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Accounting Estimates

Valuation principles help is evaluation of those transactions or events which has occurred. Items, which have not occurred, cannot be measured using valuation principles. However, it is necessary to record them too. Like for provision for doubtful debts on debtors. Accounting estimates are usually made in respect of doubtful debts, inventory obsolescence, residual value etc. If changes occur in the circumstances on which the estimates were based, accounting estimate may require revision. A change in accounting estimates means the differences arising between certain parameters estimated earlier and re-estimated during the current period, or actual results achieved during the current period


Example: On 30th September, 2013, the provision for doubtful debts was ₹ 10,000, by the end of the current year i.e., 31st March, 2012, a debt of ₹ 5,000 which was considered as doubtful was realised and hence there was a revision in the provision for doubtful debts. On 31-03-2014, the provision for doubtful debts was ₹ 5,000.

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