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ACCT 1011 > Week 9 > Flashcards

Week 9 Flashcards

1
Q

Per the Conceptual Framework, what are the objectives?

A
  1. Decision Making

2. Accountability

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2
Q

Per the Conceptual Framework, what are the qualitative characteristics?

A
  1. Understandability
  2. Relevance - materiality
  3. Reliability - prudence
  4. Comparability
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3
Q

Per the Conceptual Framework, what are the elements of financial statements?

A
  1. Assets
  2. Liabilities
  3. Equity
  4. Income
  5. Expenses
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4
Q

Per the Conceptual Framework, what are the recognition criteria?

A
  1. Measurability

2. Probability

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5
Q

Per the Conceptual Framework, what are the assumptions underlying financial reporting?

A
  1. Accounting entity
  2. Accrual basis
  3. Going concern
  4. Time period
  5. Monetary
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6
Q

Per the Conceptual Framework, what are the elements of measurement concepts?

A
  1. Historic Cost
  2. Current Cost
  3. Realisable or settlement value
  4. Present value
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7
Q

What is the aim of the Conceptual Framework?

A

The conceptual framework is designed to enable regulators to:

  1. develop standards that were consistent and logically formulated
  2. provide guidance to accountants in areas where no standard exist
  3. enable users of financial reports to understand better the standards developed.
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8
Q

What the objectives?

A
  1. To provide information about the financial position, financial performance and cash flows of an entity that is useful to a wide range of users in making economic decisions.
  2. Financial reports also show the results of the stewardship of management or the accountability of management for the resources entrusted to it
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9
Q

What is the defintion of understandability?

A

An essential quality of the information provided in financial reports is that it is readily understandable by users.

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10
Q

What is the defintion of relevance?

A

Information has the quality of relevance when it influences the economic decisions of users by helping them evaluate past, present or future events or confirming, or correcting, their past evaluations.

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11
Q

What is the defintion of materiality?

A

Information is material if its omission or misstatement could influence the economic decisions of users taken on the basis of the financial report.

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12
Q

What is the defintion of reliability?

A

Information has the quality of reliability when it is free from material error and bias and can be depended upon by users to represent faithfully that which it either
purports to represent or could reasonably be expected to represent.

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13
Q

What is the defintion of prudence?

A

Tying not to overstate assets and profits or to understate liabilities and expenses

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14
Q

What is the defintion of comparability?

A

Ability to compare the financial reports of one firm over time or compare different firms at a point in time.

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15
Q

What are the criteria for the selection of events?

A

The event must:

  1. affect an element of the financial statements
  2. meet standard recognition criteria
    - must be measurable
    - high probability that one of the financial statement elements will actually be affected
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16
Q

What is the accounting entity assumption?

A

The boundaries of the entity being accounted for must be clearly identified.

Activities of the entity are separated from both the personal activities of it owners or members and those of other entities.

17
Q

What is the accrual basis assumption?

A

Incomes are recognised when earned and wherever possible, expenses are recognised in the period in which they are incurred or consumed.

18
Q

What is the going concern assumption?

A

In the absence of evidence to the contrary, the entity is assumed to have an indefinite life

19
Q

What is the period assumption?

A

The life of an entity can be subdivided into arbitrary time periods of equal length for the purpose of determining financial performance and position
periodically.

20
Q

What is the monetary assumption?

A

Accounting financial statements only include economic activity that can be recorded in terms of money. Other information is not recorded in the financial statements but can be reported in the notes that accompany them.

21
Q

What is the defintion of Historic Cost?

A

Assets are recorded at the amount of cash or equivalents used to acquire them while liabilities are recorded at the amount of cash or equivalents that will need to paid out to satisfy them

22
Q

What is the defintion of Current Cost?

A

The amount of cash or cash equivalents that would be paid if the same or equivalent asset was acquired currently.

23
Q

What is the defintion of Realisable Value or Settlement Value?

A

The amount of cash or cash equivalents that could be obtained currently by selling the asset in orderly disposal, or in the normal course of business. e.g. inventory

24
Q

What is the defintion of the Present Value?

A

Discounted future cash inflows

25
Q

The Lower of Cost and Net Realisable Value Rule is an example of

A

Prudence (i.e. lower asset / higher expense)

26
Q

What is net realisable value?

A

Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale

27
Q

What is the meaning of Captial Maintenence?

A

Profit emerges after maintaining capital intact.

“Financial capital maintenance under this concept, a profit is earned only if the financial (or money)
amount of the net assets at the end of the period exceeds the financial (or money) amount of net
assets at the beginning of the period, after excluding any distributions to, and contributions from,
owners during the period. Financial capital maintenance can be measured in either nominal
monetary units or units of constant purchasing power.”

28
Q

What is the purpose of Captial Maintenence?

A
  1. It provides a common definition for profit that is applicable to all entities.
  2. It defines an issue that has importance for business dealings. e.g. Corporations law states
    that dividends can only be paid from profits
29
Q

What is a reporting entity?

A

A reporting entity is an entity in which it is reasonable to expect the existence of users who depend on general purpose financial reports for information to enable them to make and evaluate economic decisions.

30
Q

What are some indicators or reporting entity?

A

The following indicators help to assess an economic entity:
– Separation of management from economic interest.
– Economic or political importance/influence.
– Financial characteristics.

31
Q

Financial capital maintenance can be measured in either

A
  1. nominal monetary units

2. constant purchasing power

ACCT 1011 (10 decks)

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