1.4 COMPARABILITY
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1.4 COMPARABILITY
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© Michael Allison. Author’s permission required for external use.
1.4 COMPARABILITY
The Rules of Accounting
Relevance
Reliability
Comparability
Understandability
Entity
Historical cost
Going concern
Reporting period
Monetary unit
Conservatism
Consistency
Qualitative Characteristics
Accounting Principles
© Michael Allison. Author’s permission required for external use.
ComparabilityUsers must be able to compare the financial reports of the
business
So how can you ensure comparability?
1.4 COMPARABILITY
Definition:
Information is comparable when:
• It can be compared over time and between different entities
• The same accounting methods are used every year to prepare financial reports
• Certain transactions are treated in a consistent manner from year to year, e.g. asset values
© Michael Allison. Author’s permission required for external use.
Comparability Example: in valuing the Bulleen sports grounds in its Balance Sheet, Trinity
should either use the original price or the current market value
It is not acceptable to chop and change methods from one year to the next
1.4 COMPARABILITY
Balance Sheet 1985 1995 2005 2015
Non-Current Assets
$ $ $ $
Bulleen grounds 1m 1m 30m 1m
Balance Sheet 1985 1995 2005 2015
Non-Current Assets
$ $ $ $
Bulleen grounds 1m 1m 30m 30m
Balance Sheet 1985 1995 2005 2015
Non-Current Assets
$ $ $ $
Bulleen grounds 1m 1m 1m 1m
© Michael Allison. Author’s permission required for external use.
Comparability Example: use consistent formatting…
1.4 COMPARABILITY
Balance Sheet 2015 2016 2017
Non-Current Assets $m $000 $
Bulleen grounds 30.0 30,000 30,000,000
Balance Sheet 2015 2016 2017
Non-Current Assets $m $m $m
Bulleen grounds 30.0 30.0 30.0
© Michael Allison. Author’s permission required for external use.
Comparability Example: use consistent formatting…
1.4 COMPARABILITY
Balance Sheet
Current Assets $
Cash 17,000
Debtors 5,000
Stock 22,000
Non-Current Assets
Property 150,000
Vehicles 32,000
Equipment 9,000
Balance Sheet
Non-Current Assets $
Property 150,000
Vehicles 25,000
Equipment 18,000
Current Assets
Cash 21,000
Debtors 3,000
Stock 16,000
Balance Sheet
Current Assets $
Cash 17,000
Debtors 5,000
Stock 22,000
Non-Current Assets
Property 150,000
Vehicles 32,000
Equipment 9,000
Balance Sheet
Current Assets $
Cash 21,000
Debtors 3,000
Stock 16,000
Non-Current Assets
Property 150,000
Vehicles 25,000
Equipment 18,000
2015 2016
© Michael Allison. Author’s permission required for external use.
1.4 COMPARABILITY
© Michael Allison. Author’s permission required for external use.
1.4 COMPARABILITY
© Michael Allison. Author’s permission required for external use.
1.4 COMPARABILITY
© Michael Allison. Author’s permission required for external use.
TASK
In-class Homework
Cambridge Revision Question 1.5 X
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