topic 4 : normative accounting - conceptual framework

Question 1

what is the traditional objective of financial statements?

Answer 1

for outsiders to be able to assess stewardship of management

Question 2

what is the modern objective of financial statements?

Answer 2

assist financial statement users on their economic decision making

Question 3

what is the IASB objective of financial statements?

Answer 3

provide info on financial position, performance and changes in financial position of entity. useful to wide range of users in making economic decisions

Question 4

what is the alternative objective of financial statements?

Answer 4

demonstrate accountability. duty to provide accounting

Question 5

what is the accruals basis?

Answer 5

the effects of transactions recognised when they occur in FS of the periods to which they relate.
informs users of obligations payable & receivable

Question 6

what is the going concern basis?

Answer 6

org will continue in operation for forseeable future. assumed that entity has no intention or need to liquidate

Question 7

state the four measurement principles.

Answer 7

• historic cost
• fair value
• value in use
• current cost

Question 8

what is the historic cost measurement principle?

Answer 8

the original price of transaction giving rise to the element

Question 9

what is the fair value measurement principle?

Answer 9

the price received (asset) or paid (liability) in a transaction between market participants at measurement date

Question 10

what is the value in use measurement principle?

Answer 10

present value of cashflows or other economic benefits that are expected from the use of the asset, and ultimately its disposal

Question 11

what is the current cost measurement principle?

Answer 11

cost of equivalent asset at measurement date. (cost paid plus transaction costs)

Question 12

what is the argument for revaluation?

Answer 12

• asset could be sensitive to market factors / risks, so HC would significantly differe from current value. so means info less relevant if not revalued
• historic cost value changes only reported on disposal or impairment, doesnt consider gains / losses in the period assets are held
• historic cost value doesnt provide timely information about changes in value, so income and expenses reported on HC basis may lack predictive and confirmatory value, as doesnt depict full exposure to risk from holding asset, so should revalue

Question 13

what is the argument against revaluation?

Answer 13

• changes in fair value reflect changes in expectations and risk of market participants

Question 14

what are the eight chapters that the 2018 conceptual framework consists of?

Answer 14

1. objective of general purpose financial reporting
2. qualitative characteristics of useful financial inforomation
3. financial statements and the reporting entity
4. elements of financial statements
5. recognition and derecognition
6. measurement
7. presentation and disclosure
8. concepts of capital and capital maintenance