DK Goel Solutions Chapter 3 Accounting Principles
Read below DK Goel Solutions for Class 11 Chapter 3 Accounting Principles. These solutions have been prepared based on the latest DK Goel Accountancy book issued for this academic year.
The book is really useful as it explains in detail the core principles of Accountancy, which includes basic Characteristics of Accounting Principles, explanation of the Basic Accounting Equation, a brief Separate and Business Legal Entity, money Measurement Concepts, to the Class 11 commerce Accountancy students.
DK Goel Solutions for Class 11 Chapter 3 includes a lot of simple to understand examples explaining the meaning of the terms and pointing out the basic differences between them. DK Goel Solutions for Class 11 Chapter 3 solutions are free and will help you to prepare for Class 11 Accountancy.
Accounting Principles DK Goel Class 11 Accountancy Solutions
Students can refer below for solutions for all questions given in your DK Goel Accountancy Textbook for Class 11 in Chapter 3
Question 1: Define basic accounting terms.
Solution 1: The basic concepts of accounting are referred to as the fundamental concepts or fundamental assumptions underlying financial accounting theory and practice and are broad operating rules for all accounting practices established by the accounting profession. As follows, the essential principles were listed:
- Business entity
- Revenue recognition
- Money measurement
- Going concern
- Full disclosure
- Accounting period
- Dual aspect
Question 2: Explain the business entity concept with an example.
Solution 2: The business entity concept suggests that enterprise has similar and distinct bodies from its members. Thus, company and its shareholders must be viewed as two independent companies for the purpose of accounting.
Question 3: Why is it necessary for accounts to assume that a business entity will remain a going concern?
Solution 3: Accounts need to presume that a corporate enterprise would remain an issue and there is no distinction between cash and stock if it does not arise (goods). We believe that in the near term, properties are not going to be sold.
Question 4: What is the basic accounting equation?
Solution 4: Basic accounting equation is as under:-
Assets = Liabilities + Capital
Question 5: Explain the characteristics of Accounting Principles.
Solution 5: Below is the characteristics of Accounting Principles are:-
(1) The rules of accounting are manmade. Such directors are man-made with years of experience and purpose.
(2) Accounting standards are, in essence, versatile. Such values are not rigid, but they provide an ability to adapt due to the user’s current policies and desires over time.
(3) In general, accounting rules are accepted.
Very Short Question of DK Goel Solutions for Class 11 Chapter 3 – Accounting Principles
Question 1: Give two characteristics of accounting principles.
Solution 1: Two characteristics of accounting principles are as under:-
(i) Accounting principles are Man-made.
(ii) Accounting principles are Flexible
Question 2: What is the business entity concept?
Solution 2: An entity has independent and separate existence from its owner. According to this concept, an enterprise is regarded as an entity which is separate and distinct from the owner of that entity.
Therefore, purchases are reported and evaluated and, from the point of view of the company and not of the individual, financial statements are prepared. Company, thus, is regarded as an individual independent from its owners and different from them.
Question 3: What is the money measurement concept?
Solution 3: The concept of money measurement indicates that only such transactions exist in an entity. It should be reported in the books of accounts and can be represented in terms of money. The transaction documents must also be maintained not in tangible units, but in monetary units.
Question 4: What is going concern concept?
Solution 4: The concept of going concern assumes that a business firm would continue to carry out its operations indefinitely, i.e. for a fairly long period of time and would not be liquidated in the foreseeable future.
This is an important assumption of accounting as it provides the very basis for showing the value of assets in the balance sheet.
Question 5: What is the accounting period concept?
Solution 5:The accounting period refers to the period of time at the close of which an enterprise’s financial accounts are prepared to assess if it has made a profit or suffered losses over that period, and to what is precisely the status of its assets and liabilities at the end of that period.
Question 6: What is the cost concept?
Solution 6: The cost concept requires that all assets are recorded in the book of accounts at their purchase price, which includes cost of acquisition, transportation.
Installation and making the asset ready to use. For instance A Plant Purchases Rs. 50,000 and installation Expenses for this machinery is Rs. 5,000 So, the total cost of machinery is Rs. 55,000.
Question 7: What is the dual aspect concept?
Solution 7: Dual aspect is the foundation or basic principle of accounting. It provides the very basis for recording business transactions into the book of accounts.
This concept states that every transaction has a dual or two-fold effect and should therefore be recorded at two places. For instance, Rakesh commenced business with capital Rs. 5,00,000. It increases cash in assets side and capital in liabilities- side by Rs. 5,00,000.
Rs. 5,00,000 (Cash) = Rs. 5,00,000 (Capital).
Question 8: What is matching concept?
Solution 8: Any cost generated in an accounting period should be balanced with income for the same period, according to the balancing definition. Both costs paid during a given period shall be charged on the income of the net profit determination period.
Question 9: How does the matching concept apply to depreciation?
Solution 9: Any cost generated in an accounting period should be balanced with income for the same period, according to the balancing definition.
Depreciation for the current year is paid against the profits for the current year. In the year of purchases, the valuation of the commodity is not a cost, because it is split over its usable life.
Question 10: What is accrual concept?
Solution 10: Revenues and costs are recognised in the period in which they occur rather when they are paid. A distinction is made between the receipt of cash and the right to received cash and payment of cash and legal obligation to pay cash.
Question 11: What is a convention of full disclosure?
Solution 11: According to this concept, all relevant details pertaining to the financial activity of a corporate entity should be registered and published in the financial records in a full and understandable manner.
Question 12: What is the concept of consistency?
Solution 12: According to this theory, accounting techniques can be applied continuously, year after year, once they are selected and implemented. For a number of years, this would ensure a meaningful study of the company’s results.
If the legislation or accounting standard specifies it, any accounting procedure may be modified to make the financial information more meaningful and clear.
Question 13: What is the convention of prudence or conservatism?
Solution 13: According to the theory of populism, all potential gains need not be reported in the financial books, but all possible expenses should be recorded instantly.
Question 14: What is the convention of materiality?
Solution 14: As per this concept, only certain transactions which have a material impact and are accessible to consumers should be revealed.
It is mandatory to report all material facts, but it does not mean that even certain statistics that are meaningless must be included in the financial statements. Whether or not an object is material depends on the essence of it.
Question 15: Which principle states that the financial statements should disclose all significant information?
Solution 15: The Full disclosure principle states that the financial statements should disclose all significant information.
Question 16: ‘Closing stock is valued at lower of cost or realisable value’. Which principle of accounting is applied here?
Solution 16: ‘Closing stock is valued at lower of cost or realisable value’ the principle is accounting is Convention of Prudence or Conservatism.
Question 17: Why should a business follow the consistency concept?
Solution 17: The continuity principle of accounting should be practiced by any organization, since financial statements must be comparative from year to year. Only if the accounting rules are unchanged and implemented the same year after year is that possible.
Question 18: State one limitation of historical cost.
Solution 18: Fixed assets are reported and viewed at the price at which they were bought in historical cost accounting and the fair value of those assets is overlooked.
Question 19: Why the entire life of a business is divided into time intervals?
Solution 19: The entire corporate life is broken into time periods so the sales cost and capital expenditure can be calculated and the amount of profit gained or the company’s loss can be determined.
Higher Order Thinking Skills (HOTS)
Question 1: What is meant by GAAP?
Solution 1: In order to maintain uniformity and consistency in accounting records, certain rules or principles have been developed which are generally accepted by the accounting profession.
GAAP refers to the rules or guidelines adopted for recording and reporting of business transactions. GAAP stands for General Accepted Accounting Principles.
Question 2: The proprietor of the business is treated as a creditor to the extent of his capital under which concept?
Solution 2: According to Business entity concept the proprietor of the business is treated as a creditor to the extent of his capital.
Question 3: A customer of X Ltd. has discounted his business. He used to purchase 30% of the total goods produced by X Ltd. Is it relevant information in your opinion and should be disclosed by X Ltd.
Solution 3: Yes, this knowledge is material-related and recipients of financial statements should be aware of it. So, as per the convention of full disclosure, it must be disclosed.
Question 4: X Ltd. gets a contract of Rs.100 crores to build a shopping mall to be completed in 3 years. The management of the company wants to ascertain profit or loss on this contract only when the contract is completed. Is the management justifies?
Solution 4: No, the management isn’t perfect. In the books of accounts per year, only real gains and losses can be reported. As per the definition of the accounting cycle, it is broken into separate time frames for the determination of benefit.
Question 5: Under which principle the calibre or quality of the management is not disclosed in the balance sheet.
Solution 5: The calibre or quality of the management is not disclosed in the balance sheet it is Money measurement concept.
Question 6: Which accounting principle states that all anticipated losses should be recorded but all anticipated profits should be ignored?
Solution 6: All anticipated losses should be recorded but all anticipated profits should be ignored it is in Conservatism Principle.
Question 7: According to which concept depreciation is to be charged as per one particular method year after year?
Solution 7: The depreciation is to be charged as per one particular method year after year is Consistency concept.
Question 8: Why the full cost of an asset is not treated as an expense in the year of its purchase?
Solution 8: Because of the principle of concern, the full cost of an item is not regarded as an investment in the year of its purchase; it is presumed that the company will continue to operate for a long time in the future.
Therefore, the asset’s loss is spread over its working period and only the decay of the current year is viewed as an expense.
Question 9: During the year the company purchased ballpoint pens of Rs.500. These were issued to employees and were still in use at the end of the year. Which accounting concept you would follow in dealing with this item?
Solution 9: The convention on materiality will be followed in dealing with this object. As per the definition, it is not appropriate to report things having an insignificant impact or being meaningless to consumers of financial statements.
It will then be viewed as an expense and the stationery account will be debited.
Question 10: A debtor who owes Rs.2 lakhs to the company is rumoured to be declared insolvent. Will you disclose the information in the books?
Solution 10: Yes, all expected losses should be recorded in the books of accounts is in Conservatism Principle.
Question 11: Goods withdrawn by the proprietor for his personal use has not been recorded in the books of accounts. Which accounting concept has been violated?
Solution 11: Business entity concept will be violated if Goods withdrawn by the proprietor for his personal use has not been recorded in the books of accounts.
Question 12: In a business provision for doubtful debts is created @5% on debtors every year. Name two accounting principles followed in this process.
Solution 12: Two accounting principal should be as under:-
1.) Conservatism Principle
2.) Consistency concept
Question 13: A firm has stationery stock amounting Rs.400 as at the end of the financial year. Accountant of the firm has written it off to profit and loss account. Is he right in doing so?
Solution 13: Yes, the accountant is right that he has adopted the principle of the materiality convention. Those products that have a marginal impact on the organization will not be disclosed or may be written off.
DK Goel Solutions for Class 11 Chapter 3 – Value-Based Questions
Question 1: Why the closing stock is valued at cost price or realisable value whichever is less?
Solution 1: Closing stock is valued at lower cost price or realisation value it is according to Prudence or Conservatism principle.
Question 2: What is the value involved in adopting the convention of conservatism or prudence?
Solution 2: Prospective benefit need not be reported according to this theory, but any prospective losses should be recorded immediately.
Below are the principle involve in above situation:-
(i) Not to overstate the profit of the enterprise
Question 3: Do you think that the convention of conservatism results in the creation of secret reserves?
Solution 3: The convention of conservatism will have two result:-
(i) Profit and loss account shows less profit.
(ii) The balance sheet reveals the undervalued side of assets and the overvalued side of liabilities.
Question 4: What value is involved in following the concept of a separate entity?
Solution 4: We are unable to figure out the net gains and damages if the notion of a different corporation is absent, so the company’s financial status will not be established.
Question 5: Identify the values involved in the assumption of on-going concern.
Solution 5: Below are the principles included on the above situation:-
(i) The purchase of an asset is not regarded as an expense on the grounds of this assumption. By implementing depreciation, the cost of the asset is segregated over the productive life of it.
(ii) The disparity between capital and income expenditures may be discovered from this assumption.
Question 6: Why fixed assets are not shown in the books at market value?
Solution 6: Fixed assets are not shown at fair value in the books because:-
(i) The valuation of fixed assets reported at their original expense is historically specified.
(ii) It is believed that properties cannot be traded in the future in the presence of the present definition, so that the fair valuation of assets is meaningless.
Question 7: Why the entire life of the business enterprise is divided into time intervals?
Solution 7: The life of an organization is separated into smaller cycles according to this theory, so that its output can be calculated at frequent intervals.
Question 8: A company purchased goods for Rs.5,00,000 and sold 80% of such goods during the year. The market value of the remaining goods was Rs.90,000. The company valued the closing stock at cost. Which principle is being violated?
Solution 8: The principle of Prudence or Conservatism is violated in the above situation.
Question 9: On 25th March 2017, a fire broke out in the premises of Kamal Ltd. and destroyed a part of its plant and machinery. On account of this, a sharp decline in production for the next six months is expected. The company did not disclose this fact in its annual report for the year ended 31st March 2017. What is your opinion about this omission?
Solution 9: Plant and equipment losses are material facts for an organization and should be revealed. The organization has broken the principle of full transparency in this case.
Question 10: R Ltd. purchased 500sq. Meter land for Rs. 1.5 crores to build a factory. At the end of the year, the market value of land was Rs. 1.35 crore. R Ltd. treated Rs. 15 lakh as loss and recorded the land at Rs.1.35 crore. Is it a correct treatment?
Solution 10: No, as per the price principle, this treatment is not right. A fixed asset is listed in the accounts at its initial expense, according to the cost principle.
Question 11: Raja Ltd. purchased securities for Rs. 50 lakh. At the end of the year, the market value of such securities was Rs. 40 lakh. While preparing the financial statement, the company valued the securities at cost i.e at Rs.50 lakh. Is it a correct treatment?
Solution 11: No, as per the Prudence or Conservatism Theory, this treatment is not right. If the business is reported at its expense, so the company has broken the accounting principle of conservatism. Current assets are priced at expense price or realizable value, whichever is lower, according to this theory.
Question 12: A company has been charging depreciation @ 10% on original cost method. It now wants to change the method from the original cost to diminishing balance method, the rate of depreciation being 15% p.a. Can it do so?
Solution 12: Yes, the business may also adjust the deprecation form and rate. All the modifications should be disclosed according to the presumption of continuity. The only condition is that it should be fully reported in the financial report when a transition is desirable, along with its effect on the income statement and balance sheet.
Question 13: Mohan the owner of a business receives an order for the supply of goods worth Rs.2,00,000. He has also received Rs.25,000 against this order. Mohan wants to record it as a sale. Is Mohan correct in doing so?
Solution 13: No, under the corresponding theory, Mohan is unable to report this transaction as a sale because the goods have not been shipped, so that the transaction is not yet finished. Under the matching concept, only where the cost paid to earn the revenue is also recorded as an expense in that time is revenue recognized as earned.
Question 14: Identify the value involved in full disclosure principle.
Solution 14: Below are the values on the full disclosure principle:-
Accounting principles is one of the most important chapters of Class 11 Accounts. Therefore, it requires a thorough understanding of the main concepts. The DK Goel Solutions are the most comprehensive resource for quick revision. It helps the students frame several notes while preparing for the exams. Through regular practice from the solutions, the students can easily learn complex topics like Matching concepts, GAAP, Convention of prudence, and much more.
The accounting period is quoted as the time interval for preparing the profit and loss balance sheets for a firm. This gives the firms a clear picture of the financial transactions and helps them make better decisions within an appropriate time frame. The accounting period is typically a time period of one year
The Prudence Principle depicts that the assumed profit of a firm should not be recorded, but the assumed losses must be quickly recorded. The sole aim behind this principle is to prevent the firm from anticipating any extra profit. However, to record the predictable losses to help alternative methods to prevent them and blend out the most fruitful results.
The most prominent characteristics of Accounting Principles are as follows –
● Accounting principles bring a set of pre-defined guidelines designed to frame the most accurate financial statements for a firm.
● These principles may differ as they are prepared from experience on practical grounds.
● All the accounting principles are non-static. Therefore, it can be modified as per the needs of the users or change in the policies.
The accrual concept depicts that when revenue is recorded in case of sales or for rendering services, the transfer of cash will completely be immaterial.
The consistency concept is one of the primary characteristics of accounting principles, which highlights that the financial statements of the firms must mandatorily be comparable from year to year, provided there are no modifications in the principles. This helps the companies analyze the financial transactions and rectify their lacking areas.