Constraint and Present value

Question 1

Constraint/setting standard

Answer 1

cost of providing the info should not exceed the benefit

limits recognition and disclosure if the cost

Question 2

conservatism

Answer 2

not a constrain, we do want to overstate/ understate FS

Question 3

Using cash flow and PV

Answer 3

Refers to measurement when the PV of cash flows are used to estimate fair value and FV is not available is a quatitative guidance (PE and stock)
it governs measurement not recognition. when to measure and NOT how to measure items at present value

Question 4

Two ways to incorporate risk w/cash flows

Answer 4

1. • Discounted CF: single CF value discounted using the risk adjusted rate
2. • expected CF: probability weighted cash flows discounted using the risk free rate

Question 5

FS

Answer 5

1.- bal sheet- Financ position at YE
2. IS earning for the year
3. Comprehensive inc x year non-owners SCI
4. SCF, CF during the year
5 OE - Inv and dist to owners

Question 6

Recognition

Answer 6

1. definition of a FS element is met
2. Measurability- hist cost
3. Relevance-capable of influece decision, timely, predictive ability provides feedba and is material
4. faithful representation-

Question 7

elements of FS

Answer 7

1- Assets:Resources have probable future benefits to the firm

2. • Liability: probable sacrifices to the firm
3. • equity:Residual Inters in the firms assets
4. • Inv by owners: Increase in net assets
5. • Distributions to owners:decreases in net assets
6. • Comph Income:all changes in equity non owners and distb to owners
7. • Revenues: increases in Assets or settlemens of Liab/provid goods and svc
8. • Exp Decreases in asst or incurrences in liab by provd goods and svc
9. • gains Increase in equity or net assets from peripheral or incidental transactions
10. • Gains-Increases in equity or net assets from ph or inc tranc

Question 8

Present value measure aproaches

Answer 8

1. • The tradition approach (discounted cash flows- single most likely CF computation uses Int rate to capture uncertainties
2. • expected Cash flow approach-risk free rate as the discount rate- uses expectations about all possible CF instead of a single

Question 9

Fresh start measurement do?

Answer 9

Stablishes a new carring value afte and initial recognition and is unreleated to previouw amounts (mk to mk acct and impairments)

Question 10

Measurement

Answer 10

does not constitute GAAP but is used in the development of GAAP