Pawan is a cycle shop owner. At the beginning of a month, he bought a TV which has a life of 3 years for Rs. 12000. He sold cycles worth Rs. 8000. So he told his accountant that he has made a loss of Rs. 4000 (Rs. 8000 - Rs. 12000). His accountant corrects him stating that he cannot deduct the total amount of TV from the revenue. But he will just reduce on one year worth of TV value (1/3 * 12000) which is Rs. 4000. Hence he will have a profit of Rs. 4000 (Rs. 8000 - Rs. 4000).

Now, Pawan counters his accountant that if his business doesn't last and shuts down in a year, would it be correct to deduct only one year worth of TV value. His accountant responds by asking Pawan to be optimistic that his business would go on for a long time.

What are the concepts covered in this passage?

Business entity, Matching

No worries! We‘ve got your back. Try BYJU‘S free classes today!

Matching, Accounting period

No worries! We‘ve got your back. Try BYJU‘S free classes today!

Matching, Going concern

Right on! Give the BNAT exam to get a 100% scholarship for BYJUS courses

Money measurement, Going concern

No worries! We‘ve got your back. Try BYJU‘S free classes today!

Open in App

Solution

The correct option is C
Matching, Going concern

According to matching concept, expenses should be matched with revenues of the same period. Hence, only one year worth of TV value would be deducted from his revenue.

The accountant stating the business to go on for a long time is in accordance with the Going concern concept.

Suggest Corrections

Similar questions

Panwar commenced business on 1st January 2016 with a capital of Rs. 10,000, which he paid into a bank account opened for the purpose.
On the same date, he brought furniture which cost Rs. 2,000 and made purchases of goods worth Rs. 6,500.
He kept his books on single entry system.
On 31st December 2016 stock was valued at Rs. 8,300. There were book debts amounting to Rs. 3,400 of which Rs. 200 represented debts which were irrecoverable.
Creditors amounted to Rs. 3,600 and bank passbook showed a balance of Rs. 1,450.
Panwar withdrew three times from business for his private expenses, each time he withdrew Rs. 600 and in addition, he used Rs. 500 worth of goods from his shop.
He took Rs. 1,000 as a loan from his wife during the year.
He gave Rs. 200 to his son from business, which he omitted to enter.

You are required to prepare a statement showing profit or loss in the business for the year ending 31st December 2016 from the above information.

Ram has Rs. 500 in a savings account at the beginning of a year. He wants to have at least Rs.200 in his account by the end of the year. He withdraws Rs. 25 each week for his needs. For how many weeks can he withdraw?

Q. After selling a table worth Rs 12000 at 20% loss, a trader buys a TV with the same money. Next he sold the TV at 20% profit. What is his profit/loss in the whole transaction?

Q. Vikas started business with a cash of Rs. 22,000 and stock of Rs. 3,000 on 1st Jan., 2014.During the year, he made a profit of Rs.6,000.His creditors were paid Rs.4,500 for Office furniture supplied. He tool goods worth Rs.3,500 for his daughter's wedding on 30th June,2014.The gross assets of his business on 31st Dec.,2014 is _____________.

Mr. Gopal thought of starting a business of readymade garments. For this, he withdrew cash of Rs 10,00,000 from his savings bank account & purchased goods worth Rs 7,00,000. Out of the balance, Rs 1,00,000 was paid by him as security for rent of the shop in which he shall start his business. He purchased furniture of Rs 1,00,000 for his shop & the rest was held as cash by him. What is value of capital introduced by him in the business?

Join BYJU'S Learning Program