One of your clients is a beef farmer. She informs you that the price of beef has fallen dramatically over the past few months and that she expects it to fall even further over the next three months. She therefore argues that the prudence principle should be applied to the valuation of her beef herd, stating that it should be valued at the lower of cost or net realizable value; in this case at the latter value. She further asserts that this treatment is reasonable on the grounds that it will reduce her profit for tax purposes by the loss in value of her herd.
One of your colleagues has advised you that this may be a misinterpretation of the prudence principle and could contravene the neutrality principle. Discuss.