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

Which of the following is an example of the convention of full disclosure?

Showing a pending court case as a note to the financial statements illustrates full disclosure, because material information that may influence users must be reported even when no entry is passed. The other choices illustrate materiality, conservatism and consistency respectively.

  1. AWriting off a Rs 100 pencil box as an expense in the year of purchase
  2. BValuing stock at the lower of cost and net realisable value
  3. CShowing a pending court case against the firm as a note to the financial statementsCorrect
  4. DUsing the straight line method of depreciation every year

Explanation

Full disclosure requires that all material information that could influence users' decisions be reported, including contingent liabilities, through notes. The first option reflects materiality, the second conservatism and the fourth consistency.

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