Question

Which of the following is an application of​ conservatism? A. reporting inventory at the lower of cost or market B. using the same depreciation method from period to period C. reporting all relevant information in the financial statements D. reporting only material amounts in the financial statements

Answer 1

Answer:

The correct answer is letter "A": reporting inventory at the lower of cost or market.

Explanation:

Accounting Conservatism is a doctrine that involves the implementation of accounting laws with a high degree of verification. Accountants practicing conservatism must support approaches that are the most favorable in the company's income statement. If the accountant has two choices to choose from when faced with an accounting problem, the one that produces lower numbers should be chosen.

When it comes to inventory valuation, accounting conservatism states that the lower historical or market cost must be selected while recording the information in the company's ledgers.