Questions 3 & 4

Question 1

What are the 6 qualitative characteristics of the conceptual framework?

Answer 1

Relevance
Faithful Reprensentation
Comparibility
Verifiability
Timeliness
Understandability

Question 2

What are the 2 fundamental principles

Answer 2

Relevance
Faithful Reprensentation

Question 3

What are the 4 enhanced principles

Answer 3

Comparibility
Verifiability
Timeliness
Understandability

Question 4

definition of an asset

Answer 4

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

Question 5

definition of a liability

Answer 5

a present obligation of the entity as a result of past events, the settlement of which will result in an outflow of economic resources from the entity

Question 6

what is the definition of equity?

Answer 6

the residual interest in the assets of an entity after deducting all liabilities

Question 7

what is the impairment test?

Answer 7

The lower of the carrying amount or the recoverable value
recoverable value = higher of fair value less costs and value in use.

Question 8

Requirements of comparibility

Answer 8

must be comparable to similar information e.g. last years accounts or a similar company.
ensuring statements are prepared consistently e.g. same depreciation methods

Question 9

Requirements of verifiability

Answer 9

information in accounts can be checked or backed up by evidence
means information faithfully represents the company’s situation

Question 10

Requirements of timeliness

Answer 10

users having information available in time to make required decisions

Question 11

Requirements of understandability

Answer 11

accounts prepared in a way information is can be easily understood by users. e.g. non-current and current assets being separate.

Question 12

3 characteristics of ordinary shareholders

Answer 12

• voting rights
• dividends are variable
• paid after preference shareholders
• if goes into liquidity ordinary shareholders are payed last

Question 13

3 characteristics of preference shareholders

Answer 13

• paid before ordinary shareholders
• voting rights
• paid a fixed dividend in each year of profit

Question 14

what is the objective for general purpose financial statements

Answer 14

• provides financial statement of entity including assets, liabilities, equity, income, expenses and cash flows
• must be useful for potential investors and decision making to give resources to entity

Question 15

how to work out the input method

Answer 15

total revenue / total cost x cost to date

Question 16

how to work out output method

Answer 16

total revenue x completed number / total number contracted

Question 17

amortisation of asset

Answer 17

cost of asset / sold expectation x actual sold

Question 18

requirements of Relevance

Answer 18

capable of influencing economic decisions so only information that can affect the decision should be included.
consider the notion of materiality, which means that only important information be included e.g. only certain categories of expense

Question 19

requirements of faithful representation

Answer 19

information must be complete, neutral and free from error

Question 20

income definition

Answer 20

increases in assets, or decreases in liabilities that result in increase of equity

Question 21

expenses definition

Answer 21

decreases in assets, or increases in liabilitys that result in decreases of equity

Question 22

profit or losses definition

Answer 22

increases or decreases in equity not resulting from contributions from shareholders. They are a result of comparing income and expenses