CA Foundation Exam > CA Foundation Questions > Purchases = Rs. 25,00,00070% of the goods are...
Start Learning for Free
Purchases = Rs. 25,00,000
70% of the goods are sold
Closing inventory is valued at Rs. 5,00,000 instead of at Rs. 7,50,000.
Which concept has been followed?
70% of the goods are sold
Closing inventory is valued at Rs. 5,00,000 instead of at Rs. 7,50,000.
Which concept has been followed?
- a)Conservatism
- b)Cost
- c)Accrual
- d)Matching
Correct answer is option 'A'. Can you explain this answer?
| FREE This question is part of | Download PDF Attempt this Test |
Most Upvoted Answer
Purchases = Rs. 25,00,00070% of the goods are soldClosing inventory is...
Correct answer is option A
Because conservatism con
cept says that record all anticipated losses but not anticipated gains
Because conservatism con
cept says that record all anticipated losses but not anticipated gains
Free Test
FREE
| Start Free Test |
Community Answer
Purchases = Rs. 25,00,00070% of the goods are soldClosing inventory is...
Understanding the Concept of Conservatism
The correct answer to the question is option 'A', which pertains to the concept of conservatism in accounting. Let's break down why this is the case.
Definition of Conservatism
- Conservatism is an accounting principle that advises caution in financial reporting.
- This principle suggests that expenses and liabilities should be recognized as soon as possible, but revenues and assets should only be recognized when they are assured.
Application in the Given Scenario
- In the provided data, the closing inventory is valued at Rs. 5,00,000 instead of Rs. 7,50,000.
- By valuing the inventory lower than its potential worth, the company is adhering to the conservatism principle.
Implications of Valuing Inventory Conservatively
- This conservative approach results in lower reported profits, as the expenses are recognized sooner and the income is understated.
- It helps in avoiding overstatement of assets and income, thus providing a more cautious and potentially more realistic financial picture.
Conclusion
- The decision to value the closing inventory at a lower amount reflects a prudent approach.
- This strategy aligns with the conservatism concept, ensuring that the financial statements do not mislead stakeholders about the company's financial health.
In summary, the practice of valuing the closing inventory conservatively exemplifies the principle of conservatism, emphasizing caution in financial reporting.
The correct answer to the question is option 'A', which pertains to the concept of conservatism in accounting. Let's break down why this is the case.
Definition of Conservatism
- Conservatism is an accounting principle that advises caution in financial reporting.
- This principle suggests that expenses and liabilities should be recognized as soon as possible, but revenues and assets should only be recognized when they are assured.
Application in the Given Scenario
- In the provided data, the closing inventory is valued at Rs. 5,00,000 instead of Rs. 7,50,000.
- By valuing the inventory lower than its potential worth, the company is adhering to the conservatism principle.
Implications of Valuing Inventory Conservatively
- This conservative approach results in lower reported profits, as the expenses are recognized sooner and the income is understated.
- It helps in avoiding overstatement of assets and income, thus providing a more cautious and potentially more realistic financial picture.
Conclusion
- The decision to value the closing inventory at a lower amount reflects a prudent approach.
- This strategy aligns with the conservatism concept, ensuring that the financial statements do not mislead stakeholders about the company's financial health.
In summary, the practice of valuing the closing inventory conservatively exemplifies the principle of conservatism, emphasizing caution in financial reporting.
Attention CA Foundation Students!
To make sure you are not studying endlessly, EduRev has designed CA Foundation study material, with Structured Courses, Videos, & Test Series. Plus get personalized analysis, doubt solving and improvement plans to achieve a great score in CA Foundation.
|
Explore Courses for CA Foundation exam
|
|
Top Courses for CA FoundationView all
Purchases = Rs. 25,00,00070% of the goods are soldClosing inventory is valued at Rs. 5,00,000 instead of at Rs. 7,50,000.Which concept has been followed?a)Conservatismb)Costc)Accruald)MatchingCorrect answer is option 'A'. Can you explain this answer?
Question Description
Purchases = Rs. 25,00,00070% of the goods are soldClosing inventory is valued at Rs. 5,00,000 instead of at Rs. 7,50,000.Which concept has been followed?a)Conservatismb)Costc)Accruald)MatchingCorrect answer is option 'A'. Can you explain this answer? for CA Foundation 2025 is part of CA Foundation preparation. The Question and answers have been prepared according to the CA Foundation exam syllabus. Information about Purchases = Rs. 25,00,00070% of the goods are soldClosing inventory is valued at Rs. 5,00,000 instead of at Rs. 7,50,000.Which concept has been followed?a)Conservatismb)Costc)Accruald)MatchingCorrect answer is option 'A'. Can you explain this answer? covers all topics & solutions for CA Foundation 2025 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Purchases = Rs. 25,00,00070% of the goods are soldClosing inventory is valued at Rs. 5,00,000 instead of at Rs. 7,50,000.Which concept has been followed?a)Conservatismb)Costc)Accruald)MatchingCorrect answer is option 'A'. Can you explain this answer?.
Purchases = Rs. 25,00,00070% of the goods are soldClosing inventory is valued at Rs. 5,00,000 instead of at Rs. 7,50,000.Which concept has been followed?a)Conservatismb)Costc)Accruald)MatchingCorrect answer is option 'A'. Can you explain this answer? for CA Foundation 2025 is part of CA Foundation preparation. The Question and answers have been prepared according to the CA Foundation exam syllabus. Information about Purchases = Rs. 25,00,00070% of the goods are soldClosing inventory is valued at Rs. 5,00,000 instead of at Rs. 7,50,000.Which concept has been followed?a)Conservatismb)Costc)Accruald)MatchingCorrect answer is option 'A'. Can you explain this answer? covers all topics & solutions for CA Foundation 2025 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Purchases = Rs. 25,00,00070% of the goods are soldClosing inventory is valued at Rs. 5,00,000 instead of at Rs. 7,50,000.Which concept has been followed?a)Conservatismb)Costc)Accruald)MatchingCorrect answer is option 'A'. Can you explain this answer?.
Solutions for Purchases = Rs. 25,00,00070% of the goods are soldClosing inventory is valued at Rs. 5,00,000 instead of at Rs. 7,50,000.Which concept has been followed?a)Conservatismb)Costc)Accruald)MatchingCorrect answer is option 'A'. Can you explain this answer? in English & in Hindi are available as part of our courses for CA Foundation.
Download more important topics, notes, lectures and mock test series for CA Foundation Exam by signing up for free.
Here you can find the meaning of Purchases = Rs. 25,00,00070% of the goods are soldClosing inventory is valued at Rs. 5,00,000 instead of at Rs. 7,50,000.Which concept has been followed?a)Conservatismb)Costc)Accruald)MatchingCorrect answer is option 'A'. Can you explain this answer? defined & explained in the simplest way possible. Besides giving the explanation of
Purchases = Rs. 25,00,00070% of the goods are soldClosing inventory is valued at Rs. 5,00,000 instead of at Rs. 7,50,000.Which concept has been followed?a)Conservatismb)Costc)Accruald)MatchingCorrect answer is option 'A'. Can you explain this answer?, a detailed solution for Purchases = Rs. 25,00,00070% of the goods are soldClosing inventory is valued at Rs. 5,00,000 instead of at Rs. 7,50,000.Which concept has been followed?a)Conservatismb)Costc)Accruald)MatchingCorrect answer is option 'A'. Can you explain this answer? has been provided alongside types of Purchases = Rs. 25,00,00070% of the goods are soldClosing inventory is valued at Rs. 5,00,000 instead of at Rs. 7,50,000.Which concept has been followed?a)Conservatismb)Costc)Accruald)MatchingCorrect answer is option 'A'. Can you explain this answer? theory, EduRev gives you an
ample number of questions to practice Purchases = Rs. 25,00,00070% of the goods are soldClosing inventory is valued at Rs. 5,00,000 instead of at Rs. 7,50,000.Which concept has been followed?a)Conservatismb)Costc)Accruald)MatchingCorrect answer is option 'A'. Can you explain this answer? tests, examples and also practice CA Foundation tests.
|
|
Explore Courses for CA Foundation exam
|
|
Suggested Free Tests
Signup for Free!
Signup to see your scores go up within 7 days! Learn & Practice with 1000+ FREE Notes, Videos & Tests.
|
© EduRev
|
Education Revolution
|
|
Signup to see your scores
go up within 7 days!
Access 1000+ FREE Docs, Videos and Tests
Takes less than 10 seconds to signup