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

Mehta Traders, Surat, buys a stapler for Rs 150 for office use. The stapler will last several years, yet the accountant charges the whole Rs 150 to the Profit and Loss Account in the year of purchase. Which convention justifies this?

Materiality justifies it. Rs 150 is too insignificant to affect decisions of users of the accounts, so treating the stapler as an expense instead of capitalising and depreciating it is acceptable. Conservatism deals with provisions for probable losses, not with trivial amounts.

  1. AConservatism
  2. BMaterialityCorrect
  3. CConsistency
  4. DGoing concern

Explanation

The amount is so small that capitalising and depreciating it would cost more effort than the information is worth. Ignoring the strict capital nature of insignificant items is the convention of materiality. Conservatism relates to anticipating losses, which is not the reason here.

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