ACCA Applied Knowledge · Financial Accounting · The context and purpose of financial statements for external reporting
Mira Co buys a stapler for $15 that will last several years. It charges the full cost to expenses in the year of purchase rather than capitalising it. Which concept justifies this treatment?
Materiality justifies the treatment. A $15 stapler is too small to influence users' decisions, so the effort of capitalising and depreciating it is not worthwhile. Charging it directly to expenses does not distort the financial statements in any meaningful way.
- AMaterialityCorrect
- BAccruals
- CPrudence
- DSubstance over form
Explanation
Information is material if omitting or misstating it could influence users' decisions. A $15 item would not, so the cost of tracking it as a non-current asset and depreciating it outweighs any benefit. Expensing it immediately is therefore acceptable.
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