Gujarat BoardEnglish MediumSTD 11 CommerceAccountP2 C6 Conventions, Assumption. Concepts and Principles ofAccounting3 Marks
Question
Explain the concept of materiality with examples.
✓
Answer
This concept is associated with the principle of full disclosure. According to full disclosure concept all material information should be disclosed in financial statements. Materialiltydepends upon relevance and reliability of information. Thus, information would be considered as material only. Examples:
$(1)$ When small tools like small hammers, nails, screws, screw drivers, dismiss etc. are used in a factory, there is no need to maintain separate accounts for each of such items. Only one account of Loose Tools would serve the purpose.
$(2)$ Instead of keeping separate account for pencil, erasers, pens, carbon paper etc. only one account of stationery expenses account shall be maintained because it is not necessary to maintain Separate A/c for small & immaterial items.
$(3)$ Purchase of dustbin for $Rs.80$ should be considered as revenue expense instead of considering the same to be a fixed asset.
$(4)$ Any item of income and expenditure which does not exceed one percent $(1\%)$ of the revenue from operation or $Rs.1,00,000$ whichever is higher is not required to be separately shown in the statement of profit & loss of a company, unless specifically mandated otherwise.
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