Question

Land was reported at its selling price which is substantially higher than its cost. The increase in value was included in the income statement, which accounting principle is violated?

• A. Cost principle
• B. Going concern concept
• C. Entity concept
• D. Conservatism

Answer 1

The correct option is D Conservatism

The concept of conservatism provides guidance for recording transactions so that conscious approach can be adopted in ascertaining income so that profits of the enterprise are not overstated. Recording of the increase in the value in the income statement will overstate the profits and hence, the concept is violated.