The application of principle 'for stock valuation at cost price or market price, whichever is lower' will result in the valuation of stock sometimes at cost price and at other times at market price which is an application of the principle of ____________.
The application of principle 'for stock valuation at cost price or market price, whichever is lower' will result in the valuation of stock sometimes at cost price and at other times at market price which is an application of the principle 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.
Closing
stock being valued at cost price or Net realisable value, whichever is lower, is the best example of it.
Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs.
The cost of inventories should comprise all costs of purchase, Costs of conversion and other costs incurred in bringing the inventories to their present location and condition.
Hence, as per AS-2 and conservatism concept, "Inventories should be valued at the lower of cost and net realisable value."
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.
Closing stock being valued at cost price or Net realisable value, whichever is lower, is the best example of it.
Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs.
The cost of inventories should comprise all costs of purchase, Costs of conversion and other costs incurred in bringing the inventories to their present location and condition.
Hence, as per AS-2 and conservatism concept, "Inventories should be valued at the lower of cost and net realisable value."
