Cost of inventory Rs. 1,00,000; Market Value Rs.80,000. If the inventory is valued at Rs.1,00,000, which of the following accounting concepts is violated?a)Money measurementb)Costc). Prudenced)PeriodicityCorrect answer is option 'C'. Can you explain this answer?

Question

Answer

Explanation:
The accounting concept that is violated in this scenario is Prudence.

Prudence concept:
The prudence concept states that while recording transactions, accountants should be cautious and not overestimate the profits or underestimate the losses. It is better to be conservative than aggressive while recording financial transactions.

In this scenario, the cost of inventory is Rs. 1,00,000 and the market value is Rs. 80,000. According to the prudence concept, the inventory should be valued at the lower of cost or market value. Therefore, if the inventory is valued at Rs. 1,00,000, it violates the prudence concept as the market value is lower than the cost.

If the inventory is valued at Rs. 80,000, it would be in compliance with the prudence concept and will be recorded conservatively.

Conclusion:
Hence, the correct answer is option C, Prudence.

Answer

Because this concept said that recorded assets in their  purchasing value .

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