Which of the following will not lead to creation of secret reserve?
Correct answer: C. Goods sent on consignment being shown as actual sales
- A. Undervaluation of closing stock
- B. Charging capital expenditure to revenue
- C. Goods sent on consignment being shown as actual sales
- D. Charging higher rates of depreciation on fixed assets than actually required
Explanation
Showing consignment goods as actual sales overstates sales and profit rather than concealing profit through a secret reserve. Undervaluing stock, overstating depreciation, or charging capital costs to revenue can suppress reported profit and create such a reserve.
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About Accounting Principles
Accounting principles explain the rules used to record, classify and report business transactions. Coverage includes the accounting equation, double-entry system, accrual and cash bases, matching and prudence concepts, consistency, going concern, business entity, and the difference between capital and revenue items.
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