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AFA 1 > Lectures 1 - 5 > Flashcards

Lectures 1 - 5 Flashcards

1
Q

Fundamental Qualitative Characteristics

A

Relevance, Faithful Representation, and Neutrality

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2
Q

Enhancing Qualitative Characteristics

A

Comparability, Verifiability, Timeliness, Understandability

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3
Q

Accounting Theories help us

A

explain, understand, evaluate and predict accounting practices

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4
Q

Mainstream

A

ER is objective, measurable, unique, and independent

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5
Q

Alternative

A

ER is subjective and socially constructed

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6
Q

Normative (classical) theory

A

ER is objective and measurable. approach guides accounting regulations

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7
Q

Market Based approach

A

ER is objective, unique and measurable. Markets reflect ER. Accounting info is only useful if it helps markets.

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8
Q

Positive Accounting theory

A

ER cant be defined by markets or unique methods. ER defined by written/unwritten contracts.

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9
Q

Behavioural research and Decision Making

A

different methods influence decisions of users. Seeks to explain behaviour of others.

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10
Q

Efficient Market Hypothesis

A

prices rapidly incorporate all relevant info

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11
Q

Stewardship

A

the role of management is stewardship (acting in the best interest of the resources of the owners)

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12
Q

Decision usefulness

A

accounting info should be relevant and material

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13
Q

agency theory paradigm

A

principal hires agent

shareholder hires manager

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14
Q

agency cost

A

when the agent chooses methods suiting his/her interests

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15
Q

Historical cost accounting

A

the cost of assets at their acquisitions which is relevant for decision making

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16
Q

Fair value accounting

A

uses market value of an asset

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17
Q

Group (IFRS 10)

A

a group exists where a parent controls a subsidiary

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18
Q

control exists when

A

Investor has power over investee
Rights to variable returns
Ability to use its power to affect returns and dividends

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19
Q

<20%

A

investment
influence : passive
reporting method : fair value

20
Q

20% - 50%

A

Assosciate
influence: significant
Reporting method : fair value

21
Q

> 50%

A

Subsidiary
influence : controlling
Reporting method : consolidation

22
Q

Goodwill

A

purchase price - fair value of net assets

23
Q

Goodwill is recognised as

A

an asset

24
Q

fair value of net assets

A

net assets +/- fair value changes

25
Q

Non controlling interest represents

A

the amount not owned by the parent and is recognised in the equity.

26
Q

Consolidation is

A

combining two or more entities into one (with adjustments)

27
Q

shares belonging to others shown as

A

non controlling interest in consolidation

28
Q

subsequent goodwill measurement

A

carry as an asset and amortize OR

retain in the accounts indefinitely

29
Q

Goodwill at acquisition

A

purchase price * %
MINUS
fair value of net assets * %

30
Q

NCI at acquisition

A

fair value of net assets * %
MINUS
market value * %

31
Q

losing control of an asset

A

derecognise the asset and

recognise any investment retained

32
Q

impairment

A

impairment loss will reduce the profit in the consolidated income statement

33
Q

internal impairment indicators

A

evidence of physical damage

significant changes

34
Q

external impairment indicators

A

significant changes in the environment

decline in market value of an asset

35
Q

intra group transactions are when

A

firms sell/buy from each other resulting in mutual balances

36
Q

intra group transactions are recognised

A

in assets or liabilities are adjusted in full. Only external transactions remain in financial statements

37
Q

joint operations

A

the parties have joint control and share rights of the assets and obligations for the liabilities

38
Q

joint venture

A

the parties have joint control of the arrangements and rights to net assets of the arrangement.

39
Q

accounting for joint operations

A

show share of assets, liabilities incurred and any income and expenses in financial statements

40
Q

accounting for joint ventures EQUITY METHOD

A

adjust investment amount
adjust equity
adjust profit / loss
adjust dividends

41
Q

Consolidated retained earnings

A

retained earnings + % * (retained earnings - previous retained earnings - profit adj + tax)

42
Q

consolidated general reserve

A

general reserve + % * (general reserve - current account )

43
Q

fair value of net assets

A

common shares + general reserves prev + retained earnings prev

44
Q

current rate (closing method) +/-

A

+ gain/loss on translation doesnt pass through the income statement
+relative proportion of BS accounts remain unchanged
-violates accounting principle of carrying BS at historical cost

45
Q

temporal method +/-

A

+numbers have consistent internal meaning

-volatility in financial statements

AFA 1 (6 decks)

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