2
Question
The policy to anticipate no profit and provide for all possible losses arises due to convention of ___________.
The policy to anticipate no profit and provide for all possible losses arises due to convention of ___________.
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Solution
The correct option is D Conservatism
The concept of conservatism provides guidance for recording transactions in the book of accounts and is based on the policy of playing safe. The concept states that a conscious approach should be adopted in ascertaining are more than the actual, it may lead to distribution of dividend out of capital, which is not fair as it will lead to reduction in the capital of the enterprise. 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 for in the books of accounts.
The concept of conservatism provides guidance for recording transactions in the book of accounts and is based on the policy of playing safe. The concept states that a conscious approach should be adopted in ascertaining are more than the actual, it may lead to distribution of dividend out of capital, which is not fair as it will lead to reduction in the capital of the enterprise. 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 for in the books of accounts.
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