1.13

WHICH THEORY WHEN?

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© Michael Allison. Author’s permission required for external use.

The Rules of Accounting

Relevance

Reliability

Comparability

Understandability

Entity

Historical cost

Going concern

Reporting period

Monetary unit

Conservatism

Consistency

Qualitative Characteristics Accounting Principles

1.13 WHICH THEORY WHEN?

© Michael Allison. Author’s permission required for external use.

In many instances the “right” answer will depend on how a

question is asked. The “right” answer for a question may be

the “wrong” answer if the question is put another way

Example:

Janet owns a business with a vehicle purchased for

$8,000 five years ago.

This week’s on carsales.com, similar vehicles are being

sold for $6,000.

Her sister needs a car urgently and has offered to pay

$8,200 for the vehicle.

The vehicle has always been valued at $8,000 in the firm’s

books.

1.13 WHICH THEORY WHEN?

Historical cost?

$8,000

Relevance?

$8,200

Reliability?

$8,000

Consistency?

$8,000

Comparability?

$8,000

Conservatism?

$6,000

Comparability?

$8,000

Consistency?

$8,000

Historical cost?

$8,000

Relevance?

$8,200

Reliability?

$8,000

Conservatism?

$6,000

© Michael Allison. Author’s permission required for external use.

TASK

In-class Homework

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