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Question
A businessman purchased goods for Rs. 30,00,000 and sold 80% of such goods are sold during the accounting year ended 31st March 2005. The market value of the remaining goods was Rs. 5,00,000. He has not valued the closing stock at market price. He has violated the concept of _________.
A businessman purchased goods for Rs. 30,00,000 and sold 80% of such goods are sold during the accounting year ended 31st March 2005. The market value of the remaining goods was Rs. 5,00,000. He has not valued the closing stock at market price. He has violated the concept of _________.
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Solution
The correct option is B conservatism
As per conservatism. Stock is valued at a lower cost or market price whichever is ever.Here, Cost of Closing Stock = 30,00,000 x 20% = 600,000The market price of closing stock = 500,000 Therefore, as per conservatism, the stock should be valued at a market price i.e., 500,000.
As per conservatism. Stock is valued at a lower cost or market price whichever is ever.
Here, Cost of Closing Stock = 30,00,000 x 20% = 600,000
The market price of closing stock = 500,000
Therefore, as per conservatism, the stock should be valued at a market price i.e., 500,000.
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