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Question
What is the underlying concept that support the immediate recognition of an estimated loss?
What is the underlying concept that support the immediate recognition of an estimated loss?
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Solution
The correct option is C Prudence
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 states that a conscious
approach should be adopted in ascertaining income so that profits of the
enterprise are not overstated.
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.
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 states that a conscious approach should be adopted in ascertaining income so that profits of the enterprise are not overstated.
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.
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