Page 24 - CA_ELG_Volume I_ELG-Sample

1.14 Theoretical Framework Principles and Practices of Accounting Paper 1

EXAMPLE 1.2

Mrs Srinidhi Balaji has invested ₹ 5,00,000 in Balaji & Sons. She had spent ₹ 5,000
for her personal expenses and purchased machinery of ₹ 1,00,000. The presentation
is as follows:

Particulars Amount Amount

Capital 5,00,000
Drawings (5,000) 4,95,000 } Liability
Machinery 1,00,000
Cash 3,95,000 } Asset

1.12.2 Money Measurement Concept

Money is the exchange medium and the economic value standard because of which only
transactions that are measured in terms of money are recorded. Transactions and events
because of which the results of the business are affected materially, but are not con-
vertible in monetary terms are not recorded.

1.12.3 Periodicity Concept

Periodicity concept is also called the definite accounting period concept. As per the
“going concern concept”, the entity is assumed to have an indefinite life. As per this
concept, accounts should be prepared after every period and not at the end of the life
of the entity as it might not be desirable to measure its performance as well as financial
position only at the end of the life.

The period can be a small but workable fraction of time that is chosen out of its in-
finite life cycle. Generally, 1 year is taken. However, it can also be 6 months or 9 months
or 15 months.

Periodicity concept facilitates —

ƒ Comparability of financial statements of different period.

ƒ Uniform and consistent accounting treatment for ascertaining the profits and assets
of the business.

ƒ Achieving correct results of the business operations by matching periodic revenue
with expenses.

1.12.4 Accrual Concept

The effects of other events and transactions are recognised on mercantile basis, i.e.
when they occur (and not as and when cash or a cash equivalent is received or paid).

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