Chapter 5 to Chapter 6

Question 1

What are the elements directly related to the measurement of financial position?

Answer 1

Assets
Liabilities
Equity

Question 2

What are the elements directly related to the measurement of financial performance?

Answer 2

Income
Expense

Question 3

This is the residual interest in the assets of the entity after deducting all of the liabilities.

Answer 3

Equity

Question 4

This is defined as a present economic resource controlled by the entity as a result of past events.

Answer 4

Assets

Question 5

This is a right that has the potential to produce economic benefits.

Answer 5

Economic resource

Question 6

What are the 3 essential characteristics of an asset?

Answer 6

1. It is a right.
2. A present economic resource is a right that has a the potential to produce economic benefits.
3. It is controlled by the entity.

Question 7

This is a contract that is equally unperformed which means neither party has fulfilled any of its obligations, or both parties have partially fulfilled their obligations to an equal extent.

Answer 7

Executory Contracts

Question 8

This is a present obligation of an entity to transfer an economic resource as a result of past events.

Answer 8

Liability

Question 9

What are the 3 essential characteristics of a liability?

Answer 9

1. The entity has an obligation.
2. The obligation is to transfer an economic resource.
3. The obligation is present and it results from past events.

Question 10

This is a duty or responsibility that an entity has no practical ability to avoid.

Answer 10

Obligation

Question 11

What are the two types of obligations?

Answer 11

Legal and constructive

Question 12

This obligation is legally enforceable as a consequence of a binding contract or statutory requirement.

Answer 12

Legal obligation

Question 13

These obligations arise from normal business practice custom and a desire to maintain good business relations or act in an equitable manner.

Answer 13

Constructive obligation

Question 14

This is defined as increases in assets or decreases in liabilities that result in increases in equity, other than those relating to contributions from equity holders.

Answer 14

Income

Question 15

This arises in the course of the ordinary regular activities and is referred to by variety of different names including sales, fees, interest, dividends, royalties, and rent.

Answer 15

Revenue

Question 16

What is the essence of revenue?

Answer 16

Regularity

Question 17

These represent other items that meet the definition of income and do not arise in the course of the ordinary regular activities.

Answer 17

Gains

Question 18

This is the primary source of information about an entity’s financial performance.

Answer 18

Income statement/Profit or loss

Question 19

This is defined as decreases in assets, or increases in liabilities that result in decreases in equity, other than those relating to distributions to equity holders.

Answer 19

Expense

Question 20

These do not arise in the course of the ordinary regular activities and include those resulting from disasters.

Answer 20

Losses

Question 21

This is the process of capturing for inclusion in the financial statements an item that meets the definition of an asset, liability, equity, income, or expense.

Answer 21

Recognition

Question 22

This is the amount at which an asset, a liability or equity is recognized in the statement of financial position.

Answer 22

Carrying amount

Question 23

What does it mean to recognize something?

Answer 23

To record in financial statements.

Question 24

When is income earned?

Answer 24

Point of sale

Question 25

This principle requires that those costs and expenses incurred in earning a revenue shall be reported in the same period.

Answer 25

Matching principle

Question 26

What are the 3 applications of matching principle?

Answer 26

1. Cause and effect association 2. Systematic and rational allocation 3. Immediate recognition

Question 27

Under this application, the expense is recognized when the revenue is already recognized.

Answer 27

Cause and effect association

Question 28

Under this application, some costs are expensed by simply allocating them over the periods benefited.

Answer 28

Systematic and rational allocation

Question 29

Under this application, the cost incurred is expensed outright because of uncertainty of future economic benefits or difficulty of reliably associating certain costs with future revenue.

Answer 29

Immediate recognition

Question 30

This is defined as the removal of all or part of recognized asset or liability from the statement of financial position.

Answer 30

Derecognition

Question 31

This occurs when an entity loses control of all or part of the asset.

Answer 31

Derecognition of asset

Question 32

This occurs when the entity no longer has a present obligation for all or part of a liability.

Answer 32

Derecognition of liability

Question 33

This is defined as quantifying in monetary terms the elements in the financial statements.

Answer 33

Measurement

Question 34

This is the entry price or entry value to acquire an asset or to incur a liability.

Answer 34

Historical cost or original acquisition cost

Question 35

What does the current value include?

Answer 35

Fair value Value in use for asset Fulfillment value for liability Current cost

Question 36

This is the price that would be received to sell an asset in an orderly transaction between market participants at measurement date.

Answer 36

Fair value of asset

Question 37

This is the price that would be paid to transfer a liability in an orderly transaction between market participants at measurement date.

Answer 37

Fair value of liability

Question 38

This 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.

Answer 38

Value in use

Question 39

This is the present value of cash that an entity expects to transfer in paying or settling a liability.

Answer 39

Fulfillment value

Question 40

This is the cost of an equivalent asset at the measurement date comprising the consideration paid and transaction cost.

Answer 40

Current cost of an asset

Question 41

This is the consideration that would be received less any transaction cost at measurement date.

Answer 41

Current cost of liability