Lecture 1

Question 1

what does the IAS1 state?

Answer 1

how the company should prepare their financial statement in accordance to conceptual framework and relevant regulation.

Question 2

why is financial accounting highly regulated in comparison to management accounting?

Answer 2

financial accounting is highly regulated because there are many stakeholders who use the information to make informed decision.

it is highly regulated because of the principal-agent problem.

Question 3

what are the sources of regulation?

Answer 3

-legislation: companies act 2006 or 2018.

-National Standards: Financial reporting committee, international standards.

-stock exchange regulations for listed companies.

Question 4

what does GAAP stand for and why is it beneficial?

Answer 4

general accepted accounting standard, and its great because it created, consistent, clear and comparable ways of accounting regardless what region in the world the company operates in.

Question 5

what are assets (textbook definition)?

Answer 5

assets are a resource controlled by the entity as a result of past events and from which future economic benefits are expected to flow to the entity.

Question 6

what are the measurement basis?

Answer 6

historic cost
current cost
realisable value (for inventory)
present value

Question 7

Realisable value?

Answer 7

the market value of inventory if they were to be sold immediately with all its cost of sales subtracted.

Question 8

historic cost?

Answer 8

the price that was paid for the asset when first bought.

Question 9

current cost?

Answer 9

current cost is just market cost

Question 10

present value?

Answer 10

current value of a future sum of money or stream of cash flow.

Question 11

what do all financial statements start with?

Answer 11

compliance code

Question 12

what are the threshold of assuming something to be material to the financial statement?

Answer 12

-value- something can be material if its value is big
-significant in nature and amount aswell

Question 13

carrying amount (CA) vs NBV?

Answer 13

its the same

Question 14

what is a material limit?

Answer 14

a limit set by companies if they want to pool assets together, they can’t be similar in nature however or individual assets can not have a big value.

Question 15

what is reclassification?

Answer 15

In accounting, reclassification refers to the process of moving or reassigning amounts from one account to another within the financial records.

Question 16

what is offsetting and why is it typically advised not do so?

Answer 16

offsetting is netting one balance against another. for example, Reducing the value of current assets and reducing the value of current liabilities to create a lower net difference.

it is not advised because it does not provide the true fair value of the financial statement and it also often leads to inconsistent financial reports.

Question 17

gain on disposals =

Answer 17

proceeds - NBV

Question 18

explain why dividends is not an operating expense?

Answer 18

dividends is not an operating expense because they are a distrubution of retained earnings, it is is not a cost of running a business, they therefore do not show on the income statement.

Question 19

journal entry for dividends?

Answer 19

• DR Retained earnings = CR Dividends payable (once the company declares dividends will be paid out in the current financial year [companies can choose to pay or not pay]).
• DR dividends payable = CR bank/cash

Question 20

in regards to dividends, once board of directors declare dividends to be paid out and a liability is created, why is retained earnings debited? - retained earnings, cash and equity.

Answer 20

dividends is paid out of the retained earnings first so retained earning goes down and once it is paid, cash goes down. dont forget retained earnings go back to equity which then is further introduced as cash in the next financial year.