Accounting Principles & Qualitative Characteristics of FI

Question 1

2 ways consistency should be applied

Answer 1

i) Period to period - by a single entity

ii) Across entities - between entities in the same period

Question 2

Exercise of prudence

Answer 2

Assets and income are not overstated and liabilities and expenses are not understated. Equally, prudence does not allow for the understatement of assets or income or the overstatement of liabilities or expenses

Question 3

Duality

Answer 3

• Every transaction has a ‘dual aspect’
• Each party in a transaction is affected in two ways by the transaction
• Every transaction gives rise to both a debit entry (Dr) and a credit entry (Cr).

Question 4

Historical cost measures

Answer 4

Provide monetary information about assets, liabilities and related income and expenses, using information derived, at least in part, from the price of the transaction or other event that gave rise to them

Question 5

‘Economic phenomena’

Answer 5

Information about an entity’s economic resources, claims against the entity and the effects of transactions and other events and conditions that change those resources and claims.

Question 6

Verifiability

Answer 6

Different knowledgeable and independent parties could reach consensus (although not necessarily complete agreement) that a particular depiction is a faithful representation