A businessman purchases goods worth $R s .25, 00, 000$ and sold $80 %$ of such goods during the accounting year ending on $31$ st March, $2011$ . The market value of the remaining goods was $R s .7, 50, 000$ . He valued the closing stock @ $R s .5, 00, 000$ and not at $R s .7, 50, 000$ due to ___________.

Money Measurement concept

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Convention of conservatism

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Cost concept

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Accounting period concept

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Solution

The correct option is B Convention of conservatism
Conservatism convention- This convention ensures that uncertainties and risks inherent in business transactions should be given a proper consideration. as per this convention the accountants follow the rule 'anticipate no profit but provide for all possible losses'.
Purchase =Rs. 25,00,000; 80% of the goods have been sold.
So, cost of goods sold =Rs. 20,00,000
Stock remains at cost of Rs. 5,00,000.
Since, market value of the stock left is Rs. 7,50,000 which is higher than the cost of stock. So, stock is valued at Rs. 5,00,000.

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A businessman purchases goods worth Rs.25,00,000 and sold 80% of such goods during the accounting year ending on 31st March, 2011. The market value of the remaining goods was Rs.7,50,000. He valued the closing stock @ Rs.5,00,000 and not at Rs.7,50,000 due to ___________.