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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 measurement
- b)Conservatism
- c)Cost
- d)Periodicity
Correct answer is 'B'. Can you explain this answer?
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A businessman purchased goods for Rs. 25,00,000 and sold 70% of such g...
The answer is 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
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A businessman purchased goods for Rs. 25,00,000 and sold 70% of such g...
Explanation:
The businessman purchased goods for Rs. 25,00,000 and sold 70% of such goods. The market value of the remaining goods was Rs. 5,00,000. The closing stock was valued at Rs. 5,00,000 and not at Rs. 7,50,000 due to conservatism.
Conservatism:
Conservatism is the principle of accounting that suggests that when there are two acceptable alternatives for accounting treatment, the one that will result in less profit or less asset value should be chosen. This principle is used to ensure that financial statements are not overstated, and that the financial position of a company is not misrepresented.
Reasons for Valuing Closing Stock at Rs. 5,00,000:
The closing stock was valued at Rs. 5,00,000 and not at Rs. 7,50,000 due to conservatism. There are a few possible reasons for this:
- Uncertainty: The market value of the remaining goods was Rs. 5,00,000, which means that there was uncertainty about the value of the goods. The businessman may have decided to be conservative and value the closing stock at the market value to avoid overvaluing the stock.
- Sales Volume: The businessman sold 70% of the goods during the accounting year, which means that the remaining 30% of the goods may have been slow-moving or difficult to sell. The businessman may have decided to be conservative and value the closing stock at the market value to avoid overvaluing the slow-moving goods.
- Cost of Goods Sold: The cost of goods sold during the accounting year was Rs. 7,50,000 (70% of Rs. 25,00,000), which means that the cost of the remaining 30% of the goods was Rs. 3,50,000. If the closing stock was valued at Rs. 7,50,000, the total cost of goods sold would be Rs. 11,00,000 (Rs. 7,50,000 + Rs. 3,50,000), which would result in a higher profit. The businessman may have decided to be conservative and value the closing stock at the market value to avoid overstating the profit.
Conclusion:
In conclusion, the businessman valued the closing stock at Rs. 5,00,000 and not at Rs. 7,50,000 due to conservatism. This principle ensures that financial statements are not overstated and that the financial position of a company is not misrepresented.
The businessman purchased goods for Rs. 25,00,000 and sold 70% of such goods. The market value of the remaining goods was Rs. 5,00,000. The closing stock was valued at Rs. 5,00,000 and not at Rs. 7,50,000 due to conservatism.
Conservatism:
Conservatism is the principle of accounting that suggests that when there are two acceptable alternatives for accounting treatment, the one that will result in less profit or less asset value should be chosen. This principle is used to ensure that financial statements are not overstated, and that the financial position of a company is not misrepresented.
Reasons for Valuing Closing Stock at Rs. 5,00,000:
The closing stock was valued at Rs. 5,00,000 and not at Rs. 7,50,000 due to conservatism. There are a few possible reasons for this:
- Uncertainty: The market value of the remaining goods was Rs. 5,00,000, which means that there was uncertainty about the value of the goods. The businessman may have decided to be conservative and value the closing stock at the market value to avoid overvaluing the stock.
- Sales Volume: The businessman sold 70% of the goods during the accounting year, which means that the remaining 30% of the goods may have been slow-moving or difficult to sell. The businessman may have decided to be conservative and value the closing stock at the market value to avoid overvaluing the slow-moving goods.
- Cost of Goods Sold: The cost of goods sold during the accounting year was Rs. 7,50,000 (70% of Rs. 25,00,000), which means that the cost of the remaining 30% of the goods was Rs. 3,50,000. If the closing stock was valued at Rs. 7,50,000, the total cost of goods sold would be Rs. 11,00,000 (Rs. 7,50,000 + Rs. 3,50,000), which would result in a higher profit. The businessman may have decided to be conservative and value the closing stock at the market value to avoid overstating the profit.
Conclusion:
In conclusion, the businessman valued the closing stock at Rs. 5,00,000 and not at Rs. 7,50,000 due to conservatism. This principle ensures that financial statements are not overstated and that the financial position of a company is not misrepresented.
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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)PeriodicityCorrect answer is 'B'. Can you explain this answer?
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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)PeriodicityCorrect answer is '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 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)PeriodicityCorrect answer is '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 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)PeriodicityCorrect answer is '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 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)PeriodicityCorrect answer is '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 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)PeriodicityCorrect answer is '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 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)PeriodicityCorrect answer is 'B'. Can you explain this answer?.
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