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Hello Sir Mike,
I seem to be confusing accounting policies with estimates like in Question Tunshill (Q4 Dec 10), I confused AVCO FIFO as estimates bearing the idea in mind that lower of NRV and cost is the policy and this is estimation of cost, while in fact in the solution this is said to be a policy. Part a (change in life) was fine with me.Please can you give some examples for accounting policies to clear this confusion?
Depreciation
Concept – matching
Policy – to write an asset off over its estimated useful life
Base – 10% straight line
Estimate – residual value of $3,000
So applying it to Inventory valuation it should be,
Concept- Prudence
Policy- Lower of cost or NRV
Base- Use of Fifo or Avco
Estimate- Inventory Count
Am I Right?
OK apart from estimate – that would better be explained / illustrated by “net realisable value valuation” or “stage reached for work in progress”
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