Fin621 GDB No. 1 solution
Tuesday, April 19, 2011 Posted In Fin Edit ThisSemester “Spring 2011”
“Financial Statement analysis(FIN621)”
This is to inform that next Graded Discussion Board (GDB) will be opened according to the following schedule
Schedule
Opening Date and Time
April 18 , 2011 At 12:01 A.M. (Mid-Night)
Closing Date and Time
April 20, 2011 At 11:59 P.M. (Mid-Night)
Topic/Area for Discussion
“ Accounting Principles and its Application in Financial Statements ”
Note: The discussion question will be from the area/topic mentioned above. So start learning about the topic now.
“Financial Statement analysis(FIN621)”
This is to inform that next Graded Discussion Board (GDB) will be opened according to the following schedule
Schedule
Opening Date and Time
April 18 , 2011 At 12:01 A.M. (Mid-Night)
Closing Date and Time
April 20, 2011 At 11:59 P.M. (Mid-Night)
Topic/Area for Discussion
“ Accounting Principles and its Application in Financial Statements ”
Note: The discussion question will be from the area/topic mentioned above. So start learning about the topic now.
“ABC Company Limited purchased one dozen energy saver bulbs of worth Rs. 3,500 for using in administration department. These energy saver bulbs have expected life of three years. According to CEO of the company, the cost of Rs.3,500 must be recorded as an ASSET because energy saver bulbs are going to benefit the company for more than one year whereas the accountant has already recorded the entire amount to an expense account in the income statement.
Required: Do you think that the accountant is right? Justify your answer by mentioning the accounting concept behind the treatment of this purchase. ”
Note: Your comments should not be more than 30 words.
Pls restrict your answer to 30 words only.
According to me Accountant is Right.
Because of materiality accounting principle or guideline, an accountant might be allowed to violate another accounting principle if an amount is insignificant. Professional judgement is needed to decide whether an amount is insignificant or immaterial.
An example of an obviously immaterial item is the purchase of a $150 printer by a highly profitable multi-million dollar company. Because the printer will be used for five years, the matching principle directs the accountant to expense the cost over the five-year period. The materiality guideline allows this company to violate the matching principle and to expense the entire cost of $150 in the year it is purchased. The justification is that no one would consider it misleading if $150 is expensed in the first year instead of $30 being expensed in each of the five years that it is used.
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The Accountant is right Becasue of:-
matching Principle which shows the significanse relationship of Revenue and expenses. Expensese are incurred fro the purpose of producing revenue. For a period income statement Revenues should be offset by all the expenses incurred in producing that revenue.
There is also timing factor , In matching principle fro preparing income statement it is important to offset the period (month) expenses against that month revenues. And also cash payement and expenses are not identical. Cash payement for expenses may occur befoir afer or ath the same time (Period) that expense helps to produce revenue
Required: Do you think that the accountant is right? Justify your answer by mentioning the accounting concept behind the treatment of this purchase. ”
Note: Your comments should not be more than 30 words.
SOLUTION:
Pls restrict your answer to 30 words only.
According to me Accountant is Right.
Because of materiality accounting principle or guideline, an accountant might be allowed to violate another accounting principle if an amount is insignificant. Professional judgement is needed to decide whether an amount is insignificant or immaterial.
An example of an obviously immaterial item is the purchase of a $150 printer by a highly profitable multi-million dollar company. Because the printer will be used for five years, the matching principle directs the accountant to expense the cost over the five-year period. The materiality guideline allows this company to violate the matching principle and to expense the entire cost of $150 in the year it is purchased. The justification is that no one would consider it misleading if $150 is expensed in the first year instead of $30 being expensed in each of the five years that it is used.
:::::::::::::::::::::
The Accountant is right Becasue of:-
matching Principle which shows the significanse relationship of Revenue and expenses. Expensese are incurred fro the purpose of producing revenue. For a period income statement Revenues should be offset by all the expenses incurred in producing that revenue.
There is also timing factor , In matching principle fro preparing income statement it is important to offset the period (month) expenses against that month revenues. And also cash payement and expenses are not identical. Cash payement for expenses may occur befoir afer or ath the same time (Period) that expense helps to produce revenue
