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CS Executive · Corporate Accounting and Financial Management · Introduction to Corporate Accounting

Sharma Traders closed the year with stock costing ₹4,80,000 whose net realisable value was ₹4,50,000. Applying the convention of conservatism (lower of cost and net realisable value), at what value should closing stock be shown?

Closing stock should be shown at ₹4,50,000. Conservatism requires valuation at the lower of cost, ₹4,80,000, and net realisable value, ₹4,50,000. The ₹30,000 anticipated fall in value is recognised as a loss in the current year.

  1. A₹4,80,000
  2. B₹4,50,000Correct
  3. C₹4,65,000
  4. D₹30,000

Explanation

Stock is valued at the lower of cost (₹4,80,000) and net realisable value (₹4,50,000), so ₹4,50,000. The ₹30,000 difference is an anticipated loss charged to profit. Using cost ignores the foreseeable fall in value.

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