intermediate(ipc)course (no) (1460 Points)
26 September 2011a businessman purchased goods for Rs. 2500000 & sold 70% of such goods during the accounting year ended 31 st march,2005.the market value of remaining goods were Rs. 500000.he valued closing stock at Rs. 500000 & not at Rs. 750000 due to :
a).conservatism, b).realisable value,c).matching concept,d).prudence.
GAUTAM DEY
(Be Patient, Live Life)
(17309 Points)
Replied 26 September 2011
Ans- (a) Conservatism.
Conservatism states that the accountants should not anticipate income and should provide for all possible losses. The valuation of stock-in-trade at a "lower of cost or net realisable value" is the application of this principle.
Here, cost price is Rs 500000 and net realisable value(market value) is Rs 750000.
Applying the principle of Conservatism (i.e, lower of cost of net realisable value) the value of stock-in-trade is Rs 500000
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