Question

. ‘Accounting information should be comparable’. Do you agree with this statement? Give two reasons.

Answer 1

ANSWER :

★ Yes.

• Accounting information should be comparable.

❍ Reasons :-

• [i] To know the strength and weakness of the business entity.

• [ii] To assess the advantages and viability of the plans and policies adopted by different businesses.

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EXPLANATION :

We know that, comparability is one of the four qualitative aspects of accounting information that have been outlined by ICAI in India. Accounting information, i.e., the financial statements should be prepared in such a way that the profitability and financial position of a concern may be used for intra-firm comparison as well as inter-firm comparison.

✠ Two reasons for the same are mentioned below :-

• ✎ With the help of intra-firm comparison, i.e., comparison with the similar information if the same enterprise over different period of time, the strength and weakness of the firm, need of changes in the plans and policies can be known. It is also helpful for assisting the functions of the firm as well as figuring out the errors and mistake done by the firm.

• ✎ With the help of inter-firm comparison, i.e., comparison with the information of other similar firms over different periods, the various kinds of plans and policies adopted by different firms and their advantages, disadvantages, viability etc. can be assessed. It also influences the competition among such different firms in a market area.