A manufacturing concern has investments, the market value of which has declined substantially. However, it is still showing them in its books at the cost. Which accounting principle has been violated here?
A. Historical Cost Principle
B. Full Disclosure Principle
C. Accrual Concept
D. Prudence Concept
(1 marker question)
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A.historical cost principle
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A manufacturing concern has some investment which is shown still at cost however its market price substantially decline then accounting principles which is called as a "prudence principle" has been violated.
- Prudence concept is the key accounting principle that makes sure that assets and income are not overstated.
- Necessary Provision is made for all known expenses and losses.
- Here, investment at overstated in books however the market price decline.
- As per the prudence concept We should reduce the investment to the market price.
Answer:
(D) Prudence Concept
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