Measurement

Question 1

How is measurement generally perceived by the Public?

Answer 1

That is exact and scientific, that it shows the true profit

Question 2

Why are different measurement systems chosen?

Answer 2

The chosen measurement system reflects our purpose/objective. As goals differ across user and preparer groups, so will the ‘desired’ accounting measurement system

Question 3

Why is there choice in accounting

Answer 3

Need for estimation
Availability of different measurement basis
Decision needs of different users of financial statements
Incentives

Question 4

Why measure in accounting?

Answer 4

Enable assessment of performance and financial position
Enable comparison of performance over time
Enable comparison between entities
Provide useful information for decisions

Question 5

What are the 2 primary measurement bases in CF?

Answer 5

Historical cost (the price of the transaction or other event that gave rise to them) and current value (using information updated to reflect conditions at the measurement date)

Question 6

What are the 3 current value measures in the CF?

Answer 6

Fair value
Value in use/ fulfilment value
Replacement cost

Question 7

What are the 2 concepts of capital maintenance?

Answer 7

Financial capital - maintaining original equity contribution (measured on historical costs)
Physical capital - maintaining opening operating capacity (measured on current replacement costs)

Question 8

What are the 3 valuation methods for fair value?

Answer 8

Market approach, cost approach and income approach

Question 9

Why is measuring fair value of an intangible asset difficult?

Answer 9

Fair value must be determined by an active market. As active markets don’t exist for most intangible assets, it makes it difficult to measure

Question 10

How is fair value defined in AAASB 13?

Answer 10

The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction (not forced) between market participants at the measurement date

Question 11

What is the fair value hierarchy?

Answer 11

Level 1 inputs (direct comparision), Level 2 inputs (directly observable), Level 3 inputs (unobservable)

Question 12

What are biological assets defined as under AASB 141?

Answer 12

A living animal or plant

Question 13

What is the title of AASB 141?

Answer 13

Agriculture

Question 14

What is excluded as a biological asset under AASB 141?

Answer 14

Bearer plants (fruit trees) - use ASB 116

Question 15

What is the recognition criteria under ASB 141?

Answer 15

Entity controls the biological asset
Probable that future economic benefits will flow
There is a fair value or cost that can be measured reliably

Question 16

How are biological assets measured under AASB 141?

Answer 16

Measured on initial recognition and at the end of each reporting period at its fair value less costs to sell and changes in fair value take through profit and loss (not OCI). Can only be measured at cost and accumulated depreciation if fair value cannot be measured reliably

Question 17

Journal entry for increase in fair value on a biological asset?

Answer 17

Dr asset, Cr gain on value of asset (p/l)