#1 Flashcards
Underlying concept of governing the recording of gain contingencies?
a. conservatism
b. reliability
c. relevance
d. consistency
Contingent upon something else means it’s uncertain, so we need to be conservative. Make sure it’s realized before recognizing it. So conservatism. Reliability, relevance, consistency, they all apply equally to all accounting information, not just gain contingencies.
According to the FASB conceptual framework, which of the following attributes would not be used to measure inventory?
a. Replacement cost
b. Net realizable value
c. Historical cost
d. Present value of future cash flows
Inventory is a short term asset, so it can be measured by replacement cost, net realizable value, and historical cost. Present value of future cash flows is used to value long-term receivables and payables, so inventory doesn’t apply.
Ingredients of faithful representation
Faithful representation means no omission, no bias, and no errors. So they are completeness, neutrality, and freedom from error
Ingredients of relevance
Relevance means the data predictive value, confirming value, materiality
Realization Principle is which:
a. Product unit costs were assigned to cost of goods sold when the units were sold
b. depreciated equipment was sold in exchange for a note receivable
Revenues and gains are realized when assets are sold or exchanged for cash, NOT assigned. Assigned is matching principle.
Net realizable value
balance of accounts receivable minus allowance for noncollectable accounts
Appropriate measurement basis for equipment if the company is ending operations and quickly (3 months) dispose of its assets
Net realizable value.
Appropriate measurement basis for equipment if the company is continuing operations
Historical cost
Enhancing qualitative characteristics according to the conceptual framework
Timeliness, understandability, comparability, and verifiability
The single source of U.S. GAAP
FASB Accounting Standard Codification.
Rule of conservatism
revenues and gains should be recognized when earnings process is complete. Expenses and loss are expensed immediately.
What is the name of the reporting concept for reporting in financial statements at amount of cash or its equivalent that would have to be paid if the same or equivalent assets were acquired currently.
Replacement cost, becuase it’s cost of ACQUIRING it. Current market value is the value of selling it.
According to the IASB conceptual framework, what are the two underlying assumption of financial statement preparation and presentation?
Going concern and accrual accounting.
Operating procedure for issuing a new international financial reporting standard
An exposure draft is issued after approval by at least nine members of the iASB
Documents typically issued as part of the due-process activities of the Financial Accounting Standards Board (FASB) for amending the FASB accounting standards codification?
Proposed accounting standards update
Gains and losses are reported using what concept?
The net concept (proceeds - carrying amount)
How should the effect of a change in accounting principle that is inseparable from the effect of a change in accounting estimate be reported?
a. as a correction of an error
b. as a component of income from continuing operations
c. by restating the financial statements of all prior periods
d. by footnote disclosure only
As a component of income from continuing operations, because it is reported prospectively as a component of income from continuing operations.
For a loss to be reported as an extraordinary loss, it must be
both unusual in nature and happens infrequently
Company approved the plan to dispose a component of its business on April 30 and sold the plant on Oct 15. What happens to the earning before the company was sold?
Once the decision has been made to dispose of the component and it meets the criteria to be classified as held for sale, it should be reported separately from coninuing operation
What’s the deal with extraordinary items and IFRS?
IFRS prohibits the reporting of income/loss as extraordinary
