NIOS Class 10 Accountancy Chapter 2 Accounting concepts and conventions

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NIOS Class 10 Accountancy Chapter 2 Accounting concepts and conventions

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(iii) The goods withdrawn from business for the owner’s personal use are called ___________.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

S.NO.	Transactions	Ist aspect	IInd aspect
(i)	Owner brings cash in business
(ii)	Goods purchased for cash
(iii)	Goods sold for cash
(iv)	Furniture purchased for cash
(v)	Received cash from Sharma
(vi)	Purchased machine from Rama on credit
(vii)	Paid to Ram
(viii)	Salaries paid
(ix)	Rent paid
(x)	Commission received

Ans:

S.NO.	Transactions	Ist aspect	IInd aspect
(i)	Owner brings cash in business	Cash	Owner’s capital
(ii)	Goods purchased for cash	Goods received	Cash
(iii)	Goods sold for cash	Cash received	Goods sold
(iv)	Furniture purchased for cash	Furniture	Cash
(v)	Received cash from Sharma	Cash	Sharma
(vi)	Purchased machine from Rama on credit	Machine	Rama
(vii)	Paid to Ram	Ram	Cash
(viii)	Salaries paid	Salaries	Cash
(ix)	Rent paid	Rent	Cash
(x)	Commission received	Cash	Commission

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. 

Multiple Choice Questions

(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.

Terminal Exercise

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.