CH3 - Measuring and reporting financial performance

Question 1

materiality convention

Answer 1

the convention which says that items need to be separately disclosed if they will be seen as important (material) by users. Items not deemed to be important enough to justify separate disclosure can be grouped together.

Question 2

accruals convention

Answer 2

A convention which asserts that profit is the excess of revenue over expenses for a period, not the excess of cash received over cash paid. => profit = rev - exp

Question 3

accruals accounting

Answer 3

The system of accounting that adheres to the accruals convention. This system is followed in preparing the statement of financial position and the income statement.

Question 4

Accumulated depreciation

Answer 4

is an asset.

Question 5

Depreciation

Answer 5

A measure of that portion of the cost (less residual value) of a fixed asset which has been expensed during ac accounting period.

Question 6

Amortisation

Answer 6

The equivalent of depreciation for a non-current asset (intangible).

Question 7

written-down value

Answer 7

the cost of fair value of an asset less the accumulated amount written-off as depreciation to date.

Question 8

residual value

Answer 8

disposal value

Question 9

accelerated depreciation : reducing-balance method

Answer 9

P= (1- can n of R/C) X 100%

Question 10

straight-line depreciation

Answer 10

with equal depreciation expense in each period.

Question 11

Selecting a depreciation method

Answer 11

Straight-line : assets that remain fairly (e.g. buildings). economic benefits of the asset is uncertain
Accelerated: assets that lose efficiency over time and the benefits decline as a result. (e.g. certain types of machinery)