WAEC Accounting 2014 Paper

Concept:Closing stock must be valued at cost, not at selling price.Profit on unsold stock is unrealised.Explanation:The branch stock account is kept at selling price.The debit balance is $\&D346,000$.The branch mark-up account is credited with $\&D62,000$.Thus, the closing stock includes a profit element that has not been earned through a sale.For balance sheet reporting, this profit element must be removed.Stock is therefore valued as: $\text{Cost price} = \text{Selling price} - \text{Markup}$.Valuing stock below the selling price prevents overstatement of assets and profit.Recognising profit before the sale is risky because unsold goods may not sell at the expected price.This cautious treatment of inventories follows the accounting concept of prudence.Answer:C. prudence