Some Accounting Problems

Abstract

The profit, as extracted from figures in the books, may not be synonymous with the real profit. There are different methods of dealing with such matters as depreciation, valuation of stocks and work in progress, extraordinary items of expense or income, provisions and research and development expenditure, and the figure for profit will vary according to which of these methods are used. Historical cost methods of depreciation and valuation tend to overstate profit in times of rising prices, and understate it in times of falling prices. The inclusion of overhead costs in the valuation of closing stocks of work in progress for the first time will lead to a higher figure for profit for that year than would be the case if these are excluded. The method of taxation affects business behaviour and the level of investment. Statements of Standard Accounting Practice now attempt to impose some degree of uniformity in methods of accounting and a true and fair view of the affairs of a business, though an element of subjectivity can hardly be avoided in certain areas of accounting.