Contingent asset is not recognized in the financial statements on the basis of ______ accounting concept:a)Prudenceb)Materialityc)Substance over formd)Going concernCorrect answer is option 'A'. Can you explain this answer?

Question

Answer

Explanation:

Contingent assets are potential assets that may arise in the future depending on the occurrence or non-occurrence of one or more uncertain events. These assets are not recognized in the financial statements because of the prudence concept.

Prudence concept:

The prudence concept suggests that while preparing financial statements, the accountant should be cautious and not overstate assets or income and understate liabilities or expenses. This means that when there is uncertainty about the existence or amount of an asset, it should not be recognized in the financial statements.

Reason for not recognizing contingent assets:

Contingent assets are not recognized in the financial statements because there is a high degree of uncertainty associated with them. These assets may or may not materialize in the future, depending on the occurrence or non-occurrence of some future event. Therefore, recognizing them in the financial statements would be imprudent because it would overstate assets and income, which could mislead the users of financial statements.

Conclusion:

In conclusion, contingent assets are not recognized in the financial statements on the basis of the prudence concept because of the high degree of uncertainty associated with them. By not recognizing them, financial statements provide a more cautious and realistic view of the financial position of the entity.

Answer

Option A is correct because we record all anticipited contingent liabilities but not anticipated contingent assets

Similar CA Foundation Doubts

Contingent asset is not recognized in the financial statements on the basis of ______ accounting concept

Contingent asset is not recognized in the finantial statement on the basis of . accounting concept. { A. Prudence | B. Materiality | C. Substance over form | D. Going concern }

To achieve comparability of the financial statements of an enterprise, the same accounting policies should be followed from one period to another period due to ________ concept.

The comparison of the financial statement of one accounting period with that of another accounting period is possible only when _______ concept is followed.

In the financial statement, contingent liability is

Top Courses for CA FoundationView all

Quantitative Aptitude for CA Foundation

Accounting for CA Foundation

Business Laws for CA Foundation

Business Economics for CA Foundation

Mock Tests & Past Year Papers for CA Foundation

Top Courses for CA Foundation

Top Courses for CA Foundation

Suggested Free Tests

Related Content

CA Foundation Courses

Other Courses

How To Prepare?

Other Exams

Company