Materiality Concept(in detail) Video Lecture | Accountancy Class 11 - Commerce

materiality concept if the misstatement
or omission of an information could make
a difference to the users decision now
what is materiality concept it says that
if if an item of difference if if an
expense is something very small it does
not and the cost of recording that
expense is going to be much more than
the cost itself then we can ignore the
particular cost so materiality concept
says that if it is not Material some
concepts some items may be ignored
however then the question arises on what
is material what do you mean by how much
is material how do you decide on what
this material so the definition for that
is that if the omission of an
information or the misstatement of some
information if it makes a difference to
the users decision then it is material
if you don't give some information if
you don't provide any information but if
that that could affect the users
decision then it would be considered
material so materiality cannot be
defined in total terms it would vary
from organization to organization a
rupees one lakh may be very material for
a small business organization and it may
be totally a non material item for a
huge company having business in several
crores
similarly materiality can also be
relative if suppose a business is making
profits it is a very marginal small
amount of profit and if an item of
expense has been omitted and the item of
expense is small
however if we include that item of
expense the profit will be converted to
a loss it would become material it would
make up nettinger so materiality would
weigh vary from organization to
organization may vary from situation to
situation an example here is a stock of
stationery what does this mean
suppose usually when we buy stationery
let's say we have bought several sheets
of paper we normally treat this as an
item of expense but like we mentioned
before what is an expense well the
benefit of that expenditure is received
in the current ear it's called an
expense if you are not going to receive
the benefit in that year then you should
treat it as an asset and carry it
forward as an expense for next year so
suppose we have bought some stationery
the amount involved is small but at the
end of the year some pieces of
stationery some pieces of paper still
remain with us since this stationery
will be used only in the next year
strictly speaking following the
accounting concepts maybe we should read
that as an asset and take it forward as
an expense however a few sheets of paper
the trouble of finding the cost of it
and treating it asks expense is non
material that is what items of
stationery though items of stationery
though we purchase in one year and
continue to use some of it in the next
year we treat stationery as an item of
expense similarly when we buy very small
items assets of small items let's say a
calculator for 3000 rupees we intend to
use it for a period of five years but we
just charge it off as expense because
the amount in one may be very small and
compared to a big size of business