Chapter Exam

Chapter 2: Theory Base of Accounting — Online MCQ Test

Q: Which principle states that a business is assumed to continue its operations indefinitely?

Answer: A. Going Concern Concept — The Going Concern Concept assumes that a business will continue to operate indefinitely unless there is evidence to the contrary.

Q: The Business Entity Concept states that:

Answer: B. Business and owner are separate entities — The Business Entity Concept maintains that the business is separate from its owner for accounting purposes, allowing for independent financial records.

Q: Under the Money Measurement Concept, which transactions are NOT recorded in accounting?

Answer: C. Good reputation of the business — The Money Measurement Concept states that only transactions that can be expressed in monetary terms are recorded in accounting; intangible items like reputation are not recorded.

Q: The Dual Aspect Concept is expressed as:

Answer: B. Assets = Liabilities + Capital — The Dual Aspect Concept states that every transaction has two aspects: Assets = Liabilities + Capital, which forms the fundamental accounting equation.

Q: Which accounting principle would prevent a company from valuing its brand name at ₹10 crores in the balance sheet without external evidence?

Answer: B. Objectivity Principle — The Objectivity Principle requires verifiable evidence for asset valuations; internally developed brand names cannot be capitalized without external, verifiable evidence.

Q: A company has two accounting options: (A) Record uncertain warranty liability of ₹5,000, or (B) Wait until warranty claims are actually made. Which principle guides this decision?

Answer: B. Conservatism Principle — The Conservatism Principle suggests recognizing potential losses (warranty liability) immediately rather than deferring recognition, choosing option (A).

Q: A retailer purchases goods for ₹1,000 (including 5% GST) and sells for ₹1,500 (including 5% GST). The net GST payable/receivable is:

Answer: A. GST payable of ₹25 — Purchase GST (input): ₹1000/1.05 × 5% = ₹47.62; Sale GST (output): ₹1500/1.05 × 5% = ₹71.43; Net GST payable = ₹71.43 - ₹47.62 = ₹23.81 (approximately ₹25).

Q: Which combination of principles would a company MOST likely violate if it capitalized all office supplies purchased during the year as assets?

Answer: B. Materiality Principle and Matching Principle — Capitalizing office supplies violates the Materiality Principle (they are typically immaterial when individually small) and the Matching Principle (their cost should be expensed in the period used).

ACCOUNTANCY · Grade 11 · CBSE(NCERT)

Practice Chapter 2: Theory Base of Accounting with a free chapter-wise online MCQ test for CBSE(NCERT) Grade 11 ACCOUNTANCY. This chapter covers: Generally Accepted Accounting Principles (GAAP), Business Entity, Money Measurement, Going Concern, Accounting Period, Cost Concept, Dual Aspect, Revenue Recognition, Matching, Ful.... AI-generated questions from basic to board-exam level, with instant results and explanations.

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Chapter 2: Theory Base of Accounting — Important Questions & Answers (FAQ)

Frequently asked questions from CBSE(NCERT) Grade 11 ACCOUNTANCY — Chapter 2: Theory Base of Accounting, with answers and explanations. These are sample questions; the exam has its own separate question set.

Which principle states that a business is assumed to continue its operations indefinitely?

A. Going Concern Concept ✓
B. Business Entity Concept
C. Cost Concept
D. Accounting Period Concept

Answer: A. Going Concern Concept
The Going Concern Concept assumes that a business will continue to operate indefinitely unless there is evidence to the contrary.

The Business Entity Concept states that:

A. Business and owner are one and the same
B. Business and owner are separate entities ✓
C. Only the owner's transactions are recorded
D. Only business transactions are ignored

Answer: B. Business and owner are separate entities
The Business Entity Concept maintains that the business is separate from its owner for accounting purposes, allowing for independent financial records.

Under the Money Measurement Concept, which transactions are NOT recorded in accounting?

A. Purchase of machinery for ₹50,000
B. Sale of goods for ₹1,00,000
C. Good reputation of the business ✓
D. Receipt of cash ₹25,000

Answer: C. Good reputation of the business
The Money Measurement Concept states that only transactions that can be expressed in monetary terms are recorded in accounting; intangible items like reputation are not recorded.

The Dual Aspect Concept is expressed as:

A. Assets = Liabilities - Capital
B. Assets = Liabilities + Capital ✓
C. Liabilities = Assets + Capital
D. Capital = Assets - Liabilities

Answer: B. Assets = Liabilities + Capital
The Dual Aspect Concept states that every transaction has two aspects: Assets = Liabilities + Capital, which forms the fundamental accounting equation.

The Conservatism Principle suggests that:

A. All assets should be valued at market price
B. Recognize all possible losses but defer recognition of gains ✓
C. Recognize all gains and losses equally
D. Never record any losses

Answer: B. Recognize all possible losses but defer recognition of gains
The Conservatism Principle advises recognizing all possible losses immediately but deferring the recognition of gains until they are certain.

Under the Consistency Principle, if a company changes its inventory valuation method from FIFO to LIFO:

A. It can do so without any disclosure
B. It must disclose the change and its impact in the financial statements ✓
C. It is not allowed to change the method
D. The change applies only to the current year

Answer: B. It must disclose the change and its impact in the financial statements
The Consistency Principle allows changes in accounting methods but requires full disclosure of the change and its financial impact to maintain comparability.

Which accounting principle would prevent a company from valuing its brand name at ₹10 crores in the balance sheet without external evidence?

A. Consistency Principle
B. Objectivity Principle ✓
C. Conservatism Principle
D. Materiality Principle

Answer: B. Objectivity Principle
The Objectivity Principle requires verifiable evidence for asset valuations; internally developed brand names cannot be capitalized without external, verifiable evidence.

A company has two accounting options: (A) Record uncertain warranty liability of ₹5,000, or (B) Wait until warranty claims are actually made. Which principle guides this decision?

A. Going Concern Principle
B. Conservatism Principle ✓
C. Consistency Principle
D. Revenue Recognition Principle

Answer: B. Conservatism Principle
The Conservatism Principle suggests recognizing potential losses (warranty liability) immediately rather than deferring recognition, choosing option (A).

A retailer purchases goods for ₹1,000 (including 5% GST) and sells for ₹1,500 (including 5% GST). The net GST payable/receivable is:

A. GST payable of ₹25 ✓
B. GST receivable of ₹25
C. No GST payable as input and output are equal
D. Cannot be determined without knowing the base value

Answer: A. GST payable of ₹25
Purchase GST (input): ₹1000/1.05 × 5% = ₹47.62; Sale GST (output): ₹1500/1.05 × 5% = ₹71.43; Net GST payable = ₹71.43 - ₹47.62 = ₹23.81 (approximately ₹25).

Which combination of principles would a company MOST likely violate if it capitalized all office supplies purchased during the year as assets?

A. Cost Concept and Money Measurement only
B. Materiality Principle and Matching Principle ✓
C. Going Concern and Conservatism Principles
D. Consistency and Full Disclosure Principles

Answer: B. Materiality Principle and Matching Principle
Capitalizing office supplies violates the Materiality Principle (they are typically immaterial when individually small) and the Matching Principle (their cost should be expensed in the period used).

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