Match List – I with List – II.

Choose the correct answer from the options given below :

A-I, B-III, C-II, D-IV

The correct answer is option 4- A-I, B-III, C-II, D-IV.

* Historical cost- Cost Principle.
The cost concept requires that all assets are recorded in the book of accounts at their purchase price, which includes cost of acquisition, transportation, installation and making the asset ready to use. To illustrate, on June 2005, an old plant was purchased for 50 lakh by Shiva Enterprise, which is into the business of manufacturing detergent powder. An amount of ₹10,000 was spent on transporting the plant to the factory site. In addition, 15,000 was spent on repairs for bringing the plant into running position and 25,000 on its installation. The total amount at which the plant will be recorded in the books of account would be the sum of all these, i.e. ₹50,50,000. The concept of cost is historical in nature as it is something, which has been paid on the date of acquisition and does not change year after year. For example, if a building has been purchased by a firm for 2.5 crore, the purchase price will remain the same for all years to come, though its market value may change. Adoption of historical cost brings in objectivity in recording as the cost of acquisition is easily verifiable from the purchase documents. The market value basis, on the other hand, is not reliable as the value of an asset may change from time to time, making the comparisons between one period to another rather difficult.

* Liabilities- Creditors equity.
Dual aspect is the foundation or basic principle of accounting. It provides the very basis for recording business transactions into the book of accounts. This concept states that every transaction has a dual or two-fold effect and should therefore be recorded at two places. In other words, at least two accounts will be involved in recording a transaction. The duality principle is commonly expressed in terms of fundamental Accounting Equation, which is as follows : Assets = Liabilities + Capital. In other words, the equation states that the assets of a business are always equal to the claims of owners and the outsiders. The claims also called equity of owners is termed as Capital(owners’ equity) and that of outsiders, as Liabilities(creditors equity). The two-fold effect of each transaction affects in such a manner that the equality of both sides of equation is maintained. The two-fold effect in respect of all transactions must be duly recorded in the book of accounts of the business. In fact, this concept forms the core of Double Entry System of accounting.

* Capital- Owners’ equity.
Dual aspect is the foundation or basic principle of accounting. It provides the very basis for recording business transactions into the book of accounts. This concept states that every transaction has a dual or two-fold effect and should therefore be recorded at two places. In other words, at least two accounts will be involved in recording a transaction. The duality principle is commonly expressed in terms of fundamental Accounting Equation, which is as follows : Assets = Liabilities + Capital. In other words, the equation states that the assets of a business are always equal to the claims of owners and the outsiders. The claims also called equity of owners is termed as Capital(owners’ equity) and that of outsiders, as Liabilities(creditors equity). The two-fold effect of each transaction affects in such a manner that the equality of both sides of equation is maintained. The two-fold effect in respect of all transactions must be duly recorded in the book of accounts of the business. In fact, this concept forms the core of Double Entry System of accounting.

* Asset- Bundle of services.
An asset may be defined as a bundle of services. When we purchase an asset, for example, a personal computer, for a sum of ₹50,000, what we are buying really is the services of the computer that we shall be getting over its estimated life span, say 5 years. It will not be fair to charge the whole amount of ₹50,000, from the revenue of the year in which the asset is purchased.