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CMA Foundation · Fundamentals of Financial and Cost Accounting · Accounting Principles, Concepts and Conventions

A Pune-based firm has followed the same method of valuing inventory for several years so that its yearly results can be compared. Which accounting convention does this practice follow?

The practice follows the convention of consistency. Using the same inventory valuation method year after year makes the results of different periods comparable. Conservatism concerns providing for probable losses, materiality concerns significance of items, and full disclosure concerns revealing relevant information.

  1. AConsistencyCorrect
  2. BConservatism
  3. CMateriality
  4. DFull disclosure

Explanation

Applying the same accounting policies from one period to the next makes financial statements comparable across years. This is the convention of consistency. Conservatism deals with anticipating losses, not with uniform methods over time.

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