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

On 31 March, Rao & Co. has stock A with cost Rs 50,000 and market value Rs 58,000, and stock B with cost Rs 70,000 and market value Rs 62,000. Applying conservatism by valuing each item separately at lower of cost and market value, what is the total closing stock value?

The closing stock is Rs 1,12,000. Item A is valued at its cost of Rs 50,000 and item B at its lower market value of Rs 62,000, since conservatism requires the lower of cost and market value for each item.

  1. ARs 1,12,000
  2. BRs 1,20,000Correct
  3. CRs 1,28,000
  4. DRs 1,08,000

Explanation

Item A: lower of 50,000 and 58,000 = 50,000. Item B: lower of 70,000 and 62,000 = 62,000. Total = 50,000 + 62,000 = Rs 1,12,000. Rs 1,20,000 is the total cost and is wrong because it ignores the fall in B, while Rs 1,28,000 wrongly takes the higher value of each item.

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