In: Accounting
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For XYZ Ltd, determine whether each of the following is an accounting policy or an accounting estimate:
… 1 X 5 marks
No. | Particulars | Accounting policy or Accounting Estimates |
a) | The current year’s warranty provision is calculated by providing for 1% of current year sales, based on last year’s warranty claimed amounting to 1% of sales. | Accounting Estimates |
b) | The useful life of a depreciable plant is determined as being 5 years. | Accounting Estimates |
c) | XYZ Ltd depreciates non-current assets. | Accounting policy |
d) | XYZ Ltd uses straight-line depreciation. | Accounting policy |
e) | XYZ Ltd determines that it will calculate its warranty provision using past experience of products returned for repair under warranty. | Accounting Estimates |
Accounting policies are the guidelines and method that regulates the method of recording and reporting of financial information.
Accounting Estimates are the management estimates for particular area where the exact calculation is impossible during the accounting period. for example, change estimates including bad debt allowance, warranty, liability, and depreciation.