topic 4
accounting policies, accounting estimates
state whether each of the following is an accounting policy or an accounting estimate for company A:
a) the useful life of depreciable plant is determined as being 6 years.(estimate)
b) company A's management determines that it will provide for all invoices in transit at the end of the reporting period.(policy)
c) Company A determines that it will calculate its warranty provision using past experience of defective products.(accounting policy)
d) the current year's warranty provision is caculated by providing for 1% of current year sales, base on last year's warranty claimed amounting to 1% of sales.(accounting estimate)
notes:
accounting estimate-- a judgement applied in determining the carrying amount of an item in the financial statement. (Eg. estimating inventory obsolescence in line with the policy re inventory valuation)(other examples include estimating the provision for bad debts, useful life estimates for non-current assets)
accounting policies
--principles or conventions applied in statement preparation
--Eg. Valuation of inventory at lower of cost or NRV is an accounting policy.
accounting errors
--Omission or misstatement
--may arise from mathematical errors, oversight, misinterpretation of facts or fraud. |
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