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NCERT Solutions > NCERT Class 11 > NCERT Class 11

Accountancy > Chapter 2: Theory Base Of Accounting

NCERT Solution for Class 11


Accountancy Chapter 2 -
Theory Base of
Accounting

NCERT Solutions are extremely helpful books while


preparing for the CBSE Class 11 Accountancy
examinations. The NCERT Solutions are collected
by the subject matter experts to help students
make their learning effortless.

NCERT Solution for Class 11 Accountancy Chapter 2


– Theory Base of Accounting furnishes us with all-
inclusive data for all the concepts. As the students
would have to learn the fundamentals about the
subject of accountancy in Class 11, the NCERT
solutions for Class 11 is a comprehensive study
material which explains the concepts in a great
way.

Download the PDF of NCERT Solution


for Class 11 Accountancy Chapter 2
Theory Base of Accounting

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BYJU'S CERTSolutionsforClass11AccountancyChapter2-
ITheLearningApp TheoryBaseofAccounting

ShortAnswersforClass11AccountancyChapter2-TheoryBaseofAccounting

1.Whyisitnecessaryforaccountantstoassumethatabusinessentitywillremaina
goingconcern?

Itisnecessaryforaccountantstoconsiderthatabusinessentitywillremainagoingconcern,
asanassetwillbecalculatedfortheprofititearns,alongwiththedepreciationitischarged,
bothofwhicharenotrestrictedonlyforoneaccountingperiod.Hence,itindicatescontinuityin
business.

2.Whenshouldrevenueberecognised?Arethereexceptionstothegeneralrule?

Revenueisrecognisediftherighttoreceiveincomeisestablished.Itcanalsobesaidtohave
beenestablishedwhenasaletakesplaceincashorincredit.

Thefollowingexceptionscanbeseen:

1.Goodsthataresoldonhirepurchase,theamountthuscollectedininstalmentswillbe
accountedasrevenuerealised.

 2.Projectsrelatedtotheconstructionofbuildings,etc.,areprojectsoflongduration;revenue
isrealisedperiodicallythatisinproportiontothepartofworkwhichiscompleted. 
3.Whatisthebasicaccountingequation?

Theassetsofabusinessareequaltotheclaimsofitsownersandcreditors,asperthebasic
accountingequation.LiabilitiesareknownasCreditor'sEquity,andCapitalisknownas
Owner'sEquity.Itisrepresentedas

Assets=Capital+Liabilities

4.Therealisationconceptdetermineswhengoodssentoncredittocustomersaretobe
includedinthesalesfigureforthepurposeofcomputingtheprofitorlossforthe
accountingperiod.Whichofthefollowingtrendsistobeusedinpracticetodetermine
whentoincludeatransactioninthesalesfigurefortheperiod?Whenthegoodshave
been:

a.dispatchedb.invoiced

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Access Answers to NCERT Class 11


Accountancy Chapter 2 Theory Base
of Accounting

Short Answers for Class 11 Accountancy Chapter 2


– Theory Base of Accounting

1. Why is it necessary for accountants to assume


that a business entity will remain a going
concern?

It is necessary for accountants to consider that a


business entity will remain a going concern, as an
asset will be calculated for the profit it earns,
along with the depreciation it is charged, both of
which are not restricted only for one accounting
period. Hence, it indicates continuity in business.

2. When should revenue be recognised? Are there


exceptions to the general rule?

Revenue is recognised if the right to receive


income is established. It can also be said to have
been established when a sale takes place in cash
or in credit.

The following exceptions can be seen:

1. Goods that are sold on hire purchase, the


amount thus collected in instalments will be
accounted as revenue realised.

2. Projects related to the construction of buildings,


etc., are projects of long duration; revenue is
realised periodically that is in proportion to the
part of work which is completed.

3. What is the basic accounting equation?

The assets of a business are equal to the claims of


its owners and creditors, as per the basic
accounting equation. Liabilities are known as
Creditor’s Equity, and Capital is known as Owner’s
Equity. It is represented as

Assets = Capital + Liabilities

4. The realisation concept determines when


goods sent on credit to customers are to be
included in the sales figure for the purpose of
computing the profit or loss for the accounting
period. Which of the following trends is to be used
in practice to determine when to include a
transaction in the sales figure for the period?
When the goods have been:

a. dispatched b. invoiced

c. delivered d. paid for

Give reasons for your answer.

As the goods get invoiced, this indicates that the


customer acquired the right to own the goods as
soon as it is invoiced. The transaction is included
in the sales figure for the period.

5. Complete the following worksheet.

(i If a firm believes that some of its borrowers


) may ′default′, it should act on this by
making sure that all possible losses are
documented in the books. This is an
example of the ___________ concept.

(i The fact that a business is separate and


i) distinguishable from its owner is best
exemplified by the ___________
concept.

(i Everything a company owns, it also owns


ii out to someone. This co-incidence is
) elucidated by the ___________
concept.

(i The ___________ concept states that if


v the straight-line method of depreciation is
) used in one year, then it should also be
used in the next year.

( A firm may hold stock which is heavily in


v demand. Consequently, the market value
) of this stock may be increased. Normal
accounting procedure is to ignore this
because of the ___________.

( If a firm receives an order for goods, it


v would not be included in the sales figure
i) owing to the ___________.

( The management of a firm is remarkably


v incompetent, but the firm’s accountants
ii cannot take this into account while
) preparing the book of accounts because of
________ concept.

A 1. conservatism
n 2. business entity
s
3. dual aspect
w
4. consistency
e
r: 5. conservatism

6. revenue recognition

7. measurement

Long Answers for Class 11 Accountancy Chapter 2


– Theory Base of Accounting

1. ‘The accounting concepts and accounting


standards are generally referred to as the
essence of financial accounting.’ Comment.

The following points will be helpful in


understanding the above-mentioned statement:

1. Following the accounting concepts and


standards make accounting information easy to
rely on and compare.

2. Many accounting concepts, such as going


concern, conservatism, dual aspect, accounting
period, etc., are considered while preparing
accounts.

3. It ensures relevant financial data will be


recorded.

4. Adhering to the concepts and standards


ensures uniformity in accounting procedures.

5. Maintain consistency which leads to fewer


errors.

6. Improves understandability and leads to better


decision-making.

2. Why is it important to adopt a consistent basis


for the preparation of financial statements?
Explain.

Consistency should be maintained in preparing


financial statements as

1. Financial statements are used to compare the


performance of an organisation with competitors
and also self, so it is easier to assess if statements
are prepared to maintain consistency.

2. A consistent method of statement preparation


will help compare two different periods.

3. Eliminates any personal bias that makes the


report more comparable.

4. Results will become inconsistent if different


principles are followed.

3. Discuss the concept based on the premise ‘do


not anticipate profits but provide for all losses.’

The concept is based on the Conservatism


principle. It has the following considerations:

1. Incomes should be calculated properly so that


profits are not overestimated.

2. As profit is not calculated in excess, it prevents


dividend distribution from the capital.

3. Provision for doubtful debts should be made.

4. Stocks are to be valued at either cost price or


market price, whichever is lower.

5. Intangible assets should be accounted.

6. Protects against uncertainty in business.

4. What is the matching concept? Why should a


business concern follow this concept? Discuss.

The matching concept states that expenses that


are incurred in an accounting period should
match the revenue earned during that period.
Thus, all expenses for that accounting period,
whether or not paid during that year and all
revenue, whether earned or not during the period,
should be considered to calculate profit or loss.

Business concerns should follow this concept as

1. Matching concept portrays the exact financial


status of the business.

2. As revenue and expenses are matched, the


profit or loss is not over or under-stated.

3. Expenditure of capital assets which span over a


period cannot be determined in one accounting
period. Hence, depreciation as an expense can be
more suitable towards calculating business
profits.

4. It ensures transactions occurring in one


accounting period, although realised in another
accounting period, will be recognised for the
accounting period in which it occurred.

5. What is the money measurement concept?


Which one factor can make it difficult to compare
the monetary values of one year with the
monetary values of another year?

According to the money measurement concept,


those transactions and events in an organisation
which can be expressed in monetary terms should
only be considered for recording in the
accounting books.

Also, it states that the monetary value of the unit


should be considered and not the physical unit.

One factor that impacts measurement is that the


value of money is not constant every year; the
value of money will be different during different
time periods due to price fluctuation. So, an asset
purchased 10 years back at a price of 5000 may
cost 5 times higher in today’s date, thus making
the comparison difficult as the monetary worth of
two time periods will vary considerably.

Concepts covered in this chapter


Generally Accepted Accounting Principles
(GAAP)

Basic accounting concepts

Business entity concept

Money measurement concept

Going concern concept

Accounting period concept

Cost concept

Dual aspect concept

Revenue recognition concept

Matching concept

Full disclosure concept

Consistency concept

Conservatism concept

Materiality concept

Objectivity concept

Conclusion
NCERT Solutions for Class 11 Accountancy Chapter
2 provide a wide degree of illustrative examples
which assist the students in comprehending and
learning quickly. The above-mentioned are the
topics in the Class 11 CBSE syllabus. For more
solutions and study materials of NCERT Solutions
for Class 11 Accountancy, visit BYJU’S or download
the app.

NCERT Solutions Class 11


Accountancy Chapters

Chapter 1 Introduction To Accounting

Chapter 3 Recording Of Transactions


1

Chapter 4 Recording Of Transactions


2

Chapter 5 Bank Reconciliation


Statement

Chapter 6 Trial Balance And


Rectification Of Errors

Chapter 7 Depreciation Provisions


And Reserves

Chapter 8 Bill Of Exchange

Chapter 9 Financial Statements 1

Chapter 10 Financial Statements 2

Chapter 11 Accounts From


Incomplete Records

Chapter 12 Applications Of
Computers In Accounting

Chapter 13 Computerised
Accounting System

Chapter 14 Structuring Database For


Accounting

Chapter 15 Accounting System Using


Database Management System

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