Chapter 1

Question 1

What is the purpose of general purpose financial reporting per IAS?

Answer 1

to provide financial information that is useful to existing and potential investors and lenders

Question 2

what does financial accounting communicate in regards to financial position?

Answer 2

• economic resources
• information on liquidity and use of resources

Question 3

what does financial accounting communicate in regards to financial performance?

Answer 3

• assess stewardship
• assess profit
• allow comparisons to be made between periods

Question 4

what does financial accounting communicate in regards to changes financial position?

Answer 4

• provide information about investing, financing, and operating
• assess ability to generate cash and how cash flows are used

Question 5

What are the five elements of the financial statements?

Answer 5

• assets
• equity
• liabilities
• income
• expenses

Question 6

The three areas of regulatory framework

Answer 6

• accounting standards
• company law
• conceptual framework for financial reporting

Question 7

The purposes of the IFRS’s

Answer 7

• to provide a framework for preparing and presenting financial statements
• to standardise financial statements
• to reduce the variations of accounting treatments
• to help ensure high quality financial accounting
• to help compliance with companies Acts and audit requirements
• To enable fair inter-company comparisons

Question 8

Which sets the bar, conceptual framework, or the IFRS?

Answer 8

the conceptual framework sets the tone for the accounting standards so that standards are consistent with the concepts

Question 9

Going concern meaning

Answer 9

a business entity that is expected to keep trading at the same level for the foreseeable future

Question 10

what are the fundamental qualitative characteristics of financial reporting?

Answer 10

• relevant
• faithful representation

Question 11

what are the enhancing qualitative features of financial reporting?

Answer 11

• comparability
• verifiability
• timeliness
• understandability

Question 12

neutrality to supported by what? What does this mean?

Answer 12

prudence. Prudence prevents overstating income and understating expenses

Question 13

who bears responsibility over deciding whether an item is material or not?

Answer 13

The preparer of the financial statements

Question 14

What makes something material?

Answer 14

Conceptual framework definition:

If committing, misstating or obscuring that element would result in an impact on the decision making of the primary users of the general purpose financial reports

Question 15

Definition of an asset

Answer 15

A present economical resource controlled by the entity as a result of past events

Question 16

Definition of a liability

Answer 16

A present obligation of the entity to transfer an economic resource as a result of past events

Question 17

Definition of equity

Answer 17

residual interest in the assets of an entity after deducting all the liabilities

Question 18

What is ‘recognition’?

Answer 18

The process of deciding whether an item in the financial position or performance is useful to the reports’ users and therefore include it at its’ carrying amount (for BS)

Question 19

What is ‘Measurement?’

Answer 19

The process of ascertaining the value of an item that is to be included in a statement

Question 20

Ways to measure the value of an asset or liability

Answer 20

• Historically
• Current value

Question 21

What is historical value?

Answer 21

original purchase price less depreciation or amortisation

Question 22

What is current value?

Answer 22

• fair value
• value in use
• current cost