Chapter 1 - General Purpose of Financial Reporting

Question 1

• Primary Users Making Decisions

Answer 1

• Existing or potential Investors
• Lenders
• Suppliers

These use the information to decide whether to:

• Buying goods
• Selling goods
• Buying / Selling equity in the entity
• Providing loans or other finance

Question 2

• Information Needed to Support Decision Making

Answer 2

The entities Economic Resources:

• Assets
• Liabilities
• Changes of Assets / Liabilities
• How effectively the entity is being managed

Question 3

• Assumptions in Financial Statements

ACCRUALS

Answer 3

Depicts the effects of transactions and other events in the period which they occurred, even if the resulting cash receipts/payments occur in a different period.

Question 4

• Assumptions in Financial Statements

GOING CONCERN

Answer 4

Financial statements are prepared on the assumption that the reporting entity will continue to trade for the foreseeable future (12m+).

Going Concern is the assumption that the company doesn’t have the intention nor the need to enter liquidation or to cease trading.