06-06-2009, 08:16 PM
Irfan, Matching and prudence are two different things & they can in non of the case may collide each other.
however Contistency & Prudence may collide each other some times but note the following in this regard,
<b>Consistency of presentation</b>Companies are required to present the same methods consistently ineach successive period,but it also suggests to use alternative, <b>if it will be more beneficial to apply other method.</b> In such case company may also use method other than consistently used method.
Now about your question ,i agree that inventory is recorded on lower of cost or NRV/MV due to the prudence, at this moment it seems to be inconsistent for that company which records inventory at cost but started applying Lower of cost or MV/NRV ,THIS is inconsistency but companies are allowed to do so as per standards on the one hand & Prudence is having priority over other principal on the other hand.
Also in this case, i.e. MV of inventory is lower but company records it on cost basis then such a company will either sustain loss or will have lower profit than anticipation, because company will not be in a position to attain orignal profit if it anticipates profit on cost basis.
Best Regards,
Faisal Javaid
however Contistency & Prudence may collide each other some times but note the following in this regard,
<b>Consistency of presentation</b>Companies are required to present the same methods consistently ineach successive period,but it also suggests to use alternative, <b>if it will be more beneficial to apply other method.</b> In such case company may also use method other than consistently used method.
Now about your question ,i agree that inventory is recorded on lower of cost or NRV/MV due to the prudence, at this moment it seems to be inconsistent for that company which records inventory at cost but started applying Lower of cost or MV/NRV ,THIS is inconsistency but companies are allowed to do so as per standards on the one hand & Prudence is having priority over other principal on the other hand.
Also in this case, i.e. MV of inventory is lower but company records it on cost basis then such a company will either sustain loss or will have lower profit than anticipation, because company will not be in a position to attain orignal profit if it anticipates profit on cost basis.
Best Regards,
Faisal Javaid
