Question

A firm purchased goods worth of
Rs.40,00,000 and sold 80% of such goods
during the accounting year ended 31st
march, 2014. The market value of
remaining goods was Rs.6,00,000 the firm
valued goods at Rs.8,00,000. Which
concept did the firm violate ?

Answer 1

Answer:

Conservatism convention- This convention ensures that uncertainties and risks inherent in business transactions should be given a proper consideration. as per this convention the accountants follow the rule 'anticipate no profit but provide for all possible losses'.

Purchase ==Rs. 25,00,00025,00,000; 80%80% of the goods have been sold.

So, cost of goods sold ==Rs. 20,00,00020,00,000

Stock remains at cost of Rs. 5,00,0005,00,000.

Since, market value of the stock left is Rs. 7,50,0007,50,000 which is higher than the cost of stock. So, stock is valued at Rs. 5,00,0005,00,000.