JAIIB Paper 3 Module A Quiz 7

Documentation supports the commercial rationale, pricing method and arm’s-length analysis of related-party transactions. It helps demonstrate compliance with transfer-pricing requirements and enables tax authorities to review the arrangement.

Cash-basis accounting records receipts and payments when cash changes hands. It may not show receivables, payables and period performance as comprehensively as accrual accounting.

The money measurement concept records transactions and events that can be measured in monetary terms. Important non-financial matters may require separate disclosure or reporting because they cannot always be captured directly in the accounts.

The business entity concept treats the business as a separate accounting unit from its owner. This supports separate records for business assets, liabilities, capital and drawings.

Financial reporting may require consideration of economic substance as well as legal form, in accordance with the applicable framework. The facts and specific standard determine recognition and presentation.

Ledger accounts collect postings relating to one account and show its debits, credits and resulting balance. Source documents and journals remain important evidence and records of original entry.

Source documents such as invoices, receipts, vouchers, contracts and bank records provide evidence for accounting entries. Proper documentation supports audit trails and internal controls.

Traditional account classification groups accounts as personal, real and nominal. ‘Meteorological’ is not an accounting account category.

Cash increases and is debited, while commission income increases and is credited. The entry is Debit Cash and Credit Commission Income.

Assets normally have debit balances because asset increases are debited and decreases credited. A contra-asset account, such as accumulated depreciation, typically has a credit balance.

Accumulated depreciation records the total depreciation charged to date and is generally deducted from the asset’s cost to determine its carrying amount. It is not a cash reserve or liability.

The carrying amount is generally the amount recognised after deducting accumulated depreciation and accumulated impairment losses from cost, subject to the applicable measurement model and accounting standards.

A patent is an identifiable intangible asset. If it has a finite useful life, its depreciable amount is generally amortised over that useful life, subject to applicable standards and impairment rules.

The sum-of-the-years’-digits method is an accelerated depreciation method. The annual charge is based on a fraction whose numerator is the remaining useful life and whose denominator is the sum of the digits of the useful life.

On disposal, the asset’s carrying amount is removed and proceeds are compared with that carrying amount to determine a gain or loss, subject to the applicable accounting requirements. Proceeds are not automatically ordinary sales revenue.

A sinking fund approach involves setting aside and investing periodic amounts to accumulate funds for a future obligation or replacement. It is a funding mechanism and is distinct from the accounting allocation of depreciation expense.

Costs directly attributable to bringing an asset to the location and condition necessary for it to operate as intended may be included in the asset’s cost under applicable standards. General overheads, unrelated costs and penalties are usually not capitalised.

Three months of insurance expense = ₹24,000 × 3/12 = ₹6,000. The remaining nine months, ₹18,000, are a prepaid asset at 31 March.

The electricity was consumed in the period, so the expense is recognised by debit. Because payment is outstanding, an accrued liability is credited. Cash is credited only when the bill is paid.

Maker-checker review, clear procedures, system validations and user-level accountability reduce the risk of posting errors. Shared passwords and missing evidence weaken controls.