Method of codification should be:

The correct answer is Option (2) → Such that it leads to grouping of accounts

Codification gives each account a code. A good code follows the hierarchy of the grouping of accounts, so that the codes of related accounts fall together and the accounts can be grouped and listed by head.

Option (1) Easy to understand, cryptic and process data — Incorrect. A code cannot be both easy to understand and cryptic, and processing data is not a quality of a code.

Option (3) An identification mark — Incorrect. Every code identifies an account; that alone does not make the method of codification sound.

Option (4) To safeguard assets — Incorrect. Safeguarding assets is the aim of internal controls, not of codification.