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allocation v/s classification

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AA Exams › allocation v/s classification

  • This topic has 4 replies, 2 voices, and was last updated 1 year ago by Kim Smith.
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  • July 17, 2021 at 1:36 am #627985
    Noah098
    Member
    • Topics: 935
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    • ☆☆☆☆☆

    maam what is the difference between allocation and classification?

    I studied in SBR that classification of say liabilities, is between NCL and CL.

    However in AA it seems that liabilities split into NCL and CL is allocation.

    Slightly muddled, can you pls help me out?

    July 17, 2021 at 8:43 am #628014
    Kim Smith
    Keymaster
    • Topics: 102
    • Replies: 6942
    • ☆☆☆☆☆

    non-current vs current; cost of sales vs distribution costs – are examples of classification.

    Allocation is an aspect of “accuracy, valuation and allocation” – it means for example that an aspect of valuation is say depreciation – that that is appropriately allocated. So depreciation is not necessarily expensed to profit of loss, if it is a production overhead (e,g, on factory plant) it should be allocated to the cost of inventory.

    You could try browsing to help you find answers quite quickly – e.g. if you put the following into your internet browser:

    acca aa allocation classification

    you should see immediately that there is an ACCA technical article https://www.accaglobal.com/gb/en/student/exam-support-resources/fundamentals-exams-study-resources/f8/technical-articles/assertions.html

    August 26, 2021 at 5:57 am #632955
    Noah098
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    • Topics: 935
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    • ☆☆☆☆☆

    maam wont the depreciation expense related treatment be considered under classification? as in whether it should be charged as operating expense or cost of sales? rather than allocation

    August 26, 2021 at 6:00 am #632956
    Noah098
    Member
    • Topics: 935
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    • ☆☆☆☆☆

    can I think of allocation as amount of split is correct or not? like classification as you state would be current v/s non-current, and allocation will be is the amount allocated as current and non-current correct?

    August 26, 2021 at 8:03 am #632990
    Kim Smith
    Keymaster
    • Topics: 102
    • Replies: 6942
    • ☆☆☆☆☆

    It would be allocation if, as an overhead, it becomes part of the cost of another asset – inventory. (IAS 2 – production overheads are a component of cost).

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