Creating Provision against fluctuation in the price of

Solution

Creating a provision for fluctuation in the price of investments means anticipating a possible fall in the value of investments and adjusting accounts accordingly. This follows the: Convention of Conservatism (Prudence) “Anticipate no profits, but provide for all possible losses.” • Potential losses from decrease in investment value are recorded  • Potential gains from increase in value are not recorded Other options do not apply: • Full disclosure → requires clear reporting of all relevant information. • Materiality → focuses on the significance of an item. • Consistency → using the same accounting methods year to year.