Question

In trading account, closing stock is shown at cost price or net realizable price whichever is lower. This is due application of ______________.

• A. Convention of disclosure
• B. Convention of materiality
• C. Convention of consistency
• D. Convention of conservation

Answer 1

The correct option is D Convention of conservation

Closing Stock is shown at cost price or net realizable price whichever is lower because of the convention of conservatism. According to this, anticipated profits should not be recorded into accounts before actual realization but anticipated losses or expenses should be recorded as soon as possible.