S1: Prudence concept requires recognizing anticipated losses but not anticipated profits. S2: Materiality concept allows ignoring trivial items. Which statement(s) is/are correct?
A. Both S1 and S2
B. S1 only
C. S2 only
D. Neither S1 nor S2
Answer: Option A
Solution (By JKSSB Mock Tests)
Prudence ensures conservatism by providing for all foreseeable losses but not anticipating profits. Materiality allows accountants to bypass strict accounting rules for insignificant items. Both are correct.
Assertion (A): Under Ind AS 32, a preference share that mandates redemption by the issuer is classified as a financial liability. Reason (R): The issuer has a contractual obligation to deliver cash or another financial asset to the holder. Choose the correct option.
A.Both A and R are true but R is NOT the correct explanation of A
B.A is true but R is false
C.Both A and R are true and R is the correct explanation of A
Explanation:
Ind AS 32 requires classifying an instrument based on its substance. If a preference share is mandatorily redeemable, the issuer has an unavoidable contractual obligation to pay cash, making it a financial liability, not equity. R correctly explains A.
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