Page 40 - PowerPoint Template

Materiality Concept

Materiality relates to an item’s impact on a firm’s overall
financial condition and operations.

An item is material when it is likely to influence the

decision of a reasonably prudent investor or creditor.

To determine the materiality of an amount, the

accountant usually compares it with such items as total
assets, total liabilities and net income.

Example:

A company purchases a calculator at cost RM20 and it

will depreciate for 5 years over its useful life.

Give your opinion.

Conclusion:

Although the proper accounting would depreciate the

calculator over its useful life, but this cost are considered
immaterial. It will not make a material difference on total

assets and net income.

40