Tutorial_5.pptx - TUTORIAL 5 1 WHAT IS AN ACCOUNTING POLICY...

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TUTORIAL 5
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1. WHAT IS AN ACCOUNTING POLICY? Accounting policies are the specific principles, base, conventions, rules and practise applied by an entity in preparing and presenting financial statements. Examples of accounting policies: Timing of recognition of assets (risk and reward), liabilities, expenses and income (stage/percentage of completion under construction contract) Basis of measurement of non-current assets such as cost model and revaluation model Accrual basis of preparation of financial statements Depreciation policy(straight line and reducing balance method) Valuation of inventory (FIFO,LIFO,WAM)
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2. HOW DOES AN ENTITY SELECT AND APPLY AN ACCOUNTING POLICY? Management should consider the applicability of the following sources in descending order: -MFRS standards and interpretations dealing with similar and related issues; and -the definitions, recognition criteria and measurement concepts for assets, liabilities, income and expenses in the conceptual Framework. In addition, management may also consider: the most recent pronouncement of other standard-setting bodies that use a similar conceptual framework other accounting literature, and industry practice
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3. WHAT IS THE PURPOSE OF MAINTAINING CONSISTENCY OF ACCOUNTING POLICIES? In maintain the consistency of an accounting policy, the user of financial statements should be able to compare the financial statements of an entity over time, and therefore the same accounting policies are applied within each period and from one period to the next. In case the entity proposes or is required to change its accounting policy, it must observe the restriction and requirements in MFRS 108.
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4. WHEN CAN ACCOUNTING POLICIES BE
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