Accounting Mcqs

Q.  Based on which of the following concepts, is Share Capital Account shown on the liabilities side of a Balance Sheet?

a. Business entity concept
b. Money measurement concept
c. Going concern concept
d. Matching concept


ANSWER: See Answer
 
A. Share capital is the contribution made by the owner(s) and is regarded as a liability to the business in the nature of owner‘s equity. The underlying feature for this treatment is the distinction between the owner(s) and that of the business owned by them. According to business entry concept whenever an owner brings capital into the business, the business in turn is deemed to owe the capital to the owner. As such the share capital account is treated as a liability to the business and shown under liabilities.

The other concepts are not correct because,

B. Money measurement concept explains that in financial accountancy, a record is made only of information that can be expressed in monetary terms and ignores other events, however significant they may be. It is silent about the treatment of share capital account.

C. Going concern concept explains that the resources of the concern would continue to be used for the purposes for which they are meant to be used. The very categorization of assets into fixed and current presupposes the going concern concept. It does not deal about the treatment of share capital account.

D. Conservatism concept: The theme behind this principle is that recognition of revenue requires better evidence than recognition of expenses. It deals with revenues and expenses and not the share capital account.
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