FIN621 GDB Solution & Discussion Spring 2011

[+ M.Tariq Malik]

Pls restrict your answer to 30 words only.

According to me Accountant is Right.

Because of materiality accounting principle or guideline, an accountant might be allowed to violate another accounting principle if an amount is insignificant. Professional judgement is needed to decide whether an amount is insignificant or immaterial.

An example of an obviously immaterial item is the purchase of a $150 printer by a highly profitable multi-million dollar company. Because the printer will be used for five years, the matching principle directs the accountant to expense the cost over the five-year period. The materiality guideline allows this company to violate the matching principle and to expense the entire cost of $150 in the year it is purchased. The justification is that no one would consider it misleading if $150 is expensed in the first year instead of $30 being expensed in each of the five years that it is used.

[+ M.Tariq Malik]

Fin 621 GDB 1. Idea Solution

According to me Accountant is Right.

Because of materiality accounting principle or guideline, an accountant might be allowed to violate another accounting principle if an amount is insignificant. Professional judgement is needed to decide whether an amount is insignificant or immaterial.

An example of an obviously immaterial item is the purchase of a $150 printer by a highly profitable multi-million dollar company. Because the printer will be used for five years, the matching principle directs the accountant to expense the cost over the five-year period. The materiality guideline allows this company to violate the matching principle and to expense the entire cost of $150 in the year it is purchased. The justification is that no one would consider it misleading if $150 is expensed in the first year instead of $30 being expensed in each of the five years that it is used.

[+ M.Tariq Malik]

In my openion. The accountant made wrong entry. because this is capital expenditure. which spreads of life is 3 year. so Its cost will divided in 3 year and expense charge to equal for every financial period.

[+ M.Tariq Malik]

The Accountant is right Becasue of:-
matching Principle which shows the significanse relationship of Revenue and expenses. Expensese are incurred fro the purpose of producing revenue. For a period income statement Revenues should be offset by all the expenses incurred in producing that revenue.
There is also timing factor , In matching principle fro preparing income statement it is important to offset the period (month) expenses against that month revenues. And also cash payement and expenses are not identical. Cash payement for expenses may occur befoir afer or ath the same time (Period) that expense helps to produce revenue.

[Waseem Arbab]

here instructor ask about accounting concept and not ask about accounting principle so the accountant is wrong because these are prepaid expense which use 3 years in accounting year which come in balance sheet, current asset side