1.

Given here are a few situations:

a. Personal and business transactions are separately maintained.
Ans :- True
b. Inventory is recorded at its purchase price.
Ans :- True
c. The death of the chief executive officer of the company is not recorded in accounts.
Ans :- True
d. In case of doubt, it is considered better to understate rather than overstate income.
Ans :- True
e. Assets are not stated at their liquidation value.
Ans :- False
f. Financial Statements are prepared on an annual basis.
Ans :- False
g. Expenses are recognized in the same period as the related revenues.
Ans :- False
h. Revenue is recognized when it is earned and expense is recognized when it is incurred.
Ans :- True
i. The accounting records only events that affect the financial position of the entity and at
the same time can be reasonably determined in monetary terms.
Ans :- True
j. Same treatment is given to comparable transactions from period to period.
Ans :- False

REQUIRED

State the accounting assumption or principle that describes each of the given situations.

2. The manager of a company who did not have proper accounting knowledge prepared the
following balance sheet. He has wrongly classified the items under assets, liabilities and
owners equity.

Owners Equity and Assets

Liabilities

Share Capital 10,00,000 Retained Earnings 5,00,000

Equipment 9,00,000 Land and Buildings 7,00,000

Cash 2,00,000 Long term loan 4,00,000

Accounts Payable 2,00,000

Accounts 3,00,000
 Receivables

21,00,000 21,00,000

REQUIED:

Prepare the correct Balance sheet.

Ans:-

Owner's Equity and Liabilities Assets

10000 90000
Share Capital 00 Equipment 0
50000 20000
Retained Earnings 0 Cash 0
40000 Land and 70000
Long term loan 0 Buildings 0
20000 Accounts 30000
Accounts Payable 0 Receivables 0

21000 21000
Total 00 00

3. Using Accounting Equation, Answer the following independent Questions.

a) New Companys assets are 250 lakh and its external liabilities are of 100 lakh,
determine the amount of owners Equity.

Ans:-
Asset = Owners Equity + liabilities
50 lakh = Owners Equity + 100 lakh
250 lakh-100 lakh= Owners Equity
251 Owners Equity = 150 lakh

b) Royal Industries has total assets of 100 lakh and owners Equity of 70 lakh, Compute
the amount of external liabilities.

Ans:-
Asset = Owners Equity + liabilities
100 lakh = 70 lakh + liabilities
100 lakh - 70 lakh = liabilities
101 Liabilities = 30 lakh
 c) Small Enterprise has following amounts appearing in Balance Sheet as at 31 st December,
2015:

Capital 50 lakh, Reserves and undistributed profits 15 lakh, and total external
liabilities 35 lakh, Determine the amount of total assets.

Ans:-
Asset = Owners Equity + Liabilities

Asset = 50 lakh + 15 lakh + 35 lakh = 100 lakh

Asset = 100 lakh

4, Classify the following accounts under the head personal, real and nominal account:
Ans:-
Salaries Account -- Nominal Account

Capital Account -- Personal

Machinery Account Real Account

Sales Account -- Nominal Account

Loan Account - Nominal Account

Discount Received Account Nominal Account

Investment Account Real Account