Conceptual Framework (Part I)

Question 1

Name the two general purpose frameworks of accounting

Answer 1

IFRS and GAAP

Question 2

Name the four special purpose frameworks of accounting referenced in the text

Answer 2

Cash, (and modified cash) tax, contractual and regulatory

Question 3

Name the simplified form of GAAP for non publicly traded companies

Answer 3

PCC- Private Company Council

Question 4

Name the six main objectives of financial reporting

Answer 4

1. To provide information useful to investors, lenders and creditors.
2. To provide information about an entity’s economic resources and claims against those resources.
3. To report changes in economic resources and claims.
4. To report financial performance reflected by accrual accounting.
5. To report financial performance reflected by past cash flow.
6. To report changes in resources and claims that do not result from financial performance.

Question 5

Name the two primary qualitative characteristics

Answer 5

Relevance and faithful representation

Question 6

Name the two components of relevance

Answer 6

Predictive value and confirmatory value (subject to materiality constraints. (PC)

Question 7

Name the components of faithful representation

Answer 7

Free from error, neutral, and complete (FeNCe)

Question 8

Name the enhancing qualitative characteristics

Answer 8

Comparability, understandable, timely and verifiable.

Question 9

Name the four primary financial statements

Answer 9

Income statement, balance sheet, cash flows and statement of changes in owners equity.

Question 10

What is the physical capital maintenance concept?

Answer 10

Measures changes when the asset is sold or liability is settled. Usually applied to fixed assets.

Question 11

What is the capital maintenance concept?

Answer 11

Measures changes when the value of the asset or liability changes. Usually applied to marketable securities.

Question 12

What are the four elements of comprehensive income?

Answer 12

Revenues, expenses, gains and losses

Question 13

How are fixed assets reported?

Answer 13

At historical cost (depreciation aside)

Question 14

How is inventory reported?

Answer 14

At the lower of cost or market

Question 15

How are receivables reported?

Answer 15

At net realizable value (gross less allowance for uncollectibles)

Question 16

How are receivables written down as a result of impairment?

Answer 16

Receivables are written down to fair value or the present value of the expected future cash flows. In certain circumstances they are written down to the NRV of collateral.

Question 17

How often are Goodwill and intangibles tested for impairment?

Answer 17

At least annually

Question 18

Under the fair value option, which items are not reported at fair value?

Answer 18

Leases, pension plans, equity components and share based payments/stock options.

Question 19

When the fair value option is elected, where are unrealized gains/losses reported?

Answer 19

In income, regardless of whether or not they would otherwise be reported in OCI.

Question 20

What are the three valuation techniques to determine the FMV of an asset

Answer 20

The Market Approach (using info from transactions involving similar or identical assets) the income approach (analyzes future revenues, cost savings etc) and the cost approach (based on the cost of replacement)

Question 21

What are the three levels of input?

Answer 21

Level 1- Uses observable data for an identical asset in an active market.
Level 2- Uses observable data for an identical asset sold outside of an active market or a similar asset sold in an active market.
Level 3- Largely based on managements judgement.

Question 22

What are the required disclosures for asset/liability valuation?

Answer 22

1. Identification of items reported at FMV
2. The level of input
3. The valuation technique applied
4. The change in FV

Question 23

What are the methods of recognizing expenses?

Answer 23

Cause and effect (can be matched to revenues) systematic and rational allocation (i.e, depreciation) and immediate recognition.