Accounting policy choices - Accounting policy choices Background to accounting policy choices What is an accounting policy An accounting policy is a

Accounting policy choices - Accounting policy choices...

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Accounting policy choices Background to accounting policy choices What is an accounting policy? An accounting policy is a decision made in advance about how, when and whether to record or recognize something. Choosing the location of an account in the financial statements is making an accounting policy choice . Choices in accounting methods 1. Inventory cost flow assumptions – FIFO, LIFO and WA 2. Valuing non-current assets: - Depreciation method (straight-line, reducing-balance, units- of-production) - Accounting for long-term investments (cost method, revaluation method etc.) 3. Balance sheet assumptions - Should we capitalize (add to asset account) or expense (add to income statement). - Valuing receivables (estimating for ADD), a high ADD may overstate expenses (increases Bad Debt Expense). - Product development expenditures – capitalize or expensed management discretion. - Computing amortization on intangible assets altering the life of the intangible etc. Limitations of accounting statements Generally relates to the detail in which management discloses certain expenses, segments and liabilities. - Whether to disclose details of certain operating expenses - How much to disaggregate financial information for segments of a company - Amount of detail in accounting policy choice note - Contingent liabilities how much detail? Accounting estimates: - ADD influences expenses and A/R - Useful lives of plant and equipment, intangible assets greatly influences amortization rates - Valuation of assets when acquiring another company good will - Provisions for warranty liability and employee entitlements provisions
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Events or transactions recognized (accounting recognition decisions): - Write-down for inventory obsolescence - Capitalization of cost of asset betterments - Recognition of intangible assets -
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