Recognition & Measurement

Question 1

How to work out Depreciation (Straight-line)

Answer 1

(Cost-Redidual Value)/UEL

Question 2

The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction

Answer 2

Fair Value

Question 3

________ = The amount that would have to be paid if the same or an equivalent asset was acquired currently.

Answer 3

Current Cost

Question 4

What is the present discounted value of the future net cash inflows that the item is expected to generate?

Answer 4

Value in Use

Question 5

Advantages of Historical Cost Accounting are:

Answer 5

• Comparability
• Easy to verify

Question 6

Disadvantages of Historical Cost Accounting

Answer 6

• contain mixed values, some items are at current values and some are at out of date values
• overstate gearing in the SFP
• understate assets and overstate profit

Question 7

How to work out the carrying amount

Answer 7

Cost – Accumulated Depreciation

Question 8

Are redeemable preference shares recognised as debt or equity?

Answer 8

Debt.

They are repayable at the option of the issuer.
They have priority over ordinary shares in the event of liquidation.