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Mar/Jun 2017 4(c) Materiality

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AAA Exams › Mar/Jun 2017 4(c) Materiality

  • This topic has 1 reply, 2 voices, and was last updated 7 years ago by MikeLittle.
Viewing 2 posts - 1 through 2 (of 2 total)
  • Author
    Posts
  • April 26, 2018 at 6:27 am #448885
    marthew
    Participant
    • Topics: 38
    • Replies: 6
    • ☆

    Hello Mike,

    I am reading the sample answer to the question, and I am confused on the below regarding materiality.

    “The year end provision represents 0.36% of total assets and 6.54% of profit. It is not, therefore, material to the statement of financial position but material to the statement of profit or loss.”

    My question is “the year end provision balance ($7m) is a balance sheet item, why the sample answer divided it by profit (ie. 7/107) and to determine the materiality (6.54%) to profit?”

    Thank you.

    Regards,
    Marthew

    April 26, 2018 at 7:26 am #448890
    MikeLittle
    Keymaster
    • Topics: 27
    • Replies: 23334
    • ☆☆☆☆☆

    Were that provision not to exist, profit for the year would increase by 6.54% … and that’s material

    Many figures appear both on the statement of financial position and are involved witht he statement f profit or loss

    For example:

    Inventory
    Depreciation
    Provisions for doubtful debts (and other provisions)
    Accruals and prepayments

    The application of calculations to determine materiality can (and should) consider the affect on all statements that are affected by the matter in hand

    OK?

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  • The topic ‘Mar/Jun 2017 4(c) Materiality’ is closed to new replies.

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