Ch 4 (pt.3) Flashcards
is a contract, or a portion of a contract, that is equally unperformed—neither party has fulfilled any of its obligations, or both parties have partially fulfilled their obligations to an equal extent.
executory contract
An executory contract establishes a combined _______&_______ to
exchange economic resources. The _______&_______ are interdependent
and cannot be separated. Hence, the combined _______&_______ constitute a single asset or liability.
right and obligation
The entity has an asset if the terms of the exchange are ____________ ; it has a liability if the terms of the exchange are _____________. Whether such an asset or liability is included in the financial statements depends on both the recognition criteria (see Chapter 5)
and the measurement basis (see Chapter 6) selected for the asset or liability, including, if applicable, any test for whether the contract is onerous.
currently favourable
currently unfavourable
To the extent that either party fulfils its obligations under the contract, the
contract is _____________.
no longer executory
If the reporting entity performs first under the contract, that performance is the event that ______________. That right is an asset.
changes the reporting entity’s right and obligation to exchange economic resources into a right to receive an economic resource.
If the other party performs first, that performance is the event that _____________________. That obligation is a liability.
changes the reporting entity’s right and obligation to exchange economic resources into an obligation to transfer an economic resource.
The terms of a contract create _______________.
rights and obligations for an entity that is a
party to that contract
To represent those rights and obligations faithfully, financial statements report their ________ (see paragraph 2.12). In some cases, the ___________________ is clear from the legal form of the contract. In other cases, the terms of the contract or a group or series of contracts require ______ to identify the ________________.
substance
substance of the rights and obligations
analysis
substance of the rights and obligations.
All terms in a contract—whether explicit or implicit—are considered unless
___________ .
they have no substance
could include, for example, obligations
imposed by statute, such as statutory warranty obligations imposed on entities that enter into contracts to sell goods to customers.
Implicit terms in a contract
Terms that have no substance are __________
disregarded
it has no discernible effect on the economics of the contract, for example:
(a) terms that bind neither party; or
(b) rights, including options, that the holder will not have the practical ability to exercise in any circumstances.
A term that have no substance
A _________________ may achieve or be designed to achieve an overall commercial effect.
group or series of contracts
To report the substance of such contracts, it may be necessary to treat rights and obligations arising from that group or series of contracts as a _______________.
single unit of account
For example, if the rights or obligations in one contract merely nullify all the rights or obligations in another contract entered into at the same time with the same counterparty, the combined effect is that ______________?
the two contracts create no rights or obligations.
Conversely, if a single contract creates two or more sets of rights or obligations that could have been created through two or more separate contracts, an entity may need to
account for each set as if it arose from separate contracts in order to faithfully represent the rights and obligations
are claims on the residual interest in the assets of the entity after deducting all its liabilities. In other words, they are claims against the entity that do not meet the definition of a liability.
Equity claims
Such claims may be established by contract, legislation or similar means, and include, to the extent that they do not meet the definition of a liability:
(a) shares of various types, issued by the entity; and
(b) some obligations of the entity to issue another equity claim.
_____________________, such as ordinary shares and preference shares, may confer on their holders different rights, for example, rights to receive some or all of the following from the entity:
(a) dividends, if the entity decides to pay dividends to eligible holders;
(b) the proceeds from satisfying the equity claims, either in full on
liquidation, or in part at other times; or
(c) other equity claims.
Different classes of equity claims
Sometimes, legal, regulatory or other requirements affect particular
components of equity, such as ___________/________.
share capital or retained earnings
For example, some such requirements permit an entity to make distributions to holders of equity claims only if the ______________ that those requirements specify as being __________.
entity has sufficient reserves
distributable
are often undertaken by entities such as sole proprietorships, partnerships, trusts or various types of government business undertakings.
Business activities
are often different from frameworks that apply to corporate entities. For example, there may be few, if any, restrictions on the distribution to holders of equity claims against such entities.
The legal and regulatory frameworks for such entities
the definition of equity in paragraph 4.63 of the Conceptual Framework applies to all reporting entities.
true or false?
true
