FAR - Framework, Overview & Statements - Special Purpose Framework - Personal Financial Statements

Question 1

What accounting concepts underlie the preparation of personal financial statements?

Answer 1

Personal financial statements are prepared based on the use of accrual accounting and fair value measurement.

Question 2

Identify the “entities” for whom personal financial statements are prepared.

Answer 2

1) an individual; 2) a husband and a wife; 3) a family unit

Question 3

Describe the basis for measuring assets for a personal statement of financial condition.

Answer 3

Assets in a personal statement of financial condition should be measured at estimated current (fair) value in an arms-length transaction, net of disposal costs, if any.

Question 4

Identify the statements included in a set of personal financial statements.

Answer 4

1) a statement of financial condition (balance sheet); 2) a statement of changes in net worth.

Question 5

What income tax-related liabilities should be shown in a personal statement of financial condition?

Answer 5

1) Income tax payable: known and estimated amounts payable for prior and current periods, less withholding and estimated tax payments made; 2) Income tax provision: estimated amount which would be due based on the difference between the estimated current value of net assets and their tax basis (computed as excess of current value of net assets over tax basis of net assets, multiplied by the current effective tax rate.

Question 6

In what order should liabilities be shown in a personal statement of financial condition?

Answer 6

In the order of maturity, with no distinction as to current/non-current classifications.

Question 7

Describe the basis for measuring liabilities for a personal statement of financial condition.

Answer 7

Liabilities in a personal statement of financial condition should be measured at estimated current amounts, which would be based on the lower of: 1) the amount at which the liability could be settled currently (liquidation value) or 2) the present value of cash to be paid in future settlement.

Question 8

In what order should assets be shown in a personal statement of financial condition?

Answer 8

In order of liquidity, with no distinction as to current/non-current classifications.

Question 9

How should a significant interest in a separate business be shown in a personal statement of financial condition?

Answer 9

As a single line item at the estimated current fair value of the net assets, separate from other assets.