Accounting Multiple Choice Question – 12 February 2020

The valuation of stock at the lower of its cost and its net realisable value is an application of. . . 

Select ONE answer:

1. the consistency concept.
2. the going concern concept.
3. the prudence concept.
4. the accruals concept.

Show your workings to arrive at your answer, and explain and justify your reasons:

……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

This multiple-choice question is suitable for Accounting KS5 classes.

The answer is 3

1. Not correct
2. Not correct
3. Correct – The prudence concept means that profit should not be anticipated and all foreseeable losses. should be provided for as soon as they are foreseen. If stock was valued at an amount greater than its cost (NRV usually is greater than cost) it would include an element of profit, which, as the stock is not yet sold, would be an anticipation of profit. If stock was valued at its cost, when its net realisable value was lower, this would not be anticipating a foreseeable loss.
4. Not correct

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