A-AS Level (CIE) Accounting Paper-1: Specimen Questions with Answers 1 - 1 of 15

Question 1

Question

MCQ▾

Disclosing essential information in accounting observes the principle of

Choices

Choice (4)

a.

Matching

b.

Full disclosure

c.

Conservatism

d.

Consistency

Answer

d.

Explanation

According to the principle of consistency accounting principles and methods should remain stable from one year to another. These should not be changed from year to year, in order to enable the management to compare the Profit & Loss A/c and Balance Sheet of the different periods and interpret results and draw conclusions about the financial position of the enterprise, If a firm adopts different accounting principles in two accounting periods, the profits of current period will not be comparable with the profits of the preceding period. For example, a firm can select any one of the methods of depreciation, i. e. , straight line method, written down value method or any other method. But it should be made sure that the method once adopted will be followed consistently year after year. Similar is the case with the method of valuation of stock or creating provision for bad debts should be consistent with the previous year’s otherwise the conclusions drawn will be misleading.

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