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Discuss the concept of materiality, especially as it pertains to accounting for byproducts. Should a company...

Discuss the concept of materiality, especially as it pertains to accounting for byproducts. Should a company adopt guidelines for defining materiality for income statement items?

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Answer #1

Materiality

A business can avoid small transactions which doesn't have any significant impact on finacial statements. Significance is determined on the basis of ,impact of such transactions in the users of financial statements.

Eg.An expense of $10 may not be sigmificant for a company which has a turnover of $15,000,000. But a company having turnover of $10,000 , it is a material item.

Byproduct is a secondary product which always have a market value.Byproduct normally have less value than the main product. It should be recorded in the books based on materiality.

A company should adopt guidelines to apply materiality in books of accounts. Otherwise they may loss material items from books of accounts or includes unwanted and non material items in the books.  

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