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CMA Foundation · Fundamentals of Financial and Cost Accounting · Accounting Principles, Concepts and Conventions

Ramesh, a trader in Jaipur, buys a delivery van for his business and records it in the books at its cost instead of its current resale value, and does not show his personal house as a business asset. Which pair of concepts is mainly reflected here?

The treatment reflects the historical cost concept and the business entity concept. Assets are recorded at the amount actually paid, not at current resale value, and the owner's personal property is kept separate from the business because the business is treated as a distinct accounting unit.

  1. AHistorical cost concept and business entity conceptCorrect
  2. BGoing concern concept and matching concept
  3. CAccrual concept and dual aspect concept
  4. DMoney measurement concept and conservatism

Explanation

Recording the van at the price paid reflects the historical cost concept. Keeping the personal house out of the business books reflects the business entity concept, which treats the owner and the business as separate. The other pairs do not explain both treatments.

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