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Question
The lower of cost and market basis of valuing inventories is an example of________.
The lower of cost and market basis of valuing inventories is an example of________.
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Solution
The correct option is A Conservatism
The concept of conservatism (also called ‘prudence’) provides guidance for recording transactions in the book of accounts and is based on the policy of playing safe.
The concept of conservatism requires that profits should not to be recorded until realised but all losses, even those which may have a remote possibility, are to be provided in the books of accounts.
On the basis of this concept, inventories should be valued at the lower of, cost and net realisable value.
The concept of conservatism (also called ‘prudence’) provides guidance for recording transactions in the book of accounts and is based on the policy of playing safe.
The concept of conservatism requires that profits should not to be recorded until realised but all losses, even those which may have a remote possibility, are to be provided in the books of accounts.
On the basis of this concept, inventories should be valued at the lower of, cost and net realisable value.
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