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(72)-ACCOUNTING POLICIES & ESTIMATES

Friday, January 8, 2010

Accounting Policies & Estimates

Accounting policies

An accounting policy is concerned with the,
  • Recognition
  • Selection of measurement base and
  • Presentation

Of assets, liabilities, gains and losses of an entity

The most appropriate accounting policy should be selected in order give a true and fair view. Two points should be noted about this approach.

  1. Accounting policies must confirm to the relevant accounting standards. They can be changed only where standard allows choice.
  2. Accounting policies should not be chopped and charged on an ad hock basis. A balance must be struck to achieve consistency and reliability.

Accounting estimates

An accounting estimate is the method used to establish the monetary value of assets, liabilities, gains and losses using the measurement base selected base selected by the accounting policy.

Accounting estimates involve the use of judgment when applying an accounting policy.

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