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Accountancy Help Required For Topic Elaboration
Aoa! I've opted Accountancy & Auditing for CE-2016. I need a bit help in understanding topics.
"Fundamental Accounting Principles, Concepts, Assumptions and Conventions: Nature and Scope of Accounting, Accrual/Matching Concept, Consistency of Presentation and Comparability, True and Fair View, Neutrality, Materiality, Prudence, Completeness, Understandability and Usefulness, Going Concern, and Substance over Form" In this I'm unable to understand what is meant by the concept of "Neutrality" & "Substance over form"............. I've started prep from Accounting by Sohail Afzal.......... In first chapter I've not seen these two concepts. Someone please tell what is meant by these two concepts? Thanks in anticipation. Looking for your replies soon! |
#2
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Examples A lease might not transfer ownership of the leased property to the leasee. In some circumstances, the lessee might nevertheless be required to record the leased item as an asset if the lessee intends to use the asset for a major portion of its useful life, or where the present value of the future lease payments is nearly equal to the fair value of the asset. Although the lessee is not the owner, the lessee may be required to record the asset as being owned by the lessee based on the underlying economic reality. Another example is the situation where a company short of cash sells its machinery to the bank and then leases the same property from the bank. This arrangement is called "sale and leaseback". Although the legal ownership has been transferred to the bank, the underlying economic reality for the company remain the same. Under the substance-over-form principle, the sale and subsequent leaseback are considered one transaction. Similarly, if two companies swap their inventories, then they will not be allowed to record sales because in substance no sales have occurred, even if they have entered into valid enforceable contracts. |
The Following User Says Thank You to amit837 For This Useful Post: | ||
Sana Satti (Tuesday, April 28, 2015) |
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Information contained in the financial statements must be free from bias. It should reflect a balanced view of the affairs of the company without attempting to present them in a favored light. Information may be deliberately biased or systematically biased. Deliberate bias Deliberate bias: Occurs where circumstances and conditions cause management to intentionally misstate the financial statements. Examples: Managers of a company are provided bonus on the basis of reported profit. This might tempt management to adopt accounting policies that result in higher profits rather than those that better reflect the company's performance inline with GAAP. A company is facing serious liquidity problems. Management may decide to window dress the financial statements in a manner that improves the company's current ratios in order to hide the gravity of the situation. A company is facing litigation. Although reasonable estimate of the amount of possible settlement could be made, management decides to discloses its inability to measure the potential liability with sufficient reliability. Systematic bias Systematic bias: Occurs where accounting systems have developed an inherent tendency of favoring one outcome over the other over time. Examples: Accounting policies within an organization may be overly prudent because of cultural influence of an over cautious leadership. |
The Following User Says Thank You to amit837 For This Useful Post: | ||
Sana Satti (Tuesday, April 28, 2015) |
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__________________
Rabbana zalamna anfusana wa in-lam taghfir lana wa-tarhamna la-naku-nanna mina-al-khasireen |
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Which chapters are necessary to prepare according to new syllabus for numerical problem in financial accounting .. i m preparing 1) partnership (admission, retirement and death) 2) Depreciation 3) Final accounts complete 4) ratio analysis 5) Cash flow 6) non-trading........ are these enough..???
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The Following User Says Thank You to Accountant For This Useful Post: | ||
Sana Satti (Wednesday, May 06, 2015) |
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