Ch 5

Question 1

What is the chapter 5?

Answer 1

Recognition and derecognition

Question 2

_______________ is the process of capturing for inclusion in the statement of
financial position or the statement(s) of financial performance an item that
meets the definition of one of the elements of financial statements—an asset, a liability, equity, income or expenses.

Answer 2

Recognition

Question 3

Recognition involves ___________ the item
in one of those statements—either alone or in aggregation with other items—
in words and by a monetary amount, and including that amount in one or
more totals in that statement.

Answer 3

depicting

Question 4

The amount at which an asset, a liability or
equity is recognised in the statement of financial position is referred to as its
‘________________’.

Answer 4

carrying amount

Question 5

The statement of financial position and statement(s) of financial performance
depict an entity’s recognised assets, liabilities, equity, income and expenses in
structured summaries that are designed to make financial information
____________________ . An important feature of the structures of
those summaries is that the amounts recognised in a statement are included
in the totals and, if applicable, subtotals that link the items recognised in the
statement.

Answer 5

comparable and understandable

Question 6

Recognition links the elements, the statement of financial position and the
statement(s) of financial performance as follows (see Diagram 5.1):

(a) in the statement of financial position at the beginning and end of the
reporting period, total assets minus total liabilities equal total__________;
and

(b) recognised ________in equity during the reporting period comprise:
(i) income minus _______recognised in the statement(s) of
financial performance; plus
(ii) contributions from holders of equity claims, minus
distributions to holders of equity claims.

Answer 6

equity

changes

expenses

Question 7

The statements are linked because the recognition of one item (or a change in
its carrying amount) requires the recognition or derecognition of one or more
other items (or changes in the carrying amount of one or more other items).

For example:
(a) the recognition of income occurs at the __________ as:
(i) the __________ of an asset, or an increase in the carrying
amount of an asset; or
(ii) the _________ of a liability, or a decrease in the carrying
amount of a liability.
(b) the recognition of expenses occurs at the same time as:
(i) the initial recognition of a liability, or an increase in the
carrying amount of a liability; or
(ii) the derecognition of an asset, or a decrease in the carrying
amount of an asset.

Answer 7

same time

initial recognition

derecognition

Question 8

aralin page 53, diagram 5.1

Answer 8

hehe

Question 9

The initial recognition of assets or liabilities arising from transactions or other events may result in the ____________ of both income and related expenses. For example, the sale of goods for cash results in the recognition of both income (from the recognition of one asset—the cash) and an expense (from the derecognition of another asset—the goods sold). The simultaneous recognition of income and related expenses is sometimes referred to as the ____________. Application of the concepts in the Conceptual Framework leads to such matching when it arises from the recognition of changes in assets and liabilities. However, matching of costs with income is not an ______of the Conceptual Framework. The Conceptual Framework does not allow the recognition in the statement of financial position of items that do not meet the definition of an asset, a liability or equity.

Answer 9

simultaneous recognition

matching of costs with income

objective

Question 10

Only items that meet the definition of an asset, a liability or equity are
_________ in the statement of financial position. Similarly, only items that
meet the definition of income or expenses are recognised in the statement(s)
of financial performance. However, not all items that meet the definition of
one of those elements are recognised

Answer 10

recognised

Question 11

Not recognising an item that meets the definition of one of the elements
makes the statement of financial position and the statement(s) of financial
performance ___________ and can exclude useful information from financial
statements. On the other hand, in some circumstances, recognising some
items that meet the definition of one of the elements would not provide
_______________. An asset or liability is recognised only if recognition of
that asset or liability and of any resulting income, expenses or changes in
equity provides users of financial statements with information that is useful

(a)______________ about the asset or liability and about any
resulting income, expenses or changes in equity (see paragraphs
5.12–5.17); and
(b) a ______________ of the asset or liability and of any resulting
income, expenses or changes in equity (see paragraphs 5.18–5.25).

Answer 11

less complete

useful information

relevant information

faithful representation

Question 12

Just as cost constrains other financial reporting decisions, it also constrains
recognition decisions. There is a cost to recognising an ____________.
_________________ incur costs in obtaining a relevant measure
of an asset or liability. _____________ also incur costs in
analysing and interpreting the information provided. An asset or liability is recognised if the benefits of the information provided to users of financial
statements by recognition are likely to justify the costs of providing and using
that information. In some cases, the costs of recognition may outweigh its
benefit

Answer 12

asset or liability

Preparers of financial statements

Users of financial statements

Question 13

It is not possible to define precisely when recognition of an asset or liability
will provide useful information to users of financial statements, at a cost that
does not outweigh its benefits. What is useful to users depends on the item
and the facts and circumstances. Consequently, __________ is required when
deciding whether to recognise an item, and thus recognition requirements
may need to vary between and within Standards.

Answer 13

judgement

Question 14

It is important when making decisions about recognition to consider the
___________ that would be given if an asset or liability were not recognised.
For example, if no asset is recognised when expenditure is incurred, an
expense is recognised. Over time, recognising the expense may, in some cases, provide useful information, for example, information that enables users of financial statements to identify trends.

Answer 14

information

Question 15

Even if an item meeting the definition of an asset or liability is not recognised,
an entity may need to provide information about that item in the _________. It is
important to consider how to make such information sufficiently visible to
compensate for the item’s absence from the structured summary provided by
the statement of financial position and, if applicable, the statement(s) of
financial performance

Answer 15

notes

Question 16

Information about assets, liabilities, equity, income and expenses is ____________-
to users of financial statements. However, recognition of a particular asset or
liability and any resulting income, expenses or changes in equity may not
always provide relevant information. That may be the case if, for example:
(a) it is uncertain whether an asset or liability exists (see paragraph 5.14);
or
(b) an asset or liability exists, but the probability of an inflow or outflow
of economic benefits is ________(see paragraphs 5.15–5.17).

Answer 16

relevant

low

Question 17

The presence of one or both of the factors described in paragraph 5.12 does
not lead automatically to a ___________ that the information provided by
recognition lacks relevance. Moreover, factors other than those described in
paragraph 5.12 may also affect the conclusion. It may be a combination of
factors and not any single factor that determines whether recognition
provides relevant information.

Answer 17

conclusion

Question 18

Paragraphs 4.13 and 4.35 discuss cases in which it is uncertain whether an
asset or liability exists. In some cases, that uncertainty, possibly combined
with a low probability of inflows or outflows of economic benefits and an
exceptionally wide range of possible outcomes, may mean that the recognition
of an asset or liability, necessarily measured at a _____________, would not
provide relevant information. Whether or not the asset or liability is
recognised, explanatory information about the uncertainties associated with it
may need to be provided in the financial statements.

Answer 18

single amount

Question 19

An _______________ can exist even if the probability of an inflow or outflow of
economic benefits is low

Answer 19

asset or liability

Question 20

If the probability of an inflow or outflow of economic benefits is low, the most
relevant information about the asset or liability may be information about the
___________________, their possible timing and the
factors affecting the probability of their occurrence. The typical location for
such information is in the notes

Answer 20

magnitude of the possible inflows or outflows

Question 21

Even if the probability of an inflow or outflow of economic benefits is low, recognition of the asset or liability may provide _______________ beyond the information described in paragraph 5.16. Whether that is the case may depend on a variety of factors. For example:

(a) if an asset is acquired or a liability is incurred in an exchange transaction on market terms, its cost generally reflects the ___________ of an inflow or outflow of economic benefits. Thus, that cost may be relevant information, and is generally readily available. Furthermore, not recognising the asset or liability would result in the recognition of expenses or income at the time of the exchange, which might not be a faithful representation of the transaction (see paragraph 5.25(a)).

(b) if an asset or liability arises from an event that is not an exchange transaction, recognition of the asset or liability typically results in recognition of _______________ If there is only a low probability that the asset or liability will result in an inflow or outflow of economic benefits, users of financial statements might not regard the recognition of the asset and income, or the liability and expenses, as providing relevant information.

Answer 21

relevant information

probability

income or expenses.

Question 22

Recognition of a particular asset or liability is appropriate if it provides not
only relevant information, but also a _____________ of that asset or
liability and of any resulting income, expenses or changes in equity. Whether
a faithful representation can be provided may be affected by the level of
measurement uncertainty associated with the asset or liability or by other
factors.

Answer 22

faithful representation

Question 23

For an asset or liability to be recognised, it must be ___________. In many cases,
such measures must be __________and are therefore subject to measurement
uncertainty. As noted in paragraph 2.19, the use of reasonable estimates is an
_____________ of the preparation of financial information and does not
undermine the usefulness of the information if the estimates are clearly and
accurately described and explained. Even a high level of measurement
uncertainty does not necessarily prevent such an estimate from providing
useful information.

Answer 23

measured

estimated

essential part

Question 24

In some cases, the level of uncertainty involved in estimating a measure of an _____________ may be so high that it may be questionable whether the estimate would provide a sufficiently faithful representation of that asset or liability and of any resulting income, expenses or changes in equity. The level of measurement uncertainty may be so high if, for example, the only way of estimating that measure of the asset or liability is by using __________________ techniques and, in addition, one or more of the following circumstances exists:

(a) the range of possible outcomes is exceptionally ________and the probability of each outcome is exceptionally difficult to _________.

(b) the measure is exceptionally sensitive to _________ in estimates of the probability of different outcomes—for example, if the probability of future cash inflows or outflows occurring is exceptionally low, but the magnitude of those cash inflows or outflows will be exceptionally high if they occur.

(c) measuring the asset or liability requires exceptionally ________or exceptionally _________ allocations of cash flows that do not relate solely to the asset or liability being measured

Answer 24

asset or liability

cash-flow-based measurement

wide
estimate

small changes

difficult
subjective

Question 25

In some of the cases described in paragraph 5.20, the most useful information may be the measure that relies on the ____________, accompanied by a description of the estimate and an explanation of the uncertainties that affect it. This is especially likely to be the case if that measure is the most relevant measure of the asset or liability. In other cases, if that information would not provide a sufficiently faithful representation of the asset or liability and of any resulting income, expenses or changes in equity, the most useful information may be a different measure (accompanied by any necessary descriptions and explanations) that is slightly less relevant but is subject to lower measurement uncertainty.

Answer 25

highly uncertain estimate

Question 26

In limited circumstances, all relevant measures of an asset or liability that are available (or can be obtained) may be subject to such ____________ that none would provide useful information about the asset or liability (and any resulting income, expenses or changes in equity), even if the measure were accompanied by a description of the estimates made in producing it and an explanation of the uncertainties that affect those estimates. In those limited circumstances, the asset or liability would not be recognised.

Answer 26

high measurement uncertainty

Question 27

Whether or not an asset or liability is recognised, a faithful representation of the asset or liability may need to include __________ about the uncertainties associated with the asset or liability’s existence or measurement, or with its outcome—the amount or timing of any inflow or outflow of economic benefits that will ultimately result from it (see paragraphs 6.60–6.62)

Answer 27

explanatory information

Question 28

Faithful representation of a recognised asset, liability, equity, income or expenses involves not only recognition of that item, but also its ______________ as well as __________________ (see Chapters 6–7).

Answer 28

measurement presentation and disclosure of information about it

Question 29

Hence, when assessing whether the recognition of an asset or liability can provide a faithful representation of the asset or liability, it is necessary to consider not merely its description and measurement in the statement of financial position, but also: (a) the depiction of _______________ For example, if an entity acquires an asset in exchange for consideration, not recognising the asset would result in recognising expenses and would reduce the entity’s profit and equity. In some cases, for example, if the entity does not consume the asset immediately, that result could provide a misleading representation that the entity’s financial position has deteriorated. (b) whether related assets and liabilities are recognised. If they are not recognised, recognition may create a ____________ (accounting mismatch). That may not provide an understandable or faithful representation of the overall effect of the transaction or other event giving rise to the asset or liability, even if explanatory information is provided in the notes. (c) presentation and disclosure of information about the _________________________. A complete depiction includes all information necessary for a user of financial statements to understand the economic phenomenon depicted, including all necessary descriptions and explanations. Hence, presentation and disclosure of related information can enable a recognised amount to form part of a faithful representation of an asset, a liability, equity, income or expenses.

Answer 29

resulting income, expenses and changes in equity. recognition inconsistency asset or liability, and resulting income, expenses or changes in equity.

Question 30

the removal of all or part of a recognised asset or liability from an entity’s statement of financial position.

Answer 30

derecognition

Question 31

Derecognition normally occurs when that item no longer meets the definition of an asset or of a liability: (a) for an asset, derecognition normally occurs when the entity ____________ of all or part of the recognised asset; and (b) for a liability, derecognition normally occurs when the entity no longer has a ________________ for all or part of the recognised liability.

Answer 31

loses control present obligation

Question 32

Accounting requirements for derecognition aim to faithfully represent both: (a) any assets and liabilities retained after the transaction or other event that led to the __________ (including any asset or liability acquired, incurred or created as part of the transaction or other event); and (b) the change in the entity’s _______________ as a result of that transaction or other event.

Answer 32

derecognition assets and liabilities

Question 33

The aims described in paragraph 5.27 are normally achieved by: (a) derecognising any assets or liabilities that have expired or have been consumed, collected, fulfilled or transferred, and recognising any resulting income and expenses. In the rest of this chapter, the term ‘_______________’ refers to all those assets and liabilities; (b) continuing to recognise the assets or liabilities retained, referred to as the '________________’, if any. That retained component becomes a unit of account separate from the transferred component. Accordingly, no income or expenses are recognised on the retained component as a result of the derecognition of the transferred component, unless the derecognition results in a change in the measurement requirements applicable to the retained component; and (c) applying one or more of the following procedures, if that is necessary to achieve one or both of the aims described in paragraph 5.27: (i) presenting any retained component separately in the statement of financial position; (ii) presenting separately in the statement(s) of financial performance any income and expenses recognised as a result of the derecognition of the transferred component; or (iii) providing explanatory information.

Answer 33

transferred component retained component

Question 34

In some cases, an entity might appear to transfer an asset or liability, but that asset or liability might nevertheless remain an asset or liability of the entity. For example: (a) if an entity has apparently transferred an asset but retains ____________ to significant positive or negative variations in the amount of economic benefits that may be produced by the asset, this sometimes indicates that the entity might continue to control that asset (see paragraph 4.24); or (b) if an entity has transferred an asset to another party that holds the asset as an _______ for the entity, the transferor still controls the asset (see paragraph 4.25).

Answer 34

exposure agent

Question 35

In the cases described in paragraph 5.29, derecognition of that asset or liability is not _________ because it would not _________ either of the two aims described in paragraph 5.27.

Answer 35

appropriate achieve

Question 36

When an entity no longer has a transferred component, derecognition of the transferred component faithfully represents that fact. However, in some of those cases, derecognition may not faithfully represent how much a transaction or other event changed the entity’s assets or liabilities, even when supported by one or more of the procedures described in paragraph 5.28(c). In those cases, derecognition of the transferred component might imply that the entity’s financial position has changed more significantly than it has. This might occur, for example: (a) if an entity has transferred an asset and, at the same time, entered into another transaction that results in a present right or present obligation to ____________ the asset. Such present rights or present obligations may arise from, for example, a forward contract, a written put option, or a purchased call option. (b) if an entity has retained exposure to significant positive or negative variations in the amount of ______________ that may be produced by a transferred component that the entity no longer controls.

Answer 36

reacquire economic benefits

Question 37

If derecognition is not _________ to achieve both aims described in paragraph 5.27, even when supported by one or more of the procedures described in paragraph 5.28(c), those two aims might sometimes be achieved by continuing to recognise the transferred component. This has the following consequences: (a) no ______________ are recognised on either the retained component or the transferred component as a result of the transaction or other event; (b) the proceeds received (or paid) upon transfer of the asset (or liability) are treated as a ____________ (or given); and (c) separate presentation of the transferred component in the ____________________, or ___________________, is needed to depict the fact that the entity no longer has any rights or obligations arising from the transferred component. Similarly, it may be necessary to provide information about income or expenses arising from the transferred component after the transfer.

Answer 37

sufficient income or expenses loan received statement of financial position provision of explanatory information

Question 38

One case in which questions about derecognition arise is when a contract is modified in a way that reduces or eliminates existing ___________. In deciding how to account for contract modifications, it is necessary to consider which unit of account provides users of financial statements with the most useful information about the assets and liabilities retained after the modification, and about how the modification changed the entity’s assets and liabilities: (a) if a contract modification only eliminates existing rights or obligations, the discussion in paragraphs 5.26–5.32 is considered in deciding whether to _____________ those rights or obligations; (b) if a contract modification only adds ____________, it is necessary to decide whether to treat the added rights or obligations as a separate asset or liability, or as part of the same unit of account as the existing rights and obligations (see paragraphs 4.48–4.55); and (c) if a contract modification both eliminates existing rights or obligations and adds new rights or obligations, it is necessary to consider both the separate and the combined effect of those modifications. In some such cases, the contract has been modified to such an extent that, in substance, the modification replaces the old asset or liability with a new asset or liability. In cases of such extensive modification, the entity may need to derecognise the original asset or liability, and recognise the new asset or liability.

Answer 38

rights or obligations derecognise