Error in Conveyancing: an Error of Principle

Explanation:

Error of principle is an accounting error that happens when a transaction is recorded against the fundamental accounting principles. In other words, it is a mistake that is made in the accounting process that violates the generally accepted accounting principles (GAAP). These errors occur because of the lack of knowledge or understanding of the accounting principles.

In the given scenario, Rs.4,200 paid for conveyancing has been written off instead of capitalizing. This is an error of principle. Conveyancing is a process of transferring the legal title of real property from one person to another. This cost should have been capitalized, which means it should have been recorded as an asset on the balance sheet and amortized over the useful life of the asset.

Writing off the cost of conveyancing means that the cost has been expensed immediately in the income statement. This is not in accordance with the accounting principles, as the cost was incurred for the acquisition of an asset, which should have been capitalized.

Therefore, the error in this case is an error of principle, as the accounting treatment violated the fundamental accounting principles. The company needs to rectify this error by capitalizing the cost of conveyancing and amortizing it over the useful life of the asset.

Conclusion:

In conclusion, error of principle is an accounting error that occurs when a transaction is recorded against the fundamental accounting principles. In this case, the error occurred when the cost of conveyancing was written off instead of being capitalized. This violated the generally accepted accounting principles (GAAP). The error needs to be rectified by capitalizing the cost of conveyancing and amortizing it over the useful life of the asset.

Principal