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CMA Foundation · Fundamentals of Financial and Cost Accounting · Accounting Principles, Concepts and Conventions

A firm changes its method of charging depreciation every year to show a higher profit each time. Which accounting concept or convention is violated most directly?

The consistency convention is violated. It requires an enterprise to follow the same accounting policies and methods period after period so that financial statements can be compared. Changing the depreciation method each year to raise profit defeats that comparability.

  1. AMoney measurement concept
  2. BConsistency conventionCorrect
  3. CRealisation concept
  4. DBusiness entity concept

Explanation

Consistency requires that the same accounting methods be followed from one period to the next so results are comparable. Changing the depreciation method each year to manipulate profit breaks this convention. The other concepts concern measurement in money, recognition of revenue and separation of owner from business.

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