Present value

Question 1

List the elements included in a full set of financial statements.

Answer 1

Balance sheet
    Income statement
    Statement of comprehensive income
    Statement of cash flows
    Statement of owner's equity

Question 2

List the elements which a present value measurement that fully captures economic differences should include.

Answer 2

An estimate of future cash flows
Expectations about variations in amount or timing of those cash flows
Time value of money as measured by the risk‐free rate of interest
The price for bearing the uncertainty inherent in the asset or liability
Any other relevant factors

Question 3

What is the constraints to setting accounting standards?

Answer 3

Cost effectiveness (or cost‐benefit)

Question 4

What is Conservatism?

Answer 4

Conservatism (also called prudence) is the reporting of less optimistic amounts (lower income, net assets) under conditions of uncertainty or when Generally Accepted Accounting Principles (GAAP) provides a choice from among recognition or measurement methods.

Question 5

Define “cost effectiveness.”

Answer 5

This constraint on generally accepted accounting principles (GAAP) limits recognition and disclosure if the cost of providing the information exceeds its benefit.

Question 6

What does a fresh start measurement do?

Answer 6

Establishes a new carrying value after an initial recognition and is unrelated to previous amounts (e.g., mark‐to‐market accounting and recognition of asset impairments)

Question 7

What is cost effectiveness?

Answer 7

This constraint on generally accepted accounting principles (GAAP) limits recognition and disclosure if the cost of providing the information exceeds its benefit.

Question 8

What are the four criteria that must be met to be recognized and measured in a financial report?

Answer 8

Definition
Measurability
Relevance
Faithful representation