Question

year.
A trader purchases goods for Rs. 2500000,
of these 70% of goods were sold during the
At the end of 31st December 2009, the
market value of such goods were Rs.
500000. But the trader recorded in his books
for Rs. 750000. Which of the following
concept is violated.
Select one:
a. Conservatism
b. Consistency
c. None of these
d. Money measurement​

Answer 1

Answer:

Option A is the correct answer for your question.

Answer 2

a)Conservatism

As per the provision of conservatism, the entity should recognize any certain future loss in advance and doesn't record any future profit till it gets recognize.

Inventory is to be valued at cost or NRV whichever is lower.

here, in this case, a trader sold its 70% of goods that is ₹2500000*70% =

₹1750000 and remaining closing stock valued at ₹750000 but its market price get reduced and values to ₹500000 and entity do not follow the conservatism principle and it records the closing stock at ₹750000 instead of ₹500000.