CA Foundation

Welcome to CA Foundation. We will study Theoretical Framework of Accounting: Concepts, Conventions and the Accounting Equation, work through an example, and practise using the course's learning material. Foundation stage coaching for CA aspirants. Sign in and use the study header to open your authorised course. Select this published lesson. Start Course Tutor with Auto audio on: it teaches continuously, answers a typed question, then resumes. Business entity concept: the business is separate from its owner. Capital introduced by the owner is a liability of the business to the owner; drawings reduce it. Money measurement concept: only events that can be expressed in money are recorded. Example 3: prudence in inventory. Closing inventory cost ₹2,40,000. Because the goods have gone out of fashion, they can be sold for ₹2,25,000 with selling costs of ₹15,000, so net realisable value is ₹2,10,000. The inventory is shown at ₹2,10,000, the lower figure. The ₹30,000 reduction is recognised now as a loss, even though the goods have not yet been sold. If NRV had been ₹2,60,000, the goods would stay at cost ₹2,40,000 and the expected gain would not be recognised. Which mistake would change the reasoning in this example? Treating the owner's capital as if it were not a liability of the business. Correction: under the business entity concept, capital is what the business owes the owner, so it sits on the liabilities side. Recording rent, salary or interest only when paid. Ask Course Tutor: please explain this step from the example. The inventory is shown at ₹2,10,000, the lower figure. Why does it follow? Add what you tried, so the explanation addresses your difficulty. Now try the source practice. A firm buys machinery for ₹3,00,000 and pays ₹20,000 for its installation. At what amount is the machinery recorded, and which concept applies? Pause before the answer. The source answer is: ₹3,20,000, under the historical cost concept, since costs to bring the asset to working condition form part of its cost. Compare your reasoning as well as the result. If your response differs, return to the worked example and identify the step that needs correction. Explain the key idea in your own words, revisit any mistaken step, then continue to the next lesson. Use Stop to end Course Tutor when you finish.