WAEC Financial Accounting 2014 Question 43

Question 43

Accounting Concepts and Conventions

Use the following information to answer questions 42 and 43.
Branch stock account (at selling price): D346,000 – debit
Branch mark-up account: D62,000 – credit
The concept applied in answering questions 42 above is

A.matching.
B.consistency.
C.prudence.
D.entity.

Show the answer and explanation

Answer: C (prudence.)

Explanation

Stock is reduced to cost by removing the unrealised mark-up, so profit is not taken before the goods are sold. That is the prudence concept.