Modifying Principles

To make the accounting information useful to various interested parties, the basic assumptions and concepts discussed earlier have been modified. These modifying principles are as under. 2.3.1 Cost Benefit Principle This modifying principle states that the cost of applying a principle should not be more than the benefit derived from it. If the cost is more than the benefit then that principle should be modified. 2.3.2 Materiality Principle The materiality principle requires all relatively relevant information should be disclosed in the financial statements. Unimportant and immaterial information are either left out or merged with other items. 2.3.3 Consistency Principle The aim of consistency principle is to preserve the comparability of
financial statements. The rules, practices, concepts and principles used in
accounting should be continuously observed and applied year after year.
Comparisons of financial results of the business among different accounting period can be significant and meaningful only when consistent practices were followed in ascertaining them. For example, depreciation of assets can be provided under
different methods, whichever method is followed, it should be followed
regularly. 2.3.4 Prudence )Conservatism( Principle Prudence principle takes into consideration all prospective losses but leaves all prospective profits. The essence of this principle is “anticipate no profit and provide for all possible losses”. For example, while valuing stock in trade, market price or cost price whichever is less is considered.
Concepts 1.Dual Aspect 2. Revenue Realisation 3. Historical Cost 4.Matching 5. Full Disclosure 6. Verifiable and objective evidence
Assumptions 1.Accounting Entity 2.Money Measurement 3.Accounting Period 4. Going Concern
Modifying Principles 1. Cost Benefit 2. Materiality 3. Consistency 4. Prudence

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