As a result of the uncertainties in business activities, many financial statement items cannot be measured with precision but can only be estimated. These are called accounting estimates.
Therefore, the management makes various estimates and assumptions of assets, liabilities, incomes and expenses as on the date of preparation of financial statements. This process of estimation involves judgements based on the latest information available.
Examples of estimation in some fields are:
(i) Estimation of useful life/depreciation rate of depreciable assets.
(ii) Estimation of provision to be made for bad and doubtful debts etc.
(i) Estimation of useful life/depreciation rate of depreciable assets.
(ii) Estimation of provision to be made for bad and doubtful debts etc.