FFMA - Week 2 Flashcards
FFMA021: How does the conceptual framework define an asset?
An asset is defined as something controlled by the entity as a result of past events from which the entity expects to receive future economic benefits.
FFMA022: What are the two key elements of the asset definition according to the conceptual framework?
The two key elements of the asset definition are control, which can be physical possession, legal title, or a legal right, and the expectation of future economic benefits, which may be in the form of cash inflows or benefits from using the asset in the business.
FFMA023: What is the definition of a liability in the conceptual framework?
A liability represents a present obligation arising from past events, which is expected to result in an outflow of resources embodying economic benefits.
FFMA024: How are assets and liabilities categorized as current or non-current?
Assets and liabilities are categorized as current if they are expected to be realized, settled, or consumed within 12 months or within the entity’s normal operating cycle. They are considered non-current if they don’t meet these criteria.
FFMA025: What is the definition of equity according to the conceptual framework?
Equity is defined as the residual interest in the assets of the entity after deducting liabilities. Essentially, it’s the assets minus the liabilities.
FFMA026: What are some examples of what might constitute the equity section of a company’s balance sheet?
The equity section of a company’s balance sheet might include share capital, share premium, various types of reserves, and retained earnings. These represent the capital invested by the owners and the value generated by the company that belongs to the shareholders.
FFMA027: How is the share capital and share premium related to equity?
Share capital and share premium represent the amount of capital that has been invested in the company by the owners, i.e., the shareholders, and are integral parts of a company’s equity.
FFMA028: How are retained earnings and other reserves related to equity?
Retained earnings and other reserves are part of equity, representing the value that has been generated by the company and belongs to the shareholders. They would be shared between the shareholders if the company was wound up.
