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Concept Rule Example
Objectivity factual information is preferred Wherever possible, accounting information should George owes a van that cost £8000, a number of
because it is likely to be beyond dispute. be facts rather than someone's opinion. years ago and can sell it for £23000 but wants
Accountants prefer facts rather that opinions, £100000.
because normally facts can be easily agrees The balance sheet value that George should use is
where someone's opinion is likely to be disputed £8000 for two reasons.
1. £23000 is going on a nongoing concern
2. £100000 is a very subjective valuation on
Cost Assets should be valued at cost. This is because Sally was told that office equipment was originally
this is an objective valuation rather than a matter of £12000 and depreciation £8000 has been charged
opinion. and would cost £14500 to replace and wonders
whether the equipment value should be adjusted to
take into account of the increasing cost of
replacement. £14500 as a value is a matter of
opinion. $12000 can be estimated by the evidence
in invoices. The business should continue to value
the office equipment objectivity using cost.
Going Concerned The assumption that a Those preparing financial statements are to Land and building cost £100,000 They could be
business will continue to trade for the foreseeable assume that the business will continue to trade for sold for £220,000.
future. the foreseeable future (at least one year). As a Machinery cost £42,000 They have a current
result the possible resale value of assets can scrap value of £3,000.
defiantly be ignored, because the assumption is Vehicles cost £86,000 they could be sold for
that the assets are not for sale. In other words, the £55,000.
going concern concept supports the idea of using Warehouse costs £75,000 it has a current
cost as the basis of valuing assets. market value of £310,000.
The assets should be shown on the balance sheet
Land and building at cost £100,000
Machinery at cost £42,000
Vehicles at cost £86,000
Warehouse at cost £75,000
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Accruals expenses and revenues are matched Profits should be calculated for a period of time, Wages 48000
for a time period when calculating a profit. ensuring that revenue for that period is matched Rents 5500
with the expenses incurred in earning revenue. Rates 1800
The Accruals concept is the fundamental rule Insurance 2100
about how profits should be calculates.…read more
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into thinking that the business is doing better than it
Materiality if the amount involved is relatively The materiality concept concerns the treatment of A business purchases a ruler. The ruler costs 45p.
insignificant, then the usual accounting treatment the certain items when preparing final accounts It is estimated that the ruler should last for three
of an item can be set aside. and balance sheets. The rule requires that care years.…read more