What is Detection risk?
According to International Auditing Standards detection risk is defined as follows: The risk that the procedures performed by the auditor to reduce audit risk to an acceptably low level will not detect a misstatement that exists and that could be material, either individually or when aggregated with other misstatements. In simple words detection risk is […]
What is Specific identification method of inventory valuation?
Specific identification method is just another method to value ending inventory of the business to be reported in the financial statements. IAS 2 permits the use of specific identification method. According to this method each identified items of inventory is assigned specific cost and hence the name specific identification. In simple words cost is attributed […]
What is accelerated depreciation method?
i-ask! | Have a question? Ask Tutor! What is meant by accelerated depreciation method? When such method is used and how many types are there for this method? And what is the position of accounting standards on such depreciation method? As the name suggests, the accelerated depreciation method accelerates the the recognition of depreciation […]
What is the difference between Inception of lease and Commencement of lease?
IAS 17 distinguishes between Inception and Commencement of lease and the two terms represent two different instances of time which may be occurring at different or the same date. Usually inception and commencement of the lease occur at the same date but if they are occurring at different dates then the two have significant effects […]
How to know that a lease is a Finance lease or Operating lease?
The core principle to distinguish or differentiate finance lease agreement from operating lease agreement is that if substantial risks and rewards incidental to the ownership of an asset are transferred under a lease agreement to the lessee (person acquiring the asset for use) from the lessor (the owner of the asset) then it is a […]
What is the difference between Finance lease and Operating lease?
According to IAS 17 two types of leases are identified namely Finance lease and Operating lease. The distinction between the two primarily resulted from the implications of one of the important accounting concept Substance over form. Finance lease is a lease agreement in which substantially all the risks and rewards incidental to ownership of an […]
Can we capitalize Tax amounts?
According to IAS 16 the purchase price of the asset includes the amount of non-refundable taxes i.e. such taxes which cannot be claimed back are capitalized and are included in the cost of the asset at the time of purchase. For example, when the asset is purchased or imported then buyer/importer is required to pay […]
Why Training Costs are not capitalized as cost of the asset?
First of all not every directly attributable cost can amount to capitalization as cost of the asset. IAS 16 requires more than just a cost to be directly attributable before it qualifies for capitalization as cost of the asset or to be included in the carrying amount of the non-current asset or fixed asset. According […]
Why LIFO is not permissible under IFRS?
After the revision of IAS 2 Inventories in 2003, LIFO was explicitly prohibited to be used by the entities following International Accounting Standards to prepare and present financial statements. Before this revision LIFO was available as allowed alternative i.e. an option if company wishes to use the inventory valuation method other than the preferred method. […]
What is the difference between Faithful representation and Fair presentation?
IASB framework provides conceptual guidance regarding preparation and presentation of financial statements whereas IAS 1 sets out the principles and rules for preparation and presentation of financial statements. So the difference between these two documents must be clear as framework does not amount to standard and is separate from International Accounting Standards. The provisions stated […]