A company XYZ Ltd. has made an investment of ₹ 16,000 in the shares of another company ABC Ltd. The…
Conservatism discourages recognising unrealised gains merely because an investment's market value has risen. Under this traditional convention, the increase from ₹ 16,000 to…
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A company XYZ Ltd. has made an investment of ₹ 16,000 in the shares of another company ABC Ltd. The market value of these shares at present is ₹ 16,800. Now, the accountant of XYZ Ltd. wants to show that the value of investment in the company's books of accounts as ₹ 16,800 instead of ₹ 16,000, however, an accounting convention restricts him from doing the same. This accounting convention is known as :
Answer and explanation
Correct answer B
Conservatism discourages recognising unrealised gains merely because an investment's market value has risen. Under this traditional convention, the increase from ₹ 16,000 to ₹ 16,800 is not treated as a realised gain.
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Madhya Pradesh SET (MP SET)