schooling (NIOS) Book guidelines. These solutions are part of NIOS All Subject Solutions. Here we have given NIOS Class 10 Accountancy Chapter 2 Accounting concepts and conventions, NIOS Secondary Course Accountancy Solutions for All Chapters, You can practice these here.

Accounting concepts and conventions

Chapter: 2

Intext Questions 2.1 

Fill in the blanks with suitable word/words: 

(i) The accounting concepts are basic ___________ of accounting.

Ans: Rules.

(ii) ___________ concept assumes that a business enterprise and its owners are two separate independent entities. 

Ans: Business Entity.

(iii) The goods withdrawn from business for the owner’s personal use are called ___________.

Ans: Drawings.

Intext Questions 2.2 

From the following identify the transactions that can be recorded in books of accounts and that cannot be recorded? 

(i) Health of a Managing Director. 

Ans: Not recorded.

(ii) Purchase of factory building ` 5 crore.

Ans: Recorded.

(iii) Rent paid 20,000. 

Ans: Recorded.

(iv) Goods worth ` 40,000 given as charity. 

Ans: Recorded.

(v) Delay in supply of raw materials.

Ans: Not recorded.

Intext Questions 2.3

Fill in the blanks by selecting correct words given in the bracket/brackets: 

(i) Going concern concept states that every business firm will continue to carry on its activities ____________ (for a definite time period, for an indefinite time period) 

Ans: For an indefinite time period.

(ii) Fixed assets are shown in the books at their ____________ (cost price, market price) 

Ans: Cost price.

(iii) The concept that a business enterprise will not be closed down in the near future is known as ____________ (going concern concept, money measurement concept)

Ans: Going concern concept.

(iv) On the basis of going concern concept, a business prepares its ____________ (financial statements, bank statement, cash statement)

Ans: Financial statements.

(v) ____________ concept states that business is a distinct entity from its owner. (Going concern, Business entity)

Ans: Business Entity. 

Intext Questions 2.4

Write the two aspects (effects) of the following transactions:

Ans:

Intext Questions 2.5 

Fill in the blanks with suitable word/words: 

(i) Convention of consistency means that same accounting principles should be followed for preparing financial statements __________. 

Ans: Year after year.

(ii) Unsold goods are valued at cost price or __________ whichever is________. 

Ans: Market price and Less.

(iii) Precious metals, like gold, silver etc. are generally valued at __________.

Ans: Market price.

(iv) As per the convention of __________ year after year the same methods of valuation of assets is followed. 

Ans: Consistency.

Intext Questions 2.6

Fill in the blanks with suitable word/words: 

(i) __________ convention states that to make financial statements more meaningful, only significant and important items should be supplied to the users. 

Ans: Materiality. 

(ii) Convention of materiality states that insignificant items should be disclosed under __________.

Ans: Different accounting heads.

(iii) __________ convention keeps accountants and managers to focus on important/significant items. 

Ans: Materiality.

(iv) __________ means the information which will influence the decision.

Ans: Materiality.

Intext Questions 2.7

I. Give your decision in the following situations: 

(i) A business has unsold stock at the end of year. The cost price is Rs. 20,000 and its market price is Rs. 25,000. At which price the unsold stock should be recorded? 

Ans: Rs. 20,000.

(ii) What is your decision if the cost price in the above case is Rs. 21,000 ? 

Ans: Rs. 21,000.

(iii) A businessman anticipates that it may not be possible to collect Rs. 5,000 from one of his debtors. Will he record this transaction in books of account?

Ans:  Yes.

II. 

(i) According to the going concern concept, a business is viewed as having: 

(a) A limited life. 

(b) A very long life. 

(c) An indefinite life. 

(d) A long life. 

Ans: (c) An indefinite life.

(ii) Valuation of stock at lower of cost or net realisable value is an example of 

(a) Consistency convention. 

(b) Conservation convention. 

(c) Materiality convention. 

(d) None of the above. 

Ans: (b) Conservation convention.

(iii) According to which of the following concepts the two aspects of a transaction are recorded. 

(a) Matching concept. 

(b) Money Measurement concept. 

(c) Dual aspect concept. 

(d) Realisation concept. 

Ans: (c) Dual aspect concept.

(iv) According to which of the following accounting concepts, even the owner of a business is considered as a creditor to the extent of his capital. 

(a) Money measurement concept. 

(b) Dual aspect concept. 

(c) Business entity concept. 

(d) Realisation concept. 

Ans: (c) Business entity concept.

(v) The convention of conservatism takes into account 

(a) All prospective losses but leaves prospective profits. 

(b) All prospective profits & leaves prospective losses. 

(c) All prospective profits and prospective losses. 

(d) Leaves all prospective profits and prospective losses.

Ans: (a) All prospective losses but leaves prospective profits.

1. Explain the meaning and significance of the going concern concept.

Ans: This concept states that a business firm will continue to carry on its activities for an indefinite period of time. Simply stated, it means that every business entity has continuity of life. Thus, it will not be dissolved in the near future. This is an important assumption of accounting, as it provides a basis for showing the value of assets in the balance sheet.

The following points highlight the significance of going concern concept: 

(i) This concept facilitates preparation of financial statements. 

(ii) On the basis of this concept, depreciation is charged on the fixed assets. 

(iii) It is of great help to the investors, because it assures them that they will continue to get income on their investments. 

(iv) In the absence of this concept, the cost of a fixed asset will be treated as an expense in the year of its purchase. 

(v) Because of this concept business can be judged for its capacity to earn profits in future.

2. What is meant by the business entity concept?

Ans: This concept assumes that, for accounting purposes, the business enterprise and its owners are two separate entities. Thus, the business and personal transactions of its owner are separate. The accounting records for even the simplest business, the sole trader, must be kept separate from the personal affairs of the owner or owners.

3. State the meaning and significance of the money measurement concept.

Ans: This concept assumes that all business transactions must be in terms of money that is in the currency of the concerned country. In our country such transactions are in terms of rupees (Rs). Thus, as per the money measurement concept, transactions which can be expressed in terms of money are recorded in the books of accounts.

The following points highlight the significance of money measurement concept: 

(i) This concept guides accountants what to record and what not to record. 

(ii) It helps in recording business transactions uniformly. 

(iii) If all the business transactions are expressed in monetary terms, it will be easy to understand the accounts prepared by the business enterprise. 

(iv) It facilitates comparison of business performance of two different periods of the same firm or of the two different firms for the same period.

4. What do you mean by the accounting concept? Explain any four accounting concepts.

Ans: Accounting Concepts refer to the basic assumptions, rules and principles which work as the basis of recording of business transactions and preparing accounts.

Main Accounting Concepts are: 

(i) Business Entity Concept: This concept assumes that, for accounting purposes, the business enterprise and its owners are two separate entities. Thus, the business and personal transactions of its owner are separate.

(ii) Money Measurement Concept: This concept assumes that all business transactions must be in terms of money that is in the currency of the concerned country. In our country such transactions are in terms of rupees (Rs). Thus, as per the money measurement concept, transactions which can be expressed in terms of money are recorded in the books of accounts.

(iii) Going Concern Concept: This concept states that a business firm will continue to carry on its activities for an indefinite period of time. Simply stated, it means that every business entity has continuity of life. Thus, it will not be dissolved in the near future. This is an important assumption of accounting, as it provides a basis for showing the value of assets in the balance sheet.

(iv) Dual Aspect Concept: Dual aspect is the foundation or basic principle of accounting. It provides the very basis of recording business transactions in the books of accounts. This concept assumes that every transaction has a dual effect, i.e. it affects two accounts on their respective opposite sides. Therefore, the transaction should be recorded at two places. It means, both the aspects of the transaction must be recorded in the books of accounts.

5. Explain the convention of consistency with the help of an example.

Ans: The convention of consistency means that the same accounting principles should be used for preparing financial statements year after year. A meaningful conclusion can be drawn from financial statements of the same enterprise when there is a comparison between them over a period of time. But this can be possible only when accounting policies and practices followed by the enterprise are uniform and consistent over a period of time.

Example: XYZ Corporation’s Depreciation Method XYZ Corporation, a manufacturing company, owns machinery and equipment used in its production processes. To account for the wear and tear of these assets over time, XYZ must depreciate them using an appropriate method.

6. Explain the accounting convention of conservatism with examples.

Ans: This convention is based on the principle that “Anticipate no profit, but provide for all possible losses”. It provides guidance for recording transactions in the books of accounts. It is based on the policy of playing safe in regard to showing profit. The main objective of this convention is to show minimum profit. Profit should not be overstated. If more profit is shown than the actual, it may lead to distribution of dividend out of capital. This is not a fair policy and it will lead to the reduction in the capital of the enterprise. 

For example: valuing closing stock at cost or market price whichever is lower, creating provision for doubtful debts, discount on debtors, writing off intangible assets like goodwill, patent, etc.

7. Explain the convention of materiality.

Ans: The convention of materiality states that, to make financial statements meaningful, only material facts i.e. important and relevant information should be supplied to the users of accounting information. The question that arises here is what is a material fact? The materiality of a fact depends on its nature and the amount involved. Material fact refers to the information that will influence the decision of its user. 

For example: a businessman is dealing in electronic goods. He purchases T.V., Refrigerator, Washing Machine, Computer etc, for his business.

8. State the meaning and significance of dual aspect concepts.

Ans: Dual aspect is the foundation or basic principle of accounting. It provides the very basis of recording business transactions in the books of accounts. This concept assumes that every transaction has a dual effect, i.e. it affects two accounts on their respective opposite sides. The knowledge of dual aspects helps in identifying the two aspects of a transaction, which help in applying the rules of recording the transactions in books of accounts. The implication of the dual aspect concept is that every transaction has an equal impact on assets and liabilities in such a way that total assets are always equal to total liabilities.

The following points highlight the significance of Dual Aspect Concept: 

(i) This concept helps the accountant in detecting errors. 

(ii) It encourages the accountant to post each entry on opposite sides of two affected accounts. 

(iii) It helps in preparing the Financial Position Statement/ Balance Sheet on a particular date.