Some of the situations through which estimates could largely affect the amounts reported in a balance sheet incorporate: i. When determining the amount of revenues that should be recorded as unearned. ii. In a situation of allowances of doubtful debts. iii. In situations of warranty returns. iv. At times of depreciation life as well estimated salvage values for plant and equipment.
Work Step by Step
When estimates are required, there is always subjectivity in determining the amounts. Such subjectivity can largely impact the usefulness of the information that is by reducing the faithful representation of the measures that is either because of bias or lack of verifiability.