Which accounting concept prevents the anticipation of profits but allows recognition of all losses? MCQ with Answer and Explanation

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Which accounting concept prevents the anticipation of profits but allows recognition of all losses?

A. Prudence (Conservatism) concept

B. Materiality concept

C. Realization concept

D. Consistency concept

Answer: Option A

Solution (By JKSSB Mock Tests)

Prudence concept states that one should not anticipate profits but provide for all possible losses.

This question belongs to: Accountancy and Statistics Accountancy and Book Keeping

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Question #1

The term 'Prepaid Expense' is treated as:

A. A liability

B. An asset

C. An expense

D. A loss

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Correct Answer: Option B

Explanation:
Prepaid expenses are treated as current assets because they represent future economic benefits for which payment has already been made.

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Question #2

X and Y are partners sharing profits 3:2. Z is admitted for 1/4th share. New profit-sharing ratio will be:

A. 3:2:1

B. 6:4:5

C. 9:3:4

D. 9:6:5

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Correct Answer: Option D

Explanation:
Remaining share = 1 - 1/4 = 3/4 distributed in 3:2, so X = 3/4 * 3/5 = 9/20, Y = 3/4 * 2/5 = 6/20, Z = 5/20. Ratio = 9:6:5.

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Question #3

Which of the following is a variable cost?

A. Depreciation

B. Rent of factory

C. Direct material cost

D. Salary of manager

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Correct Answer: Option C

Explanation:
Direct material cost is a variable cost because it varies directly and proportionately with the level of production.

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