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 .

Similar CA Foundation Doubts

A businessman purchased goods for Rs.25,00,000 and sold 80% of such goods during the accounting year ended 31st March, 2009. The market value of the remaining goods was Rs.4,00,000. He valued the closing Inventory at cost. He violated the concept of

A businessman purchased goods for Rs. 25,00,000 and sold 80% of such goods during the accounting year ended 31st March, 2010. The market value of the remaining goods was Rs. 4,00,000. He valued the closing inventory at cost. He violated the concept of

A businessman purchased goods of Rs 2500000 and sold 80% of such goods during the accounting year ended 31st march 2015. the market value of the remaining goods was Rs 400000. he valued the closing inventory at cost. he violated concept of

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

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