GAAP

Question 1

Order of applying GAAP

Answer 1

1. Corporations Act (requires corporations to comply with accounting standards)
2. Accounting standards & interpretations (rules)
3. Conceptual Framework
4. Concepts & Principles (developed over time)

Question 2

Definition of Asset

Answer 2

A present economic resource controlled by the entity as a result of past events

• Economic resource is defined as a right that has the potential to produce future economic benefits

Question 3

Definition of Expense

Answer 3

Decreases in assets, or increases in liabilities, that result in decreases in equity, other than those relating to distributions to holders of equity claims

Two categories:

(1) Expenses: decreases in economic benefit that arise in the ordinary activities of the entity
(2) Losses: expenses that do not necessarily arise in the ordinary course of business

Question 4

When is an asset recognised?

Answer 4

When it meets the definition of an asset.

Recognition is appropriate if it results in both relevant information about the asset and the information being faithfully represented.

Question 5

When is an expense recognised?

Answer 5

When it meets the definition of an expense.

Expense recognition occurs at the same time as:

(i) the initial recognition or an increase in the carrying amount of a liability
(ii) the derecognition or a decrease in the carrying amount of an asset

Recognition is appropriate if it results in both relevant information about the expense and the information being faithfully represented.