General reserve is created on the basis of convention of ______________.
General reserve is created on the basis of convention of ______________.
The correct option is A Conservatism
The convention of
conservatism mean that the convention of caution, or the policy of playing
safe. This principle requires that in the situation of uncertainty and doubt,
the business transactions should be recorded in such a manner that the profits
and assets are not overstated and losses and liabilities are not understated.
The following are some examples:
1.
Closing stock is valued at cost price or Net realisable value, whichever is
lower.
2.
Joint life insurance policy is shown only at surrender value as against
the amount paid.
3.
Provision for doubtful debt is created in anticipation of bad debts etc.
4.
Provision for pending law suit against the firm, which may either be decided in
its favour.
The convention of conservatism mean that the convention of caution, or the policy of playing safe. This principle requires that in the situation of uncertainty and doubt, the business transactions should be recorded in such a manner that the profits and assets are not overstated and losses and liabilities are not understated. The following are some examples:
1. Closing stock is valued at cost price or Net realisable value, whichever is lower.
2. Joint life insurance policy is shown only at surrender value as against the amount paid.
3. Provision for doubtful debt is created in anticipation of bad debts etc.
4. Provision for pending law suit against the firm, which may either be decided in its favour.
