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Question

Which of the following principle applies when Provision for Doubtful Debts is required to be maintained in the books of accounts?

A Full Disclosure Correct Answer Incorrect Answer
B Materiality Correct Answer Incorrect Answer
C Conservatism Correct Answer Incorrect Answer
D Consistency Correct Answer Incorrect Answer
E Going concern Correct Answer Incorrect Answer

Solution

Conservatism principle states that record for the anticipated losses and Expenses. It is also called prudence principle. Example-Provision for Doubtful debt - The debtors have not defaulted yet, but if you are anticipating a default in the future, record it as an expense now. Also, Valuation of Inventory is done at Cost or Net Realizable Value, whichever is less.

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