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The Conservatism Convention follows the principle:
AAnticipate no profit, but provide for all possible losses
BRecognise profit immediately, losses later
CEqualise profit and loss every quarter
DDefer profit until cash received
Answer & Solution
Correct answer: A. Anticipate no profit, but provide for all possible losses
1. Per OCR: "This convention is based on the principle that Anticipate no profit, but provide for all possible losses."
2. Aim: avoid overstating profit; avoid distributing dividend out of capital.
3. Drives lower-of-cost-or-NRV inventory valuation.
_Source: ICMAI BoS CMA Foundation Paper 2 (FFCA) — Paper2_07042026.pdf, Module 1 §1.2.2.2 (page 18)_