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A businessman purchased goods for Rs. 25, 00,000 and sold 70% of such goods during the accounting year ended on 31.3.2014. The market value of remaining goods was Rs. 5, 00,000. He valued the closing stock at Rs. 5, 00,000 and not at Rs. 7, 50,000 due to:
- a)Money Measurement
- b)Conservatism
- c)Cost
- d)Periodicity
Correct answer is option 'B'. Can you explain this answer?
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A businessman purchased goods for Rs. 25, 00,000 and sold 70% of such ...
Explanation:
The concept of conservatism states that while accounting for profits, losses should be accounted for immediately. In other words, it is better to understate the profits and overstate the losses.
In this case, the businessman purchased goods for Rs. 25,00,000 and sold 70% of such goods during the accounting year ended on 31.3.2014. The market value of remaining goods was Rs. 5,00,000. He valued the closing stock at Rs. 5,00,000 and not at Rs. 7,50,000 due to conservatism.
Reasons for valuing closing stock at Rs. 5,00,000 and not Rs. 7,50,000:
1. Conservatism: As per the concept of conservatism, it is better to understate the profits and overstate the losses. By valuing the closing stock at Rs. 5,00,000 instead of Rs. 7,50,000, the businessman is being conservative and ensuring that the profits are not overstated.
2. Cost: The closing stock is valued at cost, i.e., the amount at which it was purchased. In this case, the businessman purchased the goods for Rs. 25,00,000 and sold 70% of it. Therefore, the cost of the remaining goods would be Rs. 7,50,000 (30% of Rs. 25,00,000). However, the market value of the remaining goods was only Rs. 5,00,000. Therefore, valuing the closing stock at Rs. 5,00,000 is appropriate.
3. Money Measurement: The concept of money measurement states that only those transactions that can be expressed in monetary terms should be recorded in the books of accounts. In this case, the market value of the remaining goods is less than the cost price. Therefore, valuing the closing stock at Rs. 5,00,000 is appropriate.
The concept of conservatism states that while accounting for profits, losses should be accounted for immediately. In other words, it is better to understate the profits and overstate the losses.
In this case, the businessman purchased goods for Rs. 25,00,000 and sold 70% of such goods during the accounting year ended on 31.3.2014. The market value of remaining goods was Rs. 5,00,000. He valued the closing stock at Rs. 5,00,000 and not at Rs. 7,50,000 due to conservatism.
Reasons for valuing closing stock at Rs. 5,00,000 and not Rs. 7,50,000:
1. Conservatism: As per the concept of conservatism, it is better to understate the profits and overstate the losses. By valuing the closing stock at Rs. 5,00,000 instead of Rs. 7,50,000, the businessman is being conservative and ensuring that the profits are not overstated.
2. Cost: The closing stock is valued at cost, i.e., the amount at which it was purchased. In this case, the businessman purchased the goods for Rs. 25,00,000 and sold 70% of it. Therefore, the cost of the remaining goods would be Rs. 7,50,000 (30% of Rs. 25,00,000). However, the market value of the remaining goods was only Rs. 5,00,000. Therefore, valuing the closing stock at Rs. 5,00,000 is appropriate.
3. Money Measurement: The concept of money measurement states that only those transactions that can be expressed in monetary terms should be recorded in the books of accounts. In this case, the market value of the remaining goods is less than the cost price. Therefore, valuing the closing stock at Rs. 5,00,000 is appropriate.
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A businessman purchased goods for Rs. 25, 00,000 and sold 70% of such goods during the accounting year ended on 31.3.2014. The market value of remaining goods was Rs. 5, 00,000. He valued the closing stock at Rs. 5, 00,000 and not at Rs. 7, 50,000 due to:a)Money Measurementb)Conservatismc)Costd)PeriodicityCorrect answer is option 'B'. Can you explain this answer?
Question Description
A businessman purchased goods for Rs. 25, 00,000 and sold 70% of such goods during the accounting year ended on 31.3.2014. The market value of remaining goods was Rs. 5, 00,000. He valued the closing stock at Rs. 5, 00,000 and not at Rs. 7, 50,000 due to:a)Money Measurementb)Conservatismc)Costd)PeriodicityCorrect answer is option 'B'. Can you explain this answer? for CA Foundation 2024 is part of CA Foundation preparation. The Question and answers have been prepared according to the CA Foundation exam syllabus. Information about A businessman purchased goods for Rs. 25, 00,000 and sold 70% of such goods during the accounting year ended on 31.3.2014. The market value of remaining goods was Rs. 5, 00,000. He valued the closing stock at Rs. 5, 00,000 and not at Rs. 7, 50,000 due to:a)Money Measurementb)Conservatismc)Costd)PeriodicityCorrect answer is option 'B'. Can you explain this answer? covers all topics & solutions for CA Foundation 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for A businessman purchased goods for Rs. 25, 00,000 and sold 70% of such goods during the accounting year ended on 31.3.2014. The market value of remaining goods was Rs. 5, 00,000. He valued the closing stock at Rs. 5, 00,000 and not at Rs. 7, 50,000 due to:a)Money Measurementb)Conservatismc)Costd)PeriodicityCorrect answer is option 'B'. Can you explain this answer?.
A businessman purchased goods for Rs. 25, 00,000 and sold 70% of such goods during the accounting year ended on 31.3.2014. The market value of remaining goods was Rs. 5, 00,000. He valued the closing stock at Rs. 5, 00,000 and not at Rs. 7, 50,000 due to:a)Money Measurementb)Conservatismc)Costd)PeriodicityCorrect answer is option 'B'. Can you explain this answer? for CA Foundation 2024 is part of CA Foundation preparation. The Question and answers have been prepared according to the CA Foundation exam syllabus. Information about A businessman purchased goods for Rs. 25, 00,000 and sold 70% of such goods during the accounting year ended on 31.3.2014. The market value of remaining goods was Rs. 5, 00,000. He valued the closing stock at Rs. 5, 00,000 and not at Rs. 7, 50,000 due to:a)Money Measurementb)Conservatismc)Costd)PeriodicityCorrect answer is option 'B'. Can you explain this answer? covers all topics & solutions for CA Foundation 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for A businessman purchased goods for Rs. 25, 00,000 and sold 70% of such goods during the accounting year ended on 31.3.2014. The market value of remaining goods was Rs. 5, 00,000. He valued the closing stock at Rs. 5, 00,000 and not at Rs. 7, 50,000 due to:a)Money Measurementb)Conservatismc)Costd)PeriodicityCorrect answer is option 'B'. Can you explain this answer?.
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