Accounting and finance
Soln 1a.
The concepts of conservation, also known as the concept of prudence is often stated as do not record the future income but record all possible losses. This means an accounting should follow a conservative approach, should record lowest possible value for assets and revenue and the highest possible value for liabilities and expenses. According to this principle, the principle of ‘anticipate no profit but provide for all probable losses ‘ should be applied. The valuation of stock-in -trade at a lower of cost or net realizable value and making the provisions for doubtful debts and discount debtors are the applications of this principle . In other words , the principle of conservatism requires that in the situation of uncertainty and doubt , the business transactions should be recorded in such a manner that the profits and assets are not overstated and the losses and liabilities are not understated. As a consequence of the application of this concept net assets are more likely to be understated than overstated, and income is more likely to be understated. It has been challenged by many writers on the ground that it starts in the way of fair determination of profit and the financial position of the business enterprises. Conservation must be applied rationally as over –conservation may results in misrepresentation . Nowadays, the conservatism principle is being replaced by the prudence principle which requires that the conservation principle should be applied rationally only in circumstances in which great uncertainty and doubt exists as the over – conservatism may result in misrepresentation.
Soln1b.
The Balance Sheet may be defined as “A Statement which sets out the assets and liabilities of a firm an institution as at a certain date. It shows the status of the business as at a given moment of time , in so far as accounting figures can show its
The concepts of conservation, also known as the concept of prudence is often stated as do not record the future income but record all possible losses. This means an accounting should follow a conservative approach, should record lowest possible value for assets and revenue and the highest possible value for liabilities and expenses. According to this principle, the principle of ‘anticipate no profit but provide for all probable losses ‘ should be applied. The valuation of stock-in -trade at a lower of cost or net realizable value and making the provisions for doubtful debts and discount debtors are the applications of this principle . In other words , the principle of conservatism requires that in the situation of uncertainty and doubt , the business transactions should be recorded in such a manner that the profits and assets are not overstated and the losses and liabilities are not understated. As a consequence of the application of this concept net assets are more likely to be understated than overstated, and income is more likely to be understated. It has been challenged by many writers on the ground that it starts in the way of fair determination of profit and the financial position of the business enterprises. Conservation must be applied rationally as over –conservation may results in misrepresentation . Nowadays, the conservatism principle is being replaced by the prudence principle which requires that the conservation principle should be applied rationally only in circumstances in which great uncertainty and doubt exists as the over – conservatism may result in misrepresentation.
Soln1b.
The Balance Sheet may be defined as “A Statement which sets out the assets and liabilities of a firm an institution as at a certain date. It shows the status of the business as at a given moment of time , in so far as accounting figures can show its