The correct answer is: C. Cost price or market price, whichever is less.
The closing stock is valued at the lower of cost price or market value. This is because the company wants to show the lowest possible value for its inventory on its balance sheet. If the market value of the stock is lower than its cost price, then the company will show a loss on its income statement. However, if the market value of the stock is higher than its cost price, then the company will show a gain on its income statement.
The cost price of the stock is the price that the company paid for it. The market value of the stock is the price that it could be sold for in the open market. The lower of cost price or market value is used to value the closing stock because it is the most conservative approach. This means that the company is showing the lowest possible value for its inventory, which will give a more accurate picture of its financial position.
Here are some additional details about each option:
- Option A: Cost price. This is the price that the company paid for the stock. It is the most conservative approach to valuing the closing stock, but it may not be the most accurate. This is because the market value of the stock may have changed since the company purchased it.
- Option B: Market value. This is the price that the stock could be sold for in the open market. It is a more accurate approach to valuing the closing stock, but it may not be the most conservative. This is because the market value of the stock may fluctuate, and the company may not be able to sell the stock at its current market value.
- Option C: Cost price or market price, whichever is less. This is the approach that is used to value the closing stock. It is the most conservative approach that is also accurate.