(i) Define accounting policy. What are the conditions under which a company can change its accounting policy? (ii) Explain the following: (1) Cash…

(a) (i) Accounting Policy: (a) Accounting Policies refer to specific accounting principles and methods of applying these principles adopted by the enterprise in the preparation and presentation of financial statements; and (b) Policies are based on various accounting concepts, principles, and conventions. Conditions under which change takes place: A change in accounting policies shall be made in the following conditions: (a) It is required by some statute or for compliance with an Accounting Standard (b) Change would result in more appropriate presentation of financial statement (ii) (1) Cash Basis of Accounting is the method of recording financial transactions, by which revenues and expenditure and assets and liabilities are reflected in the accounts in the period in which the receipts or payments are actually effected/made. (2) Going Concern concept states that the financial statements are normally prepared on the assumption that an enterprise is a going concern and will continue in operation for the foreseeable future. Hence, it is assumed that the enterprise has neither the intention nor the need to liquidate or curtail materially the scale of its operations; if such an intention or need exists, the financial statements may have to be prepared on a different basis and, if so, the basis used needs to be disclosed. The valuation of assets of a business entity is dependent on this assumption. Traditionally, accountants follow historical cost in majority of the cases.