Gujarat BoardEnglish MediumSTD 11 CommerceAccountP2 C6 Conventions, Assumption. Concepts and Principles ofAccounting3 Marks
Question
Write short-note on: $(1)$ Materiality Concept:
✓
Answer
This concept is associated with the principle of full disclosure. According to full disclosure principle, all material information should be disclosed in the financial statements. If may also imply that immaterial information may not be disclosed. Materiality depends on the relevance liability of information. Information will be considered material only when the same is relevant & significantAccording to this concept any information would be shown in detail in financial statementonly when the same is useful to the users of such information e.g. In a factory, when small tools like small hammers, nails, screws, screw drivers, dismiss etc. are used. There is no need to maintain separate accounts for each of such items. Only one A/c of loose tools would serve the purpose. Similarly instead of keeping separate accounts for pencil, erasers, pen, etc. only one Ale styled as Stationery exp. A/c shall be maintained.
Materiality also depends on the amount involved in a transaction. In schedule-III to theCompanies Act, $2013$, general instructions for preparation of statement of P&L states that a company shall disclose by way of notes additional information regarding aggregate expenditure & income on any item of income or exenditure which exceeds one percent of the revenue from operations or $Rs.1,00,000$ whichever is higher. It is not possible to give a definite rule for determining materiality in each case. It depends upon the quantum of amount, relevance or importance of a transaction or information in the business. In terms of materiality concept, an accountant need not attempt to record events so insignificant that the work of recording them is not justified by the usefulness of the results. Whether an event of information or transaction is material or not also depend upon the judgement and common sense of the accountant.
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