Exercises · Q10
Q.State which accounting concept or convention is being applied in each of the following situations:
(i) A company writes off the cost of a ₹150 stapler as an expense immediately instead of capitalising and depreciating it over years.
(ii) A firm continues to prepare its accounts assuming it will operate next year too, despite a temporary cash shortage.
(iii) A company discloses, in a note, a lawsuit against it that could result in a significant liability, even though the case is not yet decided.
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Start your 14-day free trial to unlock the full solution →- Convention of Materiality. A ₹150 stapler is too insignificant an amount to be worth the effort of tracking as a fixed asset and depreciating year after year; materiality permits such trivial items to be written off immediately as an expense, since the cost of precise treatment would exceed any benefit to users of the accounts.
- Going Concern Concept. A temporary cash shortage does not, by itself, indicate that the business intends to or will be forced to close down or curtail operations significantly; the accounts continue to be prepared on the assumption of continued operation unless there is genuine, significant doubt about the entity's ability to continue. …
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