Question

Accounting information is used by different category of users for making decision. Information without authenticity does not serve any purpose. There are different internal and external users, who make use of accounting information from various branches of accounting for making decision.                                                                                                                        

a) In the business how is material information different from immaterial information?

b) You are required to discuss about different material information which are NOT a part of balance sheet, income statement and cash flow. But a business should disclose to the users.   

c) Discuss the use of accounting information of different branches to different user.

Answer 1

a) First we need to understand what is material information and imaterial information.

Material informations are those information which are very vital in dicision making and very usefull whereas imaterial informations are irrelevant from business management point of view. According to the convention Items having an insignificant effect or being irrelevant to the user need not be disclosed. Lets us see some examples to find difference between them  .

Investment in a new project is material

So that all information about this project now material because now company will have to make decision.

If postal stamps worth 20 remains unused at the end it doesn't matter that much .

b) Material information that must be disclose to the users are

* Objective of the business firm

* Capital or fund information

* Accounting information relating to cost of a product

*Information related to marketing area

* reserch and development information

* Information relating to finance area and production area.

C) * useful in predicting future borrowing needs

* can be used to take best decisions .

* informations are also useful in predicting the future risk.

* information also facilitates in comparision of

Different projects and helps in taking decision whether to invest or not.

* information about liduidity and solvency is useful in checking the ability of the firm to meet its financial commitments.