Can you explain the answer of this question below:A businessman purchased goods for Rs. 25,00,000 and sold 70% of such goods during the accounting year ended 31stMarch, 2005. 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:PeriodicityThe answer is b.

Question

Answer

Explanation:
The concept of conservatism in accounting requires that the assets and revenues should be not overstated and liabilities and expenses should not be understated. In this case, the businessman purchased goods for Rs. 25,00,000 and sold 70% of such goods during the accounting year ended 31st March, 2005. The market value of remaining goods was Rs. 5,00,000.

The businessman valued the Closing stock at Rs. 5,00,000 and not at Rs. 7,50,000. This is because of the concept of conservatism. The reasons are:

• Certainty - The market value of Rs. 5,00,000 is certain, whereas the market value of Rs. 7,50,000 is not certain.

• Objectivity - The market value of Rs. 5,00,000 is more objective, whereas the market value of Rs. 7,50,000 is more subjective.

• Prudence - The concept of conservatism requires prudence in valuing the closing stock. In this case, valuing the closing stock at Rs. 5,00,000 is more prudent and conservative than valuing it at Rs. 7,50,000.

Therefore, the correct answer is option B, i.e. conservatism.

Answer

B because conservatism concept says that closing stock should be valued at cost or nrv whichever is lower where cost is 750000 and nrv is 500000

Answer

As per conservatism concept we can anticipate future loss but not profits . here market value is less than cost i.e we may occur losses in future .so the inventory is valued at market value.

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