Section 7 of 7
Accounting concepts do not always point in the same direction. AQA questions sometimes ask you to identify a conflict and explain which concept takes precedence.
| Conflict | Resolution |
|---|---|
| Prudence vs Realisation | Prudence wins for losses (recognise early); realisation wins for income (do not anticipate) |
| Consistency vs True and fair | If a policy change gives a truer and fairer view, consistency can be overridden — but only with disclosure |
| Cost vs Going concern | If going concern fails, historical cost is abandoned; assets are restated at NRV (break-up value) |
| Materiality vs all other concepts | If an item is immaterial, strict application of another concept can be waived (e.g. a £5 item capitalised as an asset would be immaterial) |
Structure for a 4-mark explain question:
Example answer (prudence applied to PDD):
The concept is prudence (1). This requires that losses are recognised as soon as they become foreseeable, and that profits are not anticipated (1). Here, Thornfield Ltd has estimated that 3% of trade receivables may not be recovered, so a provision for doubtful debts of £1,800 has been created (1). Without this provision, trade receivables would be overstated on the statement of financial position and profit would be overstated in the income statement (1).
| Scenario | Concept(s) |
|---|---|
| Inventory written down to selling price | Prudence |
| Same depreciation method used each year | Consistency |
| Owner's personal car not recorded as a business asset | Business entity |
| Revenue recorded when goods delivered, not when cash received | Realisation / Accruals |
| Depreciation charged even though asset is still usable | Going concern + Accruals |
| A £3 stapler expensed rather than capitalised | Materiality |
| Social media reputation not on the SFP | Money measurement |
| Assets shown at purchase price, not current market value | Cost (historical cost) |
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| Bank overdraft shown as a liability |
| Duality |
| Accrued rent shown as a current liability | Accruals |