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Define going concern concept of accounting.

Define going concern concept of accounting.

Solution

The going concern concept assumes that a business entity is conducted for an indefinite period of time — that is, it will continue its operations in the foreseeable future and will not be liquidated.

Effect on asset valuation: because of this assumption, assets are not shown at the value at which they could be sold in the market; instead their likely contribution in coming periods through use is considered, which is why long-lived assets are carried at cost less depreciation over their useful life.

Example: an asset bought for Rs. 1,000,000 with a 10-year life on 1st Baishak 2077 is depreciated by Rs. 100,000 for the year and shown at Rs. 900,000 on 31st Chaitra, even if its market value is Rs. 1,200,000.

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  1. 1.

    Describe the users of accounting information. Why do they need such information? Explain.

    Practice
  2. 2.

    An unadjusted trial balance of a company is given below

    Particulars Debit (Rs.) Credit (Rs.)
    Cash 200,000
    Bank 250,000
    Discount Allowed 6,000
    Machinery 200,000
    Purchases 200,000
    Debtors 80,000
    Promotional expenses 20,000
    Salary 60,000
    Pre-paid rent 39,000
    Share Capital 500,000
    Creditors 45,000
    Commission Received 10,000
    Revenue/Sales 500,000
    Total 1,055,000 1,055,000

    Adjustment:

    a. Closing stock Rs. 30,000

    b. Prepaid rent expired was Rs. 39,000

    c. Depreciation on Machinery at 15% per annum

    Required:

    i. Adjusted Trail balance

    ii. Statement of Profit and Loss a/c as per NFRS

    iii. Statement of Financial Position as per NFRS

    iv. Statement of Cash flow Statement as per NFRS

    Long question Practice
  3. 3.

    Following are the transaction a consultant agency during the month of Baishakh:

    Baishakh 1: Collected Rs. 1,000,000 from owners of the agency in exchange of shares.

    Baishakh 2: Deposited into bank Rs. 800,000

    Baishakh 5: Paid 3 month's rent in advance Rs. 30,000

    Baishakh 8: Purchased office equipment for Rs. 100,000 and paid 20% of cash and balance through cheque.

    Baishakh 10: Billed to customers for service provided Rs. 200,000

    Baishakh 12: Purchased office supplies Rs. 45,000

    Baishakh 14: Received Rs. 190,000 after deduction of 5% discount from the customers billed on Baishakh 10

    Baishakh 20: Paid Rs. 10,000 to the advertising company.

    Baishakh 25: Paid electricity bill of Rs. 2,000.

    Baishakh 30: Paid office salary Rs. 50,000 by issuing cheques.

    Required:

    a. Journal Entries for the above transactions

    b. Triple Column Cash book

    c. Cash, Bank, Accounts Receivable and Account Payable Account

    d. Trial Balance

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  4. 4.

    What is cash flow statement? Why it is important for the organization?

    Practice
  5. 5.

    Define financial statement analysis. Explain the objectives of financial statement analysis.

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  6. 6.

    (a) On 30th Poush 2079, the bank statement of Info-Tech Company showed a balance of Rs. 11,400 and cash book showed the balance of Rs. 10,000. Other data are:

    A cheque of Rs. 2,100 deposited but recorded by bank as Rs. 1,200

    A bill receivable of Rs. 5,000 and interest of Rs. 500 collected by bank only.

    A customer's cheque for Rs. 2,000 was returned with the bank statement marked NSF

    Bank service charge for the month Rs. 200

    Deposit in transit of Rs. 6,000

    Outstanding cheque Rs. 5,000 of the month.

    Required: Bank Reconciliation statements as on 30th Poush 2079

    (b) Differentiate between capital and revenue income.

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