MATERIALITY PRINCIPLE OF ACCOUNTING

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ALL ABOUT ACCOUNTING :- 14th BLOG

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Hi freinds 🙏.,
           Today's discuss 9th accounting principle.

So let's discuss.,
 
  ★ MATERIALITY :- 
The materiality principle. The materiality principle states that an accounting standard can be ignored if the net impact of doing so has such a small impact on the financial statements that a user of the statements would not be misled.
A classic example of the materiality concept is a company expensing a rs.2000 wastebasket in the year it is acquired instead of depreciating it over its useful life of 10 years. The matching principle directs you to record the wastebasket as an asset and then report depreciation expense of $20 a year for 10 years.
  * Calculation of materiality :- 
The normal materiality evaluation process is to review each item individually and then all items in the aggregate based on the working materiality levels for each company to determine whether to adjust the financial statements. ... Each is based on the 5% rule as a calculated percentage of that materiality limit.

  * Why do we calculate materiality ?
In determining the relevance of financial information, regard needs to be given to its materiality. Information is said to be material if omitting it or misstating it could influence decisions that users make on the basis of an entity's financial statements.

  * Significance of materiality :- 
1. Reliability.
2. Completeness.
3. Relevance.

  * Users of materiality principle :- 
1. Shareholders and investors.
2. Lenders and Bond raters
3. Parties to merger and acquisition






★Remaining 4 principles discuss in 15th blog..★
                                   
                                  ★So wait my 15th blog.....★

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Comments

  1. UnknownJune 10, 2020 at 3:22 AM

    VERY HELPFUUL CONTENT FOR ALL BUSINESS ENTITES.,THANK YOU SIR JI

    ReplyDelete

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