Topic 9: Framework Definitions

Question 1

What is the framework definition of an Asset?

Answer 1

A present economic resource controlled by the entity as a result of past events.

Question 2

What are the 3 elements of the framework definition of an Asset?

Answer 2

1. A right: the business has a right to an economic resource
2. Potential: the business has the potential to produce economic benefits
3. Control: the business has control over the asset and can decide how it used

Question 3

What is the framework definition of a Liability?

Answer 3

A present obligation of the entity to transfer an economic resource as a result of past events.

Question 4

What are the 3 elements of the framework definition of a Liability?

Answer 4

1. Existence of an obligation: a duty to another party that cannot be avoided
2. Transfer of an economic resource
3. Resulting from a past event: A liability exists because of a transaction that took place on a past date

Question 5

What is the framework definition of Equity?

Answer 5

The residual (that is , remaining) interest in the assets of an entity after deducting all its liabilities.

Question 6

What is the framework definition of Income?

Answer 6

Increases in assets or decreases in liabilities, that results in increases in equity, other than those relating to contributions from holders of equity claims.

Question 7

What are the 3 elements of the framework definition of Income?

Answer 7

1. Increase in assets or decrease in liabilities
2. Increase in equity
3. Excluding contributions from holders of equity claims

Question 8

What is the framework definition of an Expense?

Answer 8

Decreases in assets or increases in liabilities, that result in decreases in equity, other than those relating to distributions to holders of equity claims.

Question 9

What are the 3 elements of the framework definition of an Expense?

Answer 9

1. Decrease in assets or increases in liabilities
2. Decreases in equity
3. Excluding distributions to holders of equity claims

Question 10

What is the definition of Faithful Representation?

Answer 10

The information in a financial statement fairly and accurately presents the events that have occurred in a business for a period of time. The information in a financial statement should be complete, neutral and free from biases. It needs to be measured in monetary terms.

Question 11

What is the definition of Relevance?

Answer 11

FInancial information that is capable of making a difference to the decisions made form users. The relevance of information is affected by materiality. Information is material if omitting it or misstating it could influence decisions that users make based on the financial information about a specific reporting entry.