Ayariga Ltd acquired its head office on 1 January 2007 at a cost of TZS 10 million (excluding land). The company’s depreciation policy is to depreciate the property over 50 years on a straight-line basis. The estimated residual value is zero.
Administration cost is the cost of running the administration of a firm. In order to understand more clearly, let us understand the administrative functions of a business firm. Administrative functions include strategy and policy formulation, directing the organization towards the objectives determined by the top management and controlling various operations of the organization. Though these functions are not directly related to production, selling, and distribution, they facilitate these functions.
In accordance with the going concern concept, it is usually assumed that the life of a business is indefinitely long. But owners and other interested parties cannot wait until the business has been wound up for obtaining information about its results and financial position. For example If for ten years no accounts have been prepared and if the business has been consistently incurring losses, there may not be any capital at all at the end of the tenth year which will be known only at that time. This would result in the compulsory winding up of the business. But, if at frequent intervals’ information is made available as to how things are going, then corrective measures may be suggested and remedial action may be taken. That is why Pacioli wrote as early as in 1494: ‘frequent accounting makes for only friendship’. This need leads to the accounting period concept.
This concept is the core of accounting. According to this concept, every business transaction has a dual aspect. This concept is explained in detail below:
The properties owned by a business enterprise are referred to as assets and the rights or claims to the various parties against the assets are referred to as equities. The relationship between the two may be expressed in the form of an equation as follows: