Theory of Accounting Standard

Accounting Standard 1

Disclose of Accounting Policies. 

Q. What is accounting policies? 

Ans. Accounting policies refers to specific accounting principles and the method of applying those principles adopted by the enterprise in preparation and presentation of financial statement. At the time of preparation of financial statement (Balance Sheet and P/L A/C) there are many areas which has more than 1 method of accounting treatment. 

Q. What are notes to account? 

Notes to account are explanation of management about the items in financial statement. The management gives more explanation and information about the item of P/L A/C and B/S.

What are the need for disclosure of accounting policies? 

Ans. For proper and better understanding of financial statement it is required that all significant accounting policies follow in preparation of financial statement should be disclosed because assets and liabilities in the B/S and P/L A/C are significantly affected by the accounting practice follows. 

All the significant accounting policies should be disclose at one place because it would be help full for the reader of financial statement. 

Q.  What is fundamental accounting assumption at the time of preparing financial statement? 

Ans. It is generally assumed that financial statement are prepare on the basis of fundamental accounting assumption. 

Fundamental accounting assumption are:

going concern: it means that enterprise had intention for continuing the operation in foreseeable feature. Foreseeable means coming in 1 or 2 year. 

Consistency: It mean that same accounting policies are followed from 1 period to another. 

Accrual: It means that financial statement is prepared or Mercantile system only. 

Other accounting assumption like business entity, money measurement, etc are not fundamental accounting assumption as per this accounting standard. 

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Accounting Standard II
INVENTORIES
Q. In which case AS II is not applicable?
Ans. 1. Work in progress arises under construction contract including directly related to service contract.
2. Work in progress arising in ordinary course of business for service provider.
3. Financial instruments held as stock in trade (share, debenture, bond).
4. Producer inventories like life stock, agricultural and forest product, mineral oil, ore and gases.
Such inventories are valued at net realizable value.

Q.  What is cost of Inventories?
Ans. Cost of inventories includes:
1. Cost of purchase.
2. Cost of conversation.
3. Other cost incurred in bringing the inventories to those present location and permission.

Q.  What is cost of conversation?
Ans.  It consist of cost directly related to the unit i.e.,  direct labour direct material, direct expenses.

Q. Name two item which are excluded from cost of inventories?
Ans. Storage cost and administrative overhead.

Q. What is Standard cost?
Ans. It take into account normal level of consumption of material or supplies, labour, efficiency and capacity utilization.

Q. What is realizable value?
Ans. Net realizable value means the estimated selling price in ordinary course of business less estimated cost of competition and estimated cost necessary to make the sale.
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