Q.State how the GST rates will be applicable if CGST is 9%, SGST is 9% and IGST 18% in each of the following situations:
- Goods worth ₹10,000 is sold by a Manufacturer 1 in Maharashtra to a Dealer A in Maharashtra.
- Dealer A sell goods worth ₹25,000 to Dealer B in Gujarat.
- Dealer B sell goods to Sunita in Gujarat worth ₹30,000.
- Sunita sell goods to Ravindra in Rajasthan worth ₹65,000.
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🔒 Start your 14-day free trial to unlock the full solution →Concept understanding — Accounting Concepts
Accounting Concepts: The Foundation of Reliable Accounts
Think of a game of cricket. If one player counts runs by where the ball lands, another by how far it travels, and a third by how many times the bat swings, you'd never know the real score. Accounting is no different. Every accountant must follow a common set of rules — otherwise, one firm's "profit" could mean something completely different from another's.
These rules are called Accounting Concepts. They are the basic assumptions and principles that guide how we record, measure, and report financial transactions. They ensure that financial statements are consistent, comparable, and reliable.
The Core Concepts You Must Know
1. Business Entity Concept
Intuition: You and your business are not the same person, even if you run a sole proprietorship. Your personal lunch bill is not a business expense. Your business's bank loan is not your personal debt.
Precise meaning: The business is treated as a separate entity distinct from its owner(s). All transactions are recorded from the business's point of view.
Why it matters: Without this, you could mix personal assets with business assets, making it impossible to know the true financial position of the business.
Accounting treatment: When the owner brings in capital, the business debits Cash/Bank and credits the Capital Account of the owner. When the owner withdraws money for personal use (drawings), the business debits Drawings Account and credits Cash/Bank.
Capital Account is a personal account (represents the owner's claim). It always has a credit balance.
2. Going Concern Concept
Intuition: When you plan your monthly budget, you assume you'll have a job next month too. You don't prepare for being fired every time you buy groceries.
Precise meaning: The business is assumed to continue operating indefinitely — not expected to be liquidated in the near future.
Why it matters: This justifies recording assets at cost rather than forced-sale value. It also allows us to spread the cost of a fixed asset over its useful life (depreciation) instead of writing it off immediately.
Accounting treatment: Depreciation is charged systematically. For example, if a machine costs Rs 1,00,000 and has a 10-year life, we debit Depreciation Account and credit Machinery Account each year by Rs 10,000 (straight-line method). The asset remains on the books at its written-down value, not its scrap value.
3. Money Measurement Concept
Intuition: You can't record "employee morale is high" in the books. But you can record "paid Rs 50,000 as bonus."
Precise meaning: Only those transactions that can be expressed in monetary terms are recorded in the books of accounts.
Why it matters: It keeps accounting objective and measurable. But it also means important non-monetary factors (like brand loyalty, skilled workforce, or pending lawsuits) are not shown in the balance sheet.
Accounting treatment: Every entry must have a monetary value. For example, purchase of goods for Rs 20,000: debit Purchases Account, credit Cash Account. No entry for "good quality goods."
4. Accounting Period Concept
Intuition: You can't wait until the business closes down forever to know if you made a profit. You need to know periodically — every year, every quarter.
Precise meaning: The life of the business is divided into equal time intervals (usually a year) for reporting financial performance.
Why it matters: It allows comparison of performance over time and timely decision-making. It also forces us to deal with outstanding expenses, prepaid incomes, and other adjustments.
Accounting treatment: At the end of each accounting period, adjusting entries are passed. For example, if rent of Rs 5,000 for March is unpaid by March 31, we debit Rent Account (expense) and credit Outstanding Rent Account (liability).
5. Cost Concept (Historical Cost Concept)
Intuition: You bought a building for Rs 10 lakh in 2010. Today it's worth Rs 50 lakh. In the books, it stays at Rs 10 lakh (minus depreciation). You don't update it to market value.
Precise meaning: Assets are recorded at their original purchase price (cost), not at their current market value.
Why it matters: Cost is objective and verifiable. Market values are subjective and change daily. This concept ensures reliability.
Accounting treatment: When an asset is purchased, it is debited at cost. For example, purchase of furniture for Rs 30,000: debit Furniture Account Rs 30,000, credit Cash/Bank Account Rs 30,000. No subsequent upward revaluation is done (except in specific cases like revaluation of assets under partnership admission/retirement).
6. Dual Aspect Concept
Intuition: Every transaction has two sides. You give something, you get something. If you take a loan, you get cash (asset) but also create a liability.
Precise meaning: Every transaction affects at least two accounts. The total debits always equal total credits. This is the foundation of the double-entry system.
Why it matters: It ensures the accounting equation always holds: Assets = Liabilities + Capital. If it doesn't balance, there's an error.
Accounting treatment: Every journal entry has equal debit and credit amounts. For example:
- Started business with cash Rs 1,00,000: Debit Cash A/c Rs 1,00,000, Credit Capital A/c Rs 1,00,000
- Purchased goods on credit from X for Rs 20,000: Debit Purchases A/c Rs 20,000, Credit X's A/c Rs 20,000
7. Revenue Recognition Concept (Realisation Concept)
Intuition: You don't count a sale as income the moment you receive an order. You count it when the goods are delivered and the title passes to the buyer.
Precise meaning: Revenue is recognised when it is earned (goods delivered or services rendered), not when cash is received.
Why it matters: It prevents businesses from inflating income by counting orders or advances as revenue.
Accounting treatment: When goods are sold on credit, revenue is recognised immediately. Debit Debtor's Account, Credit Sales Account. Cash received later: Debit Cash Account, Credit Debtor's Account.
8. Matching Concept
Intuition: To know the true profit of a period, you must match the revenues earned in that period with the expenses incurred to earn those revenues — not with the cash paid.
Precise meaning: Expenses incurred in earning revenue for a period are matched against that revenue to determine net profit.
Why it matters: It ensures that profit is not overstated or understated. It leads to adjustments like prepaid expenses, outstanding expenses, depreciation, and accrued incomes.
Accounting treatment: Suppose salary for March is Rs 10,000 but paid in April. For the year ending March 31, we debit Salary Account Rs 10,000 and credit Outstanding Salary Account Rs 10,000. This matches the expense with the period in which the work was done.
9. Accrual Concept
Intuition: You earned commission in March but will receive it in May. Should you show it in March's books? Yes — because you earned it in March.
Precise meaning: Revenue is recorded when earned, and expenses when incurred, regardless of actual cash receipt or payment.
Why it matters: It gives a truer picture of performance than cash-based accounting. Most businesses follow the accrual system.
Accounting treatment: For accrued income (earned but not received): Debit Accrued Income Account (asset), Credit Income Account. For outstanding expenses (incurred but not paid): Debit Expense Account, Credit Outstanding Expense Account (liability).
10. Consistency Concept …
The rule that decides each case is simple: a sale WITHIN a state (intra-state) attracts CGST + SGST, while a sale ACROSS states (inter-state) attracts IGST. Applying the given rates (CGST 9%, SGST 9%, IGST 18%):
| # | Movement | Tax | Amount (₹) |
|---|---|---|---|
| 1 | Maharashtra → Maharashtra (intra-state) | CGST 9% + SGST 9% on ₹10,000 | 900 + 900 = 1,800 |
| 2 | Maharashtra → Gujarat (inter-state) | IGST 18% on ₹25,000 | 4,500 |
Decide intra-state vs inter-state first: intra-state supply is taxed with CGST + SGST (split equally), inter-state supply with IGST. So situations 1 and 3 draw CGST + SGST, and situations 2 and 4 draw IGST.
Concept — CGST, SGST and IGST
GST is a destination-based tax with three components. When goods move within the same state (intra-state supply), the tax is shared between the Centre and the State as CGST and SGST in equal halves of the total GST rate. When goods move from one state to another (inter-state supply), a single IGST — equal to the whole GST rate — is charged and collected by the Centre.
Working, situation by situation
| # | Supply | Nature | Computation | GST charged |
|---|---|---|---|---|
| 1 | Manufacturer 1 (Maharashtra) → Dealer A (Maharashtra), ₹10,000 | Intra-state | CGST 9% = ₹900; SGST 9% = ₹900 | ₹900 + ₹900 |
| 2 | Dealer A (Maharashtra) → Dealer B (Gujarat), ₹25,000 | Inter-state | IGST 18% = ₹4,500 | ₹4,500 |
- COHSEM Manipur Higher Secondary 1st Year (Commerce) 2025Set ANNUAL1 markMCQQ.Accounting Principles are – (A) made by the Government (B) made by man (C) made by Law (D) made by creditors
›Reveal solutionSolution
Accounting principles are conventions and rules devised by accountants (through bodies like ICAI) based on practical experience and usefulness, not laws passed by government or courts.
Accounting principles (also called Generally Accepted Accounting Principles, GAAP) are the general rules and conventions that guide the preparation of financial statements. They are called "principles" rather than "laws" precisely because of their origin:
- They are developed by accountants and accounting bodies (such as the Institute of Chartered Accountants of India) over time, based on common usage, reasoning and practical experience of what produces useful, comparable financial information.
- They are man-made — evolved through usage and general agreement among the accounting profession, not legislated.
Checking the options: …
- COHSEM Manipur Higher Secondary 1st Year (Commerce) 2025Set ANNUAL1 markMCQQ.In accrual basis recording is made of – (A) Cash transactions (B) Credit transactions (C) Cash as well as credit transactions (D) Either Cash or Accural
›Reveal solutionSolution
Accrual basis of accounting records a transaction the moment it occurs (sale made, expense incurred), regardless of when cash is received or paid — so credit transactions are recorded as much as cash transactions.
There are two bases of recording transactions:
- Cash Basis: records a transaction only when cash is actually received or paid. Credit transactions are ignored until settled in cash.
- Accrual Basis: records revenue when it is earned and expenses when they are incurred, whether or not cash has changed hands. This means a credit sale is recorded as revenue immediately (with a corresponding debtor), and a credit purchase is recorded as an expense/asset immediately (with a corresponding creditor) — exactly as a cash transaction would be recorded at the time cash moves.
Since accrual accounting captures every transaction (cash and credit) as soon as it occurs, it records both cash and credit transactions.
…
- COHSEM Manipur Higher Secondary 1st Year (Commerce) 2025Set ANNUAL1 markMCQQ.Accounting Standards are formulated by – (A) Planning Commission (B) Institute of Chartered Accountants of India (C) Companies Act (D) Institute of Company Secretaries of India
›Reveal solutionSolution
Accounting Standards in India are framed by the Institute of Chartered Accountants of India (ICAI) through its Accounting Standards Board, not by the Government, the Planning Commission, or the Companies Act directly.
Accounting Standards are written policy documents that specify how particular types of transactions and events should be recognised, measured, presented and disclosed in financial statements, so that financial statements of different enterprises become comparable. In India, the body responsible for formulating these standards is the Institute of Chartered Accountants of India (ICAI), through its Accounting Standards Board (ASB), constituted in 1977. The ASB considers laws, customs, usages and business environment while drafting standards, and the Council of ICAI then issues them.
Checking the options:
- (A) Planning Commission — a government economic planning body, not concerned with framing accounting standards. …
- COHSEM Manipur Higher Secondary 1st Year (Commerce) 2025Set ANNUAL1 markMCQQ.The number of accounting standards specified by the Institute of Chartered Accountant of India so far is – (A) 29 (B) 30 (C) 31 (D) 32
›Reveal solutionSolution
The number of Accounting Standards issued by ICAI, as stated in the Class 11 NCERT/board curriculum, is 32.
The Institute of Chartered Accountants of India (ICAI), through its Accounting Standards Board, has over the years issued a series of Accounting Standards (AS) numbered sequentially (AS 1, AS 2, AS 3 … ) to standardise accounting treatment for various items like inventories, depreciation, revenue recognition, fixed assets, etc. As per the figure given in the Class 11 Accountancy curriculum, the total count of Accounting Standards issued so far by ICAI is 32 (though in practice a few numbers were later withdrawn or superseded by Ind …
- COHSEM Manipur Higher Secondary 1st Year (Commerce) 2025Set ANNUAL1 markMCQQ.Given below are two statements, one labelled as Assertion (A) and other labelled as Reason (R). Assertion (A) : The essence of convention of prudence is to anticipate no profit and provided for all possible losses. Reason (R) : Convention of prudence results in understatement of profit and assets and overstatement of liabilities. Which of the following is correct? (A) Both (A) and (R) are true and (R) is correct explanation of (A) (B) Both (A) and (R) are true but (R) is not the correct explanation of (A) (C) (A) is true, but (R) is false (D) (A) is false, but (R) is true
›Reveal solutionSolution
Assertion (A) correctly states the essence of the convention of prudence; Reason (R) correctly explains the resulting effect of applying that convention — profits and assets get conservatively stated (understated) while provisions/liabilities are overstated — making (R) a valid explanation of (A).
Assertion (A): The convention of prudence (also called conservatism) instructs accountants to "anticipate no profit, but provide for all possible losses." This is the standard, textbook definition of the convention — (A) is true.
Reason (R): Because the convention requires providing for every probable loss while not anticipating any unrealised profit, its direct consequence is that:
- Profits get conservatively stated — often understated, since unrealised gains are never recorded, but every probable loss (e.g., provision for doubtful debts, provision for discount) is charged against profit.
- Assets get understated for the same reason — e.g., stock is valued at cost or market price, whichever is lower, and doubtful debts are provided for, so assets like inventory and debtors do not appear at their full/optimistic value. …
- COHSEM Manipur Higher Secondary 1st Year (Commerce) 2025Set ANNUAL1 markMCQQ.Assertion(A) : The Financial Statements do not reflect the true position of business. Reason(R) : Accounting information is sometimes based on estimates. (A) Both A and R are correct and R is the correct explanation of A (B) Both A and R are correct and R is not the correct explanation of A (C) A is correct but R is incorrect (D) A is incorrect but R is correct
›Reveal solutionSolution
Financial statements do not reflect the absolutely true position of a business (A) precisely because several figures within them — depreciation, provisions, useful life of assets, and so on — are based on estimates rather than exact measurement (R); R is therefore the correct explanation of A.
Assertion (A): Financial statements (Balance Sheet, Profit and Loss Account) are widely acknowledged to show only an "approximate" picture of a business, not an exact one — this is a well-recognised limitation of accounting, so (A) is true.
Reason (R): A large part of the figures appearing in financial statements are not objectively verifiable facts but management's best estimates — for example:
- the useful life and residual value of a fixed asset (used to calculate depreciation),
- the amount of doubtful debts likely to go bad (provision for doubtful debts), …
- COHSEM Manipur Higher Secondary 1st Year (Commerce) 2024Set ANNUAL1 markMCQQ.According to which accounting standard inventories in general should be valued at the lower of the cost or net realizable value? (A) AS – 7, Statement of Cash Flow (B) AS – 2, Valuation of Inventories (C) AS – 12, Income Taxes (D) AS – 1, Presentation of Financial Statement
›Reveal solutionSolution
AS-2, 'Valuation of Inventories', prescribes that inventories be valued at the lower of historical cost and net realisable value.
Each option refers to a different Accounting Standard:
- AS-7 deals with Construction Contracts / Statement of Cash Flow context (cash flow is actually AS-3; AS-7 is Construction Contracts) — not about inventory valuation.
- AS-2, Valuation of Inventories specifically states that inventories should be valued at the lower of cost and net realisable value, applying the conservatism principle so that inventory is never overstated. …
- COHSEM Manipur Higher Secondary 1st Year (Commerce) 2023Set ANNUAL1 markQ.What is cost principle?
›Reveal solutionSolution
The cost principle (historical cost concept) records assets at their original purchase cost, not their current market value.
Under the cost principle, any asset acquired by a business is recorded in the books of account at the price actually paid to acquire it — i.e., its historical/acquisition cost, including the purchase price plus any expenses incurred to bring the asset into usable condition (freight, installation, etc.). This recorded cost becomes the basis for further accounting, such as providing depreciation over the asset's useful life.
…
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