Basic Accountancy Procedures
Chapter notes, video classes, MCQ practice tests and quick-revision one-liners for Accounting and Financial Management for Bankers — JAIIB.
One-liners from this chapter
Free sample — 8 of 66 rapid-fire Q&A cards.
Under the cost concept, which components are capitalised when purchasing a fixed asset like a currency-sorting machine?
Invoice price, freight, import duty, and installation charges are all capitalised as part of the asset cost. Annual maintenance contracts paid upfront are treated as revenue expenses, not capital.
Under the accrual basis of accounting, how is profit calculated when cash sales are Rs.8,00,000, credit sales Rs.5,00,000, salaries paid Rs.3,00,000 with Rs.40,000 outstanding, and rent paid Rs.1,20,000 for 15 months?
Profit = Rs.8,76,000 (total sales Rs.13,00,000 minus salaries Rs.3,40,000 minus rent for 12 months Rs.96,000)
Why is an annual maintenance contract (AMC) paid upfront treated as a revenue expense rather than capitalised?
An AMC provides periodic servicing and does not enhance the asset's value or extend its useful life in a capital sense. It is therefore charged to the Profit and Loss Account as a revenue expense.
What is the money measurement concept in accounting?
Only transactions expressible in monetary terms can be recorded in the books of accounts; non-monetary factors like customer goodwill or employee morale cannot be recorded.
At what value should a currency-sorting machine costing Rs.6,00,000 with Rs.15,000 freight, Rs.25,000 import duty, and Rs.10,000 installation be recorded?
The machine should be recorded at Rs.6,50,000, which is the sum of invoice price, freight, import duty, and installation charges.
Which of the following CANNOT be recorded under the money measurement concept: salary of CFO, goods purchased on credit, or loss of customer trust?
Loss of customer trust — it cannot be quantified in monetary terms and hence falls outside the money measurement concept.
Under the realisation concept, when is revenue recognised on a sale of goods?
Revenue is recognised when the property (title) in goods passes to the buyer, not when an order is placed or an advance is received.
What is the consistency convention in accounting?
The accounting methods and policies adopted by a firm should remain consistent from one period to another to ensure comparability of financial statements.
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