To ascertain profit under the Single Entry System (Statement of Affairs method), closing capital is compared with:
A. Opening Capital
B. Total Liabilities
C. Cash Balance
D. Total Assets
Answer: Option A
Solution (By JKSSB Mock Tests)
Profit or loss is determined by comparing the capital at the end of the year with the capital at the beginning, adjusted for drawings and fresh capital.
S1: Revaluation Account is a nominal account. S2: Revaluation Account is prepared to ascertain the profit or loss on revaluation of assets and liabilities. Which statement(s) is/are correct?
Explanation:
Revaluation Account records expenses (decreases in asset values) and incomes (increases in liability values), making it a nominal account. Its purpose is to calculate the net effect of revaluation on partners' capital. Both are correct.
Assertion (A): Under Ind AS 2, inventories are measured at the lower of cost and net realizable value (NRV). Reason (R): This ensures that assets are not overstated and losses are recognized in the period they occur, adhering to the prudence concept. Choose the correct option.
A.Both A and R are true and R is the correct explanation of A
B.A is false but R is true
C.A is true but R is false
D.Both A and R are true but R is NOT the correct explanation of A
Explanation:
Ind AS 2 mandates the lower of cost and NRV rule. This is a direct application of the prudence (conservatism) concept, ensuring assets aren't overstated and potential losses are recognized immediately. R correctly explains A.
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