Multiple choice

X Ltd. purchased goods for Rs. 5 Iakh and sold 9/10th of the value of goods for Rs. 6 Iakh. Net expenses during the year were Rs. 25,000. The company reported its net profit as Rs. 75,000. Which of the following concepts is violated by the company?

  1. Conservatism Concept

  2. Realization

  3. Matching

  4. Accrual

Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

The company has sold 9/10th of goods, i.e. costing 5,00,000 x 9/10 = Rs. 4,50,000 plus expenses Rs. 25,000. Thus, cost of sales is Rs. 4,75,000. S.P = Rs. 6,00,000. Profit = Rs. 1,25,000. According to matching concept, profit should be calculated by comparing the current expenditures with current revenues.