“Mr. A had been doing the business of manufacturing toys since 2008. During the
year 2013, a likely loss of 50,000 on account of bad and doubtful debts was foreseen
in the business. A likely gain of ` 25,000 on account of getting discount on creditors
was expected to be received. Mr. A ignored the loss due to bad debts and considered
the gain due to discount on creditors while preparing final accounts. Which
accounting concept will it violate ? Explain the concept.
Answers
Explanation:
Statement of Affairs
as on March …
Liabilities Amount (Rs) Assets Amount (Rs)
Sundry Creditors 80,000 Cash in Hand 15,000
Capital (Balancing Figure) 6,40,000 Cash at Bank 70,000
Sundry Debtors 1,20,000
Stock 2,40,000
Furniture 75,000
Machinery 2,00,000
7,20,000 7,20,000
Statement of Profit or Loss
for the year ended ….
Particulars Amount
(Rs)
Capital at the end of the year 6,40,000
Add: Drawings made during the year 90,000
Less: Additional capital introduced during the year 1,50,000
Adjusted capital at the end of the year 5,80,000
Less: Capital in the beginning of the year 5,00,000
Profit made during the year 80,000
Answer:
Convention of conservatism or purdence.
Explanation:
Accounting to this convention all anticipated loss should be recorded in the book of accounts but all anticipated or unrealised gain should be ignored.