Accounting Conventions and Standards — Important Questions

AS-9

Step 1: Identify the subject. The question asks about 'recognition of revenue' in the Profit and Loss statement. Step 2: Match with the correct AS. AS-9 is titled 'Revenue Recognition' (November 1985) and specifically deals with the bases for recognising revenue in the P&L account. Step 3: Eliminate wrong options. AS-5 deals with net profit/loss, prior period items, and changes in accounting policies. AS-13 deals with accounting for investments. AS-2 deals with valuation of inventories. Step 4: Conceptual link. Revenue recognition determines WHEN revenue should be recorded — this is the core o

Anticipate no profit, but provide for all possible losses.

Step 1: Recall the exact principle. The Convention of Conservatism is based on 'Anticipate no profit, but provide for all possible losses.' Step 2: Understand the two parts. (a) Do NOT record profits until they are actually realised. (b) DO record/provide for anticipated losses even before they occur. Step 3: Understand the purpose. This prevents overstating profit, which could otherwise lead to dividends being paid from capital — a dangerous financial practice. Step 4: Eliminate wrong options. Option A is wrong because profits should not be anticipated. Option C is wrong because anticipated l

₹50 crores or more

Step 1: Recall AS-17 specifics. AS-17 on Segment Reporting was issued in October 2000. Step 2: Know the applicability condition. It applies specifically to companies with an annual turnover of ₹50 crores or more. Step 3: Understand what it requires. Such companies must present segment-wise financial statements AND consolidated financial statements. Step 4: Why this threshold? Large companies operate in multiple business or geographic segments, and users need segment-wise data to make informed decisions. This threshold ensures only significantly large enterprises bear this reporting burden. Ste

Financial statements of two different business entities in the same trade on the same date.

Step 1: Recall all three types of consistency. Vertical = within one organisation, same date. Horizontal = same organisation, different periods. Dimensional = two DIFFERENT organisations in the SAME trade, same date. Step 2: Match the definition. Dimensional consistency allows comparison between competitors or peers in the same industry on the same date. Step 3: Practical use. For example, comparing the financial statements of Reliance Industries and Tata Industries for the same financial year. Step 4: Eliminate wrong options. Option A is Horizontal consistency. Option B is Vertical consistenc