Accounting Concepts

₹72,000

Step 1: Monthly rent = ₹1,20,000 ÷ 15 months = ₹8,000 per month. Step 2: The accounting year is April 2013 to March 2014. The rent payment covers October 2013 to December 2014. Step 3: Months falling within the accounting year (April 2013 – March 2014): October 2013, November 2013, December 2013, January 2014, February 2014, March 2014 = 6 months. Step 4: But wait – we must check if April to September 2013 is covered. The payment starts from October 2013, so only October 2013 to March 2014 = 6 months fall in this accounting year. Rent for 6 months = 6 × ₹8,000 = ₹48,000? Step 5: Re-check: The

Assets increase by ₹50,000 (Furniture); Liabilities increase by ₹50,000 (Creditor)

Step 1: The Dual Aspect Concept states every transaction has two equal and opposite effects, maintaining the equation: Assets = Liabilities + Capital. Step 2: In this transaction, the business RECEIVES furniture – this is a new asset. Furniture (Asset) increases by ₹50,000. Step 3: Since it is purchased on CREDIT, the business now OWES money to M/s Royal Furnishers. This creates a creditor – a liability. Liabilities increase by ₹50,000. Step 4: Verify the accounting equation: Assets increased by ₹50,000 AND Liabilities increased by ₹50,000. Both sides increase equally, so Assets = Liabilities

Deviation from Going Concern Concept; assets will be shown at realisable (disposal) value instead of cost less depreciation.

Step 1: The Going Concern Concept assumes that a business will continue to operate indefinitely. Based on this assumption, assets are shown at historical cost less depreciation (not at what they could fetch if sold). Step 2: When a business is about to close, the Going Concern Concept no longer applies. Step 3: In such a case, 'break-up basis' or 'liquidation basis' is used, where all assets are valued at their net realisable value (what they would fetch if sold immediately), which is often much lower. Step 4: This has a major impact – fixed assets like machinery, buildings, etc., which were s

₹2,10,000 (purchase + transport + installation + trial run)

Step 1: The Cost Concept states that assets are recorded at their acquisition cost, which includes ALL costs necessary to bring the asset to its usable condition and location. Step 2: Purchase price = ₹2,00,000. This is the base cost. Step 3: Transportation (₹5,000) and Installation (₹3,000) are costs incurred to bring the machine to the factory and make it ready for use – these are capital expenditures included in the asset cost. Step 4: Trial run cost (₹2,000) is also a cost to make the machine operational for the first time – it is included in the initial cost. Total = ₹2,00,000 + ₹5,000 +