ECO 02 , DECEMBER 2020 QUESTION AND ANSWER

1. Attempt any two from the following :            7 + 7

(a) State the advantages of Self-balancing system.

(b) Write a note on ‘cost concept’ of Accounting.

(c) Explain the features of consignment.

(d) Distinguish between ‘Provision’ and ‘Reserve’.

(a) State the advantages of Self-balancing system.

1. Stability: Self-balancing systems maintain stability by automatically adjusting to changes in their environment or conditions, reducing the risk of falls or accidents.

2. Efficiency: They optimize energy consumption by efficiently distributing resources to maintain balance, leading to longer operational times and reduced costs.

3. Adaptability: Self-balancing systems can adapt to various terrains, loads, or tasks without requiring manual intervention, enhancing versatility and usability.

4. Safety: These systems minimize the need for human intervention, reducing the potential for human error and enhancing overall safety in operation.

(b) Write a note on ‘cost concept’ of Accounting.

 **Foundation of Accounting**: The cost concept is fundamental in accounting, emphasizing the recording of transactions based on their original cost rather than market value.

  

 **Historical Perspective**: It dictates that transactions should be recorded at their historical cost, reflecting the actual amount paid or incurred at the time of acquisition.

 **Reliability and Objectivity**: By focusing on actual costs incurred, the cost concept enhances the reliability and objectivity of financial information, providing a clear picture of financial transactions.

 **Consistency and Comparability**: It facilitates consistency and comparability in financial reporting by ensuring uniformity in the treatment of transactions across different periods and entities.

(c) Explain the features of consignment.

 **Ownership Retained**: The consignor retains ownership of the goods sent on consignment until they are sold to a third party.

  

 **No Sale, No Revenue**: The consignee doesn't own the goods but acts as an agent to sell them. They earn a commission on sales but bear no risk if the goods remain unsold.

 **Return of Unsold Goods**: Unsold goods can be returned to the consignor, who bears the risk of any damage or depreciation during the consignment period.

 **Consignment Agreement**: A consignment agreement outlines the terms of the arrangement, including responsibilities, commission rates, and duration of the consignment period.

(d) Distinguish between ‘Provision’ and ‘Reserve’.

**Provision**:

•   It is an estimated liability or expense that is recognized on a company's financial statements.
•    Provisions are made to account for potential future expenses or losses that are uncertain but likely.
•   They are recorded based on past events and are adjusted as new information becomes available.

 **Reserve**:

•   Reserves are funds set aside from profits for specific purposes, such as future expenditures or contingencies.
•   They are not recognized liabilities but rather appropriations of profits.
•   Reserves can be used to bolster financial stability or to invest in future growth opportunities.