Chapter 2: Q.2-11FRS (page 76)
Question: What two assumptions are central to the IASB conceptual framework?
Answer
Accrual basis and going concern are the two assumptions.
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Question: BE2-5 (L03) Presented below are three different transactions related to materiality. Explain whether you would classify these transactions as material.(
a) Blair Co. has reported a positive trend in earnings over the last 3 years. In the current year, it reduces its bad debt allowance to ensure another positive earnings year. The impact of this adjustment is equal to 3% of net income.
(b) Hindi Co. has an unusual gain of \(3.1 million on the sale of plant assets and a \)3.3 million loss on the sale of investments. It decides to net the gain and loss because the net effect is considered immaterial. Hindi Co.'s income for the current year was \(10 million.
(c) Damon Co. expenses all capital equipment under \)25,000 on the basis that it is immaterial. The company has followed this practice for a number of years.
Question: An accountant must be familiar with the concepts involved in determining earnings of a business entity. The amount of earnings reported for a business entity is dependent on the proper recognition, in general, of revenues and expenses for a given time period. In some situations, costs are recognized as expenses at the time of product sale. In other situations, guidelines have been developed for recognizing costs as expenses or losses by other criteria.Instructions
Homer Winslow and Jane Alexander are discussing various aspects of the FASB’s concepts statement on the objective of financial reporting. Homer indicates that this pronouncement provides little, if any, guidance to the practicing professional in resolving accounting controversies. He believes that the statement provides such broad guidelines that it would be impossible to apply the objective to present-day reporting problems. Jane concedes this point but indicates that the objective is still needed to provide a starting point for the FASB in helping to improve financial reporting.Instructions
Question: Companies that use IFRS:
(a) must report all their assets on the statement of financial position (balance sheet) at fair value.
(b) may report property, plant, and equipment and natural resources at fair value.
(c) may refer to a concept statement on estimating fair values when market data are not available.
(d) may only use historical cost as the measurement basis in financial reporting.
Briefly describe the two fundamental qualities of useful accounting information.
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