Question

The principle to anticipate no profit and provide for all possible losses emanates from the ___________.

• A. Convention of relevance
• B. Consistency concept
• C. Materiality concept
• D. Conservation concept

Answer 1

The correct option is D Conservation concept

The conservatism principle is the general concept of recognising expenses and liabilities as soon as possible when there is uncertainty about the outcome, but to only recognize revenues and assets when they are assured of being received. Under the conservatism principle, if there is uncertainty about incurring a loss, you should tend towards recording the loss. Conversely, if there is uncertainty about receiving a gain, you should not record the gain.