chap 6: recognition and measurement Flashcards
the process of capturing for incluusion in the financial statements an itemt hat meets the definition of an asset, liability, equity, income or expense.
recognition
The amount at which an asset, a liability or equity in the statement of financial position is reported recognized as _?
carrying amount
links the elements to the statement of financial position and statement of financial performance.
recognition. statement of financial performance.
The statements are linked because the recognition of an item in one statement requires the recognition of the same item in another statement.
true or false: The recognition of expense happens simultaneouly with the recognition of a decrease in asset or increase in liability.
true
true or false: Only items that meet the definition of an asset, a liability or equity are recognized in the statement of financial position.
true
true or false: only items that meet the definition of income or expense are recognized in the statement of financial performance.
true
In addition to meeting the definition of an element, items are recognized only when their recognition provides users of financial statements with information that is both _ and _.
relevant and faithfully represented.
it does not focus anymore on how probable economic benefits will flow to or from the entity and that the cost can be measured reliably.
recognition
true or false: An asset or liability and any corresponding income or expense can exist even if the probability of inflow or outflow of the benefits is low.
true
income shall be recognized when earned.
income recognition principle
under certain conditions, income may be recognized at the point of _, during production, and at the point of collection.
production
with respect to sale of goods in the ordinary course of business, the point of dale is unquestionably the point of _?
income recognition
legal title to the goods passes to the buyer at the _?
point of sale
means that expenses ate recognized when incurred.
expense recognition principle
the expense recognition principle is the application if the _?
matching principle
requires that those costs and expenses incurred in earning a revenue shall be reported in the same period.
matching principle
matching principle had three applications, namely?
- cause and effect association
- systematic and rational allocation
- immediate recognition
the expense is recognized when the revenue is already recognized.
cause and effect association
the cause and wffect association principle is actually the _?
strict matching concept. the reasin is the presumed direct association of the expense with specific income.
this matching process, commonly reffered to as _, involvex the simultaneous or combined recognition of revenue and expenses that reiskt directly snd jointly from the same transactions or events.
the matching if cost with revenue
some costs are expensed by simply allocatinv them over the periods benefitted.
systematic and rational allocation. cost incurred eill benefit future periods and that there is an absencd of a direct or clear association of the expense with specific revenue.
true or false: when economic benefits are expected to arise over serveral accounting periods and the association with incomr can only be broad or indrectly determined, expenses are recognized on the basis of _?
systematic and allocation procedures
the cost incurred outright because of uncertainty of future economic benefits or difficulty of reliably associating costs iwth future revenue.
immediate recognition
defined as the removal of all or part of a recognized asset or liability from the statement of financial position.
derecognition
it normallt occurd when an item no longer meets the definition of an asset or liability.
derecognition
it occurs when the entity loses control of all part of an asset.
derecognition of an asset
it occurs when the entity no longer has a present obligation for all part or part of the liabilities.
derecognition of a liability
is defined as quantifying in monetary terms the elementd in the financial statements.
measurement
what are the two categories of measurement?
historical cost and current value
is the cost incurred in acquiring or creating the asset comprising the consideration paid plus transaction cost.
historical cost or original cost of an asset
is the consideration received to incur the liability minhd transaction cost.
historical cost of a liability
is the entry orice or entry orice to acquire an asset or to incur a liability.
historical cost
an application of the historical cost measurement is to measure financial asset and financial liability at _?
amortized cost
it reflects the estimate of future cadh flows discounted at a rate determined at initial recognition.
amortized cost
current value includes what?
a. fair value
b. value in use for asset
c. fulfillment value for liability
d. current cost
is the price that would be received to sell and asset in an orderly transaction between market participants at measurement date.
fair value of an asset
is the price that would be paid to transfer a liability in an orderly transaction between market participants at the measurement date.
fair value of liability
is an exit orice or exit value.
fair value
it can be observed directly using market price of the asset or liability in an active market.
fair value
in cases where fair value cannot be directly measured, and entity can use _?
present value if cash flows
it is not adjusted for transaction cost. the reason id that such cost js a characteristic of the transaction and not of the asset or liability.
fair value
is the present value of the cash flows that an entity expects to derive from the use of an asset and from the ultimate disposal.
value in use. it doesn’t include transaction cost on acquiring the asset but includes transaction cost in the disposal of the asset.
is the present value if cash that an entity expects to transfer in paying or settling a liability.
fulfillment value. it doesn’t include transaction cost on incurring a liability but includes transaction cost on fulillment of a liability.
is the cost of an equivalent asset at the measurement date comprising the consideration oaid and transaction cost.
current cost of an asset
is the consideration that would be received less any transaction cost a measurement date.
current cost a liability. is also based on the entity price or entry value but reflectd market conditions in measurement date.
true or false: in most cases, no single factor will determine which measurement basis should be selected.
true
