Statement 1: Aman purchases a piece of land for Rs. 1 lakh in 1985. This impacted an increase in his land account and a decrease in cash account. What is the concept behind this impact?

Statement 2: The price of the same piece of land in 2017 is Rs. 1 crore. Aman is excited about the price and plans to record it in his books of account. His accountant, Ravi, calms him down and lets him know that the price of the land is still Rs. 1 lakh and cannot be recorded otherwise. What made Ravi stop Aman from recording it as Rs. 1 crore?

Statement 1: Dual Aspect
Statement 2: Cost

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Statement 1: Cost
Statement 2: Accounting period

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Statement 1: Money measurement
Statement 2: Cost

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Statement 1: Matching
Statement 2: Accounting period

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Solution

The correct option is A
Statement 1: Dual Aspect
Statement 2: Cost

Statement 1: Impacting increase in land account and a decrease in cash account is covered by the Dual Aspect concept. According to this concept, every transaction has two aspects and it impacts two accounts such that accounting equation always holds true.

Statement 2: Ravi stops Aman from recording the land price as Rs. 1 crore because of the cost concept. This concept covers that assets are recorded at the cost at which it was purchased.

Suggest Corrections

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Give journal entries to rectify the following errors assuming that suspense account had been opened.
(i) Goods distributed as free sample Rs. 5,000 were not recorded in the books.
(ii) Goods withdrawn for personal use by the proprietor Rs. 2,000 were not recorded in the books.
(iii) Bills receivable received from a debtor Rs. 6,000 was not posted to his account.
(iv) Total of return inwards book Rs. 1,200 was posted to return outwards account.
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