Definitions Flashcards
What is an asset?
A present economic resource controlled by the entity as a result of past events
An economic resource is a right that has the potential to produce economic benefits
What is a liability?
A present obligation to transfer an economic resource as a result of past events
What is equity?
The residual interest in net assets of the entity after deducting all of its liabilities
What is income?
An increase in assets or decrease in liabilities that result in increases in equity, other than those relating to contributions from holders of equity claims
what are expenses?
A decrease in asses or increase in liabilities that result in decreases in equity, other than those relating to distributions to holders of equity claims
When can an element be recognised?
When it meets the definition of an element
When it provides relevant information
When it can be faithfully represented
How can an element be measured?
Historical cost
Current Cost
Fair value
What is relevant information?
Information is relevant if it is capable of making a difference to the decisions of the user
Measurement of element - Fair value
The price that would be received to sell an asset or paid to settle a liability in a normal arms length transaction
Measurement of element - Value in use (assets) or Fulfilment value (liabilities)
Present value of all cashflows. These need to be discounted due to the time value of money
Measurement of element - Current cost
cost of an equivalent item if you had to replace the asset or settle the debt
What is financial capital maintenance
If the net assets at the end of the period are equal to or greater than the net assets at the start of the period then capital is maintained
What is physical capital maintenance
If the operating capacity of the entity is equal to or greater than at the start of the period then capital is maintained
How can financial information make a difference to decisions?
Predictive value
Confirmatory value
What is a predictive value (Relevant Information)
it can be used to predict future outcomes
What is a confirmatory value (Relevant information)
It provides feedback about previous evaluations (confirms whether past predictions were reasonable)
What is faithful representation
Complete, neutral, free from error
What is materiality?
Information is material if omitting, misstating or obscuring it could reasonably be expected to influence decisions that the primary users make on the basis of financial infomation about a specific reporting entity
What is prudence?
Exercising caution when making judgements under conditions of uncertainty. We should take care not to overstate assets and income or understate liabilities and expenses
