Question

discuss the convention of conservatism and explain its effect on the valuation of stock-in-trade​

Answer 1

Answer:

The convention of conservatism will have the effect of understatement of assets. According to conservatism principle all the anticipated losses and expenses should be taken into account in advance, but all the anticipated incomes should not be recorded in advance. The closing stock is valued at cost or net realizable value which ever is lower, thereby understating the assets and overstating the liabilities

Explanation:

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