Page 52 - DMGT104_FINANCIAL_ACCOUNTING

Financial Accounting

Notes (b) Consistency: It is assumed that accounting policies are consistent from one period to
another.
(c) Accrual: Revenues and costs are accrued, that is, recognised as they are earned or
incurred (and not as money is received or paid) and recorded in the financial
statements of the periods to which they relate. (The considerations affecting the
process of matching costs with revenues under the accrual assumption are not dealt
with in this Statement.)

Task Find out the legal status of accounting standards in India.

Nature of Accounting Policies

11. The accounting policies refer to the specific accounting principles and the methods of
applying those principles adopted by the enterprise in the preparation and presentation
of financial statements.
12. There is no single list of accounting policies which are applicable to all circumstances. The
differing circumstances in which enterprises operate in a situation of diverse and complex
economic activity make alternative accounting principles and methods of applying those
principles acceptable. The choice of the appropriate accounting principles and the methods
of applying those principles in the specific circumstances of each enterprise calls for
considerable judgment by the management of the enterprise.
13. The various statements of the Institute of Chartered Accountants of India combined with
the efforts of government and other regulatory agencies and progressive managements
have reduced in recent years the number of acceptable alternatives particularly in the case
of corporate enterprises. While continuing efforts in this regard in future are likely to
reduce the number still further, the availability of alternative accounting principles and
methods of applying those principles is not likely to be eliminated altogether in view of
the differing circumstances faced by the enterprises.
Areas in which Differing Accounting Policies are Encountered

14. The following are examples of the areas in which different accounting policies may be
adopted by different enterprises.
(a) Methods of depreciation, depletion and amortisation
(b) Treatment of expenditure during construction

(c) Conversion or translation of foreign currency items
(d) Valuation of inventories
(e) Treatment of goodwill
(f) Valuation of investments
(g) Treatment of retirement benefits
(h) Recognition of profit on long-term contracts

(i) Valuation of fixed assets
(j) Treatment of contingent liabilities
15. The above list of examples is not intended to be exhaustive.

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