lecture 2 Flashcards

1
Q

what is an accounting policy?

A

specific principle, measurement basis and practices applied by an entity in preparing and presenting their financial statement

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2
Q

what are the four measurement basis in accounting?

A

-historic cost
-present value
-current value
-fair value

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3
Q

what types of IAS are dictated by IAS can not be changed?

A

IAS2- inventory must be valued at the lower of cost or net realisable value.

IAS38: prohibits entities from recognising internally generated brands as an intangible asset

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4
Q

what are some of the IFRS accounting policy which do permit a choice for certain accounting treatments?

A

IAS 2: Inventory can be valued at either FIFO methods or weighted average.

IAS16: PP&E can be revalued using cost or revaluation models.

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5
Q

what does IAS 1 require?

A

requires entities to disclose significant accounting policies and treatment used in its notes.

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6
Q

what does IAS8 outline?

A

Gives guidance with selection accounting policies that are applicable with international standards

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7
Q

what usually happens in the absence of IFRS?

A

Management are meant to make their own decisions based on similar cases dealt with IFRS or Accounting literature and accepted industry practices.

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8
Q

what only two conditions can accounting policies change in?

A

-if change is required by IFRs.
-change results to more reliable and relevant information been produced

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9
Q

what happens when there is a change in accounting policies resulting form the initial application of a standard?

A

-a transition period is given and change must take place accordingly

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10
Q

what happens if upon an initial application of a standard there is no specific transitional period?

A

apply change retrospectively and make a disclosure financial statement which explains the restatements

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11
Q

what are the adjustments required for retrospective applications?

A

When a retrospective application is made, adjustments are made to the previous financial statements and disclosures are made to the current period financial statement. For previous period, restatements are done.

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12
Q

what is required in changes by the initial application of an international standard?

A

title of standard and the charges in transitional provisions for that period

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13
Q

what is required in changed by voluntary changes?

A

disclosure of why the change has been made

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14
Q

what is required for all changes in accounting policies?

A

nature of change

adjustment made retrospectively

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15
Q

what does IAS 8 suggest about changes in estimates?

A

should be done prospectively, previous comparative figures should not be restated.

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16
Q

what are accounting estimates?

A

estimates include policies used by a company to determine the value. for example, depreciation policies. companies may use estimates for:

-bad debts
-inventory obsolesce
-useful lives or expected pattern of consumption of future benefits for a depreciable asset.
-warranty obligation

17
Q

when must a change of accounting estimates may be necessary?

A

when there is a change of circumstance or there is new information available

18
Q

is a change in accounting estimate a correction of error?

A

no

19
Q

difference between accounting policy and estimates?

A

accounting policy is the objective and accounting estimate is the tools used to reach the objective

20
Q

what happens if there is a change only for the current period?

A

everything on the financial statement for that current period get restated

21
Q

the values of the following will have an affect on a periods p&l if changed…

A

amount of bad debts
amount of provisions for inventory obsolesce
amount of warranty provision

22
Q

what is required for disclosures to change in accounting estimates?

A

nature amount of change:
-effect on current period
-effect on future period
-if there are no effects on future periods, it would be deemed impracticable

23
Q

what is current period error?

A

errors recognised in the current period and corrected in the current period, no disclosures would be required.

24
Q

prior period errors?

A

omissions from misstatements in the entity’s financial statements for one or more prior periods arising from a failure to use, misuse of reliable information

25
Q

how should current period error be corrected?

A

retrospectively, all the opening balances should be restated if the error occurred before the period

26
Q

what disclosures should be made for errors in prior periods?

A

-nature of the prior period error

-for each period presented, the amount of corrections for each item in the financial statement

-if retrospective re-statement for a particular prior period is not applicable then, a description of circumstance and how it is corrected should be disclosed

27
Q

what are control accounts

A

control accounts are summary accounts in the general ledger that consolidate and reflect the total balances of individual transaction form subsidiary ledgers. they help streamline accounting by providing a single balance for a group related accounts.

28
Q

what are suspense accounts?

A

if errors are presented and the accounting equation does not end up balancing, the balance is put in to a suspense account temporarily until it is allocated to its respective account

29
Q
A