Question

As per accounting standards, inventory is to be valued at cost or net realizable value. Which of the accounting principle forms the basis of this standard? 

A Consistency Correct Answer Incorrect Answer
B Conservatism Correct Answer Incorrect Answer
C Going concern Correct Answer Incorrect Answer
D Accrual concept Correct Answer Incorrect Answer
E Matching concept Correct Answer Incorrect Answer

Solution

According to the Conservatism (Prudence) principle, expected losses should be recorded but gains should not. Hence, inventory is valued at lower of cost or net realizable value to avoid overstating assets.

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