Let's talk about some more concepts of accounting, let's
talk about some more accounting principles.
First in the list is Consistency Concept or Consistency
Principle.
It says that if you adopt some policies to do accounting,
then it is your duty to adopt the same policy in the coming
years, and not to change it year by year.
For example, to apply depreciation, we have two main
methods, a straight line method and a written down value
WDB method.
So if you have chosen the straight line method, then your
consistency concept says that in the coming years, follow
the straight line method.
If you have chosen the written down value method, then your
consistency concept says that in the coming years, follow
the written down value method.
Don't change it year by year.
Don't do like this, first apply a straight line method for
a year, then apply WDB method for the next year, then apply
a straight line method, then apply WDB method.
In this way, every year's accounting will not be uniform,
there will be changes in it.
Every year's accounting will not be uniform, there will be
changes in it.
Your accounts will not be comparable.
You will not be able to compare one year's trading pendal
with the second year's trading pendal.
Because the principles are different, you have made both on
different principles.
What will you be able to decide from them?
Which year had better performance, which year had less
performance?
You will not be able to match one year's balance sheet with
the second year's balance sheet.
This will be a problem.
Sir, tell me one thing.
For example, an organization has taken the straight line
method first, now it wants to apply the written down value
method.
So it will not be possible from the mind.
But sir, still, if it feels that it should not have taken
the straight line method, the written down value method is
right for it.
With that, its accounting becomes true and fair.
Sir, then that organization cannot adopt the written down
value method.
Friend, it is not forbidden to change.
But if you change once, then stick to that change.
First of all, stick to what you are adopting.
Still, if you need to change, think about it, understand
it, change it once.
Then not after that, not again and again.
If you are adopting once, then run it for 4-5 years.
For example, you go to a shop to buy a shirt.
You went to buy a shirt from that shop, you liked a shirt.
And that shopkeeper told you that if you go home and have
an issue in washing or you don't like it.
For example, he gave you this offer to show the house.
So give it back to us.
And change and take another one.
So once you take a shirt at home, your family doesn't like
it, you change it and take it.
If you change the second one, then you will go to change it
again.
It doesn't look good.
This is not right.
He will not give the policy like this.
This is done business.
The same thing is here too.
If you adopt the policy once, then adopt it continuously.
Don't change it again and again.
If you adopt a policy, then stay strict.
Follow it in the coming years too.
Unless it finds a good reason to perform it in another way.
If you find a reason that accounting will be better by
taking another policy or if there is any other reason, then
it is allowed.
If you keep changing every year, then accounts will not be
comparable.
There will be no meaning of accounting.
Next is the full disclosure principle.
He says, tell the whole thing and go.
There is no need to hide any information about business in
accounting.
Tell the whole thing.
There is no need to hide anything.
Tell the whole thing.
This is called the full disclosure principle.
Information that is considered potentially significant and
relevant is to be completely disclosed regardless of
whether it is detrimental to the company.
Whatever information is significant, it is worth telling
the investors.
Regardless of whether it is detrimental to the company.
What does this mean?
Just don't damage the company.
You don't have to tell any such internal information that
we are talking to that party.
If we get a contract, we will be ruined.
We found out that the competitor heard the news and he
broke the client from there.
Not such news.
Do not hide such news that is necessary for investors.
Do not hide such news that is necessary for the income tax
authorities.
Why do you have to tell such news that your contract is
running in the future?
Why do you have to tell that?
Significant and relevant information is to be disclosed.
Next comes to us.
Materiality concept.
Materiality concept says that if there is a small amount,
you can ignore that transaction.
In simple words, I have told you.
A company has a turnover of crores of rupees.
And that company spends 10-20 rupees on tea, coffee, for
employees and some snacks etc.
So it spends 10-20 rupees on printing, small diaries of
10-20 rupees are bought.
So if you sit to record repeated transactions of 10-10
rupees, then accounting will become very complex.
It will become very complex.
That's why materiality concept says that if your turnover
is very huge, then you can ignore small transactions.
Similar to full disclosure, this concept also bound
organization to put down their cards on the table.
Full disclosure is anti-materiality.
Full disclosure says, tell me everything.
Tell me all the expenses.
And what does materiality say?
If the amount of expense is small, then you can ignore it.
When will materiality come into picture?
When the amount is very small.
The aim behind this materiality convention is that any
information that could influence the person's decision by
considering the financial statement must be included.
Materiality concept says that if the amount is very small,
then ignore it.
But if the amount is relevant, then immediately disclose it.
If the amount is relevant, then immediately disclose it.
Now friends, let's talk about calculator.
If we talk about calculator, then its life is more than 12
months.
It is tangible.
And we buy it to use it in business.
It is also a fixed asset.
If we say tangible fixed asset, then PPE stands on the
definition of property, plant and equipment.
If any item stands on the definition of property, plant and
equipment, then we apply depreciation on it.
We allocate its cost in life.
But we don't do this with calculator.
Why? Because of the materiality concept.
He says that you are buying a calculator worth 100-200
rupees.
You will distribute it in 5 years.
You will allocate its cost.
If it will run for 5 years, then it will not run for 5
years.
For example, a calculator runs for 2 years.
So instead of transferring the cost of 100 rupees to 50-50
in 2 years, you put 100 rupees in 1 year.
Ignore the matching concept.
Ignore PPE.
Who gives permission?
Materiality.
Materiality says that if the amount is small, then the
principles of accounting can be violated.
If the amount is minor, then the principles of accounting
can be violated.
Now what is the definition of minor amount?
Which amount should we consider minor?
Which amount should we consider major?
Friends, it depends.
It depends.
Business to business.
It is a transaction of crores.
We can ignore 100-200.
But if a business has a monthly sale of 1000 rupees, for
example, and he says that he does not want to record the
calculator of 100 rupees, then this is wrong.
Then this is not material.
Material will depend on how much turnover it has.
You will compare the amount according to that.
Business to business.
A transaction of 100 rupees, an amount of 100 rupees, can
be non-material for one business, can be immaterial for
another, and can be material for another business.
So for whom it is material, you have to decide for yourself.
It should be disclosed.
For whom it is non-material, you have to decide for
yourself that there is a small amount for us.
Even if we do not disclose it, it will work.
It depends upon business to business that what amount is
material, we can ignore it, we cannot ignore it, and what
is immaterial, we can ignore it.
Yes, sir.
So we have consistency.
Follow one policy, follow it continuously.
If you want to change, do it.
But even after changing, stick to it.
And instead of changing, it should be that accounting can
be better, true and fair.
You will not change as you wish.
It's been 3-4 years.
Full disclosure.
But it's not about the inside.
It's not that it will harm the business.
And materiality, a little entry of full disclosure.
Tell the whole thing.
But if the amount is immaterial, then we can ignore that
transaction.
So this was the discussion of consistency, full disclosure
and materiality principle.
Thank you everyone.