Practice Questions on UNit 8

Note: We encourage you to attempt this with complete conscience within a 60 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:

1. What are Accounting Standards, and why are they important in financial reporting?
2. Explain the objectives of Accounting Standards and how they contribute to the reliability and comparability of financial statements.
3. Discuss the benefits of adopting Accounting Standards in ensuring consistent and transparent financial reporting practices.
4. What are the limitations of Accounting Standards, and how can they impact the application of these standards in practice?
5. Describe the process of formulating Accounting Standards in India and the role of the Accounting Standards Board (ASB).

1. ABC Ltd. is preparing its financial statements and needs to disclose its accounting policies. The company follows the Accounting Standard AS 1 – Disclosure of Accounting Policies. The company has the following accounting policies related to revenue recognition:
   • Revenue from the sale of goods is recognized when the significant risks and rewards of ownership have been transferred to the buyer.
   • Revenue from rendering of services is recognized based on the stage of completion of the service.
   • Interest income is recognized on a time proportion basis.
   Calculate the total revenue recognized by ABC Ltd. for the financial year based on the given accounting policies:
   • Sales of goods: Rs. 500,000
   • Rendering of services: Rs. 300,000
   • Interest income: Rs. 50,000
2. DEF Company operates in the manufacturing industry and needs to value its inventory for financial reporting purposes. The company follows the Accounting Standard AS 2 – Valuation of Inventories. DEF Company has the following inventory on hand:
   • Raw materials: 1,000 units at Rs. 10 per unit
   • Work-in-progress: 500 units at Rs. 20 per unit
   • Finished goods: 800 units at Rs. 30 per unit
   Calculate the total value of inventory on hand for DEF Company based on the given information.
3. XYZ Corporation has entered into a construction contract. The company follows the Accounting Standard AS 7 – Accounting for Construction Contracts. XYZ Corporation has the following information regarding a specific construction project:
   • Contract price: Rs. 1,000,000
   • Estimated costs to complete: Rs. 700,000
   • Costs incurred to date: Rs. 400,000
   Determine the profit or loss recognized by XYZ Corporation for the construction project based on the percentage of completion method as per the requirements of AS 7.