Is the monetary unit assumption affected by inflation?
You can not make the necessary adjustment in the accounts of your business for the difference in value, because of the monetary unit assumption. You are therefore forced to ignore the impact of inflation.
How does inflation affect financial statements?
Also, inflation increases the amount of external financing required and the company’s debt-to-equity ratio when measured on its historical cost financial statements. Inflation distorts the reported earnings figure and overstates true economic earnings. Hence the price-to-earnings (P/E) ratio drops.
What is monetary unit assumptions?
Monetary unit assumption (also known as money measurement concept) states that only those events and transactions are recorded in books of accounts of the business which can be measured and expressed in monetary terms.
What is an example of monetary unit assumption?
For example, if a company purchases a building for $100,000 and holds on to it for 30 years, it will still be reported on the balance sheet for the original purchase price not adjusted for inflation. The monetary unit principle, however, is not concerned with inflation over time.
Why is monetary unit assumption important in preparing accounts?
The monetary unit assumption states that a company must record its business transactions in dollars or some other unit of currency. Companies use the dollar since it is stable in value and available everywhere. It also provides a consistent method of comparing the results of one company with those of another.
What is the meaning of qualitative characteristics of financial information?
According to the framework, qualitative characteristics are the attributes that meet the decision usefulness of financial information. The framework listed these attributes as; relevance, faithful representation, comparability, understandability, verifiability and timeliness.
What are the four main qualitative characteristics of financial statements?
Qualitative characteristics are the qualities or attributes that make financial accounting information useful to the users. The four characteristics are understandability, relevance, reliability, and comparability.
What is the meaning of qualitative characteristics?
Qualitative characteristics are the attributes that make financial information useful to users. Fundamental Characteristics distinguish useful financial reporting information from that is not useful or misleading. The two fundamental Qualitative characteristics are : Relevance. Faithful Representation.
What are the two fundamental qualitative characteristics?
The two fundamental Qualitative characteristics are : Relevance. Faithful Representation.
Which best describes the term going concern?
Going concern is an accounting term for a company that has the resources needed to continue operating indefinitely until it provides evidence to the contrary. This term also refers to a company’s ability to make enough money to stay afloat or to avoid bankruptcy.
What do you mean by going concern?
The concept of going concern is an underlying assumption in the preparation of financial statements, hence it is assumed that the entity has neither the intention, nor the need, to liquidate or curtail materially the scale of its operations.
Why is it called a going concern?
A going concern is a business that is assumed will meet its financial obligations when they fall due. Hence, a declaration of going concern means that the business has neither the intention nor the need to liquidate or to materially curtail the scale of its operations.
What are the auditor’s responsibilities for going concern?
The auditor’s responsibility is to obtain sufficient appropriate audit evidence about the appropriateness of management’s use of the going concern assumption in the preparation of the financial statements and to conclude whether there is a material uncertainty about the entity’s ability to continue as a going concern.
Is a going concern a qualified opinion?
What does an audit opinion mean? When uncertainties exist regarding the going concern assumption, the auditor will typically issue a “qualified” opinion and disclose the nature of these uncertainties in the footnotes.
What is a transfer as a going concern?
A transfer of a business as a going concern (TOGC) however is the sale of a business including assets which must be treated as a matter of law, as ‘neither a supply of goods nor a supply of services’ by virtue of meeting certain conditions. The assets must be sold as part of a ‘business’ as a ‘going concern’*
What does it mean when a property is sold as a going concern?
sale of a business
Do you pay VAT on a going concern?
1.4 TOGC for VAT purposes But if you sell assets as part of a business which is a going concern then, subject to certain conditions, no supply takes place for VAT purposes and no VAT is chargeable.