Question

They have made an investment of Rs. 15,00,000 as capital. On the same date they
purchased a machine for Rs. 2,00,000. The Auditors of the firm found that the accountant
of John Traders keeps on changing the method of depreciation on Machine. Identify
which accounting concept has not been followed by the accountant and explain that
concept

Answer 1

IT IS CONSISTENCY PRINCIPLE.


CONSISTENCY PRINCIPLE:- The consistency principle states that, once you adopt an accounting principle or method, continue to follow it consistently in future accounting periods. Only change an accounting principle or method if the new version in some way improves reported financial results. if you make such a change, fully document its effects and include this documentation in the notes accompanying the financial statements.

Auditors are especially concerned that their clients follow the consistency principle, so that the results reported from period to period are comparable. This means that some audit activities will include discussions of consistency issues with the management team. An auditor may refuse to provide an opinion on a client's financial statements if there are clear and unwarranted violations of the principle.


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Answer 2

Hey there,

The accounting method that has not been used by the accountant is called the consistency principle. This was evident by the fact that he kept on using different methods for the depreciation of the machine.  

The consistency principle is based on the assumption that the principle of solving accounting problems must be the same and consistent. The problem can change but the accounting principles used for the future must remains the same.

I hope the answer is helpful.

Thanks