Learning Unit 1 - Conceptual Framework

Question 1

What are the five elements of an accounting system?

Answer 1

1. Assets2. Liabilities3. Owners equity4. Income5. Expenses

Question 2

What is the definition of a asset?

Answer 2

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

Question 3

What is the definition of a liability?

Answer 3

A present obligation of the entity to transfer an economic resource as a result of past events. An obligation is a duty or responsibility that the entity has no practical ability to avoid.

Question 4

What is the definition of equity?

Answer 4

Equity is the residual interest in the assets of the entity after deducting all its liabilities.

Question 5

What is the definition of income?

Answer 5

Increases in assets, or decreases in liabilities, that result in increases in equity, otherthan those relating to contributions from holders of equity claims.

Question 6

What is the definition of expenses?

Answer 6

Decreases in assets, or increases in liabilities, that results in decreases in equity, otherthan those relating to distributors to holders of equity claims.

Question 7

What is the Conceptual framework?

Answer 7

The Conceptual framework can be described as a group of interrelated objectives and fundamental theoretical principles that serve as a frame of reference for financial accounting. The conceptual framework is both normative (prescriptive) and descriptive (explanatory).

Question 8

What is the purpose of the conceptual framework?

Answer 8

According to the International Accounting Standards Board (IASB) the purpose of the Conceptual framework is to:(a) Assist the IASB in developing IFRS so that they are based on consistent concepts(b) Aid the preparer of the financial statements to develop consistent accounting policies in the absence of an applicable Standard.(c) Assist all parties to understand and interpret IFRS

Question 9

What is the objective as of general purpose financial reporting? (Conceptual framework para 1.2 and 1.3)

Answer 9

The objective of general purpose financial reporting is to provide financial information about a reporting to its existing and potential investors, lenders and other creditors that they finds useful when making decisions regarding providing resources to the entity

Question 10

What are the two fundamental qualitative characteristics of financial information?

Answer 10

(a) Relevance - Financial information is relevant if it has predictive value or confirmatory value. This is influenced by materiality.(b) Faithful representation - Is the information faithfully represented. Substance over legal form

Question 11

What are the enhancing qualitative characteristics? (List four)

Answer 11

1. Comparability2. Verifiability - Can different knowledgeable people reach consensus that a particular depiction is faithful.3. Timeliness4. Understandability

Question 12

List the three primary users of financial reports

Answer 12

1. Investors
2. Lenders
3. Other creditors

Question 13

What are the two basis to present statement of financial performance?

Answer 13

1. Accrual basis
2. Cash basis