Prudence concept applies conservative asset valuation

Steps:

• Note the rule: inventories valued at lower of cost or net realisable value (NRV).
• Recognize this avoids overstating assets by writing down if NRV < cost.
• Link to accounting concepts: this reflects caution in uncertain outcomes.
• Eliminate others: duality, historical cost, and matching do not directly address valuation conservatism.

Why D is correct:

• Prudence (conservatism) principle mandates anticipating losses (e.g., NRV decline) but not gains, ensuring reliable financial statements by using the lower value.

Why the others are wrong:

• A. Duality: governs double-entry bookkeeping for balanced accounts, not asset valuation.
• B. Historical cost: records assets at original purchase cost, ignoring NRV adjustments.
• C. Matching: allocates expenses to revenue periods, unrelated to inventory valuation.

Final answer: D