Question

state the accounting concept /convention involved in each of the following :
1.The caliber or quality of the mangement team is not disclosed in the balance sheet.
2.Assets are recorded in books at the cost incurred for acquisition of such assets.
3.closing stock is valued at lower of cost or market value
4.purchase of pen is treated as expenses.

Answer 1

The various accounting concepts involved in each of the following statements are,

1. The caliber or quality of the management team is not disclosed in the balance sheet because of the money measurement policy. This states that only those transactions have to be recorded that can be expressed in terms of money.
2. Assets are recorded in books at the cost incurred for the acquisition of such assets because of the cost concept.
3. Closing stock is valued at lower cost or market value because of the Prudence concept of accounting. This states that only anticipated losses have to be recorded not the profits.
4. The purchase of a pen is treated as an expense because it leads to a cash outflow.