Note: We encourage you to attempt this with complete conscience within a 30 minutes time frame. Please feel free to refer to the ICAI Material and TowardsCA study notes before attempting the same. You can e-mail your answers to towardsca@gmail.com for verification.
Direct Questions:
- What is the principle of conservatism in accounting? How does it influence the recognition of revenue and the reporting of expenses?
- Explain the concept of materiality in accounting. How does it impact the decision-making process for financial statement users?
- What is the definition of the term “Depreciation” in accounting?
- Define the term “Accounts Payable” in accounting.
Practical Questions:
- Company A purchased a new piece of machinery for $50,000. According to the historical cost principle, how should this machinery be recorded on the balance sheet? Discuss the implications of this accounting principle on the financial statements.
- Company B sold goods worth $10,000 on credit to a customer in December but received the payment in January of the following year. According to the accrual concept, when should the revenue be recognized? How would this affect the income statement and balance sheet of the respective periods?
- ABC Corporation is considering changing its accounting policy for inventory valuation from the weighted average cost method to the first-in, first-out (FIFO) method. Explain the rationale behind each method and discuss the potential impact of this change on the company’s financial statements.
- How does a company’s “Net Income” differ from its “Gross Income”?
- Explain the concept of “Inventory Valuation” and its importance in accounting.
- How does “Accounts Receivable” affect a company’s cash flow?