Q1. (NSDL)National Securities Depository Ltd is a depository in India.

The following items are

taken from the recent financial statement from the company: Select the Correct option:

1. Deferred Tax Asset

a. Asset b. Equity c. income

2. Share Capital
a. Asset b. Equity c. income

3. Trade Payables
a. Asset b. Equity c. liability

4. Employee Benefit Expense

a. Asset b. Expenses c. liability

5. Depreciation & Amortization

a. Asset b. Expenses c. liability

6. Contribution to Investor Protection Fund

a. Asset b. Expenses c. liability

7. Current Tax
a. Asset b. Expenses c. liability

8. Investment in Debentures or Bonds

a. Asset b. Expenses c. liability

9. Investment in Equity Instruments of subsidiary

a. Asset b. Expenses c. liability

10. Capital Advances

a. Asset b. Expenses c. liability

11. Share Capital

a. Asset b. Expenses c. liability/Equity

12. Investor Protection Reserve

a. Asset b. Expenses c. Reserve

13. Dividend
a. Income b. Expenses c. Reserve

14. Custody Fees

a. Income b. Expenses c. Reserve

15. Transaction Fees

a. Income b. Expenses c. Reserve

16. Profit on sale of Investments

a. Income b. Expenses c. Reserve

17. Seminar & Business Promotion

a. Asset b. Expenses c. Reserve

18. Property Plant & Equipment

a. Fixed Asset b. Current Asset c. Investment

19. Trade Receivables

a. Fixed Asset b. Current Asset c. Investment

20. Cash & Cash Equivalent

a. Fixed Asset b. Current Asset c. Investment

Note : Answers are highlighted in yellow.

Q2. Consider the following independent scenarios: (5 m)
Identify the accounting assumption or qualitative characteristic that relates to each scenario with
reasons.

Accounting Assumption or
Independanct Scenario Qualitative Characteristic

Luigi’s pizza has been in business for 25

years. All of its operations are profitable
and the accountants believe that the Going Concern
company will operate into foreseeable
future.

A bank used the information presented in

Tiger Auto’s financial Statements to
determine if it should extend a Relevance
Rs.3,00,000 loan to Tiger. The information
in the financial statements made a
difference in Bank’s lending decision.

Jim Furio, manager of Martha’s Antiques,

does not like to change accounting Consistency
procedures because it hinders his ability
to make year to year comparisons.

Lynn Haygood, owner of Joensboro

Animal Hospital, informs his accountant
that he does not want to review any Materiality
accounting issue that is smaller than 1%
of net income.
or qualitative characteristic that relates to each scenario with

Reason

Since, Luigi's Pizza has been in business for a

considerable time and has recorded profits,
there is no reason to believe that it would not
do the same for an indefinite time.

Since the bank had relevant information

regarding the financial status of Tiger Auto, it
could decide on the financial decision of
lending loan to Tiger Auto. Relevant
information helps get a predictive value which
influences decision making.

Using consistent accounting techniques, helps

in better comparison with previous year data.
It avoids any variation that might arise due to
accounting practices. Hence, to make data
more comparable, Jim Furio sticks to the same
accounting practice.

While all accounting information needs to be

recorded, a valid assumption can be to omit
immaterial information which is unlikely to
influence economic decisions. Hence, Lynn
correctly asks his accountant to omit
information of value less than 1% on net
income.
Q3 Harbor Corp had the following situations during the year: (5 m)
In each situation identify the assumption or principle that has been violated and discuss how
Harbor should have handled the situation.

Assumption or Principle that has

Situations been violated

Inventory with a cost of Rs. 1,86,400 is

reported at its market value of Lower of Cost principle
Rs.2,35,600

Harbor added four additional week to its

fiscal year so that it could make its Time period assumption
income look stronger. Past years were 52
weeks.

Harbors CEO purchased a yacht for

personal use and charged it to the Economic entity assumption
company.

Revenue of Rs. 25,000 earned in the prior Revenue recognition principle and
year were recorded in the current year. Matching Principle
n or principle that has been violated and discuss how

Discussion

Assets are to be always recorded and maintained

at their historical cost. By quoting assets at market
Value in the Balance Sheet, Harbor Corp. is trying
to present a profitable situation, whereas the
Asset Value has not been realised yet. Corect
practice would be to report inventory at Rs.
1,86,400.

Harbor violated the Time period assumption

wherein accounting information should have been
provided for same duration of time.

As per correct accounting practices, the financial

activity of the owner has to be kept separate from
the financial activity of the Company. Its not a
correct practice to charge personal expenses on
the company.

Revenues are to be recorded as and when earned.

Revenues earned in the previous year has to
replect only in previous year balance sheet. It
should not be considered in current year.