Chapter 7 - reporting financial performance

Question 1

Accounting policies

Answer 1

Specific principles, bases, conventions, rules and practices applied by an entity in preparing and presenting financial statements

Question 2

Accounting estimate

Answer 2

Estimation technique is a method adopted by an entity to arrive at estimated amounts for the financial statements

Question 3

Accounting for a change in accounting policy

Answer 3

• Retrospective application = as though the policy had always been in place
• Adjust the opening balance of retained earnings in the statement of changes in equity (pror period adjustment)
• Restate the comparative information unless it is impracticable to do so

Question 4

Accounting for changes in accounting estimates

Answer 4

Prospective application - recognise in current and future period. The change is applied to transactions from the date of change

Question 5

Change in accounting policy disclosure

Answer 5

If the change has a material effect on the current / prior period (or may even have a material effect in subsequent periods), the following disclosures are required:

• reasons for the change
• amounts adjusted for within current period and comparatives
• amounts adjusted for in periods prior to those of the financial statements.

Question 6

Prior period errors disclosure

Answer 6

When correcting a prior period error, the following disclosures are required in the notes:

• nature of the error
• correction amount for each financial statement line for prior periods
• correction amount at the beginning of the earliest prior period presented.

Question 7

what is a discontinued operation

Answer 7

A component of an entity that has either been disposed of, or is classified as held for sale
- Represents a seperate major line of business or geographical area of operations
- Is part of a single co-ordinate plan to dispose of a separate major line of business or geographical area of operations
- is a subsidiary acquired exclusively with a view to resale

Question 8

Control

Answer 8

an investor controls an investee when the investor exposed or has rights, to variable returns from its involvements with the investee and had the ability to affect those returns through its power over the investee

Question 9

Joint control

Answer 9

contractually agreed sharing of control of an arrangement, which only exists when decisions about the relevant activities require the unanimous consent of the parties sharing control

Question 10

Significant influence

Answer 10

the power to participate in the financial and operating policy decisions of the investee but is not control or joint control of those policies

Question 11

Key management personnel

Answer 11

persons having authority and responsibility for planning, directing and controlling the activities of the entity, directly or indirectly including any director of that entity

Question 12

Related party transaction

Answer 12

a transfer of resources, services or obligations between a reporting entity and a related party, regardless of whether a price is charged

Question 13

Examples of related party transactions

Answer 13

• Purchase/sale of non-current assets
• Provision of services
• Leasing arrangements
• Financing arrangements
• Provision of guarantees
• Purchase/sale of goods

Question 14

Reporting entity should disclose:

Answer 14

• Description of the transaction
• Amounts and details of any outstanding balances
• Allowances for receivables in respect of the outstanding balances
• Irrecoverable debt expense in respect of the outstanding balances
• Nature of the related party relationship