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X Ltd., purch...

Question

X Ltd., purchased goods for Rs. 5,00,000 and sold 9/10th of the value of goods for Rs. 6,00,000. Net expenses during the year were Rs. 25,000. The company reported its net profit as Rs. 75,000. Which of the following concept is violated by the company?

A

Realization

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B

Conservation

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C

Matching

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D

Accrual

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Solution

The correct option is C Matching
Here, the Matching concept has been followed which states that the revenue of the period should be matched with the respective expenses.
In this example: Revenue is 600,000
Total expenses are
Purchases with respect to revenue = 500,000 x 9/10 = 450,000
Net expenses for the year = 25000
Total expenses = 475,000
Profit for the year = 600,000 - 475000 = 125,000
If the company would have reported the profit as 125000 then it would be correct.
Not doing so, the company have violated the Matching Concept.

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