Conceptual Framework & IFRS

Question 1

constraint of financial reporting according to the FASB conceptual framework

Answer 1

cost

Cost is one pervasive constraint that overrides the usefulness of information. The cost of obtaining and presenting the information should not exceed the benefit.

Question 2

OCI reported in

AOCI reported in

Answer 2

OCI= income statement

AOCI= balance sheet
AOCI is collective amt of OCI at specific time.

OCI is transferred and closed to AOCI (permanent account), such as the close of net income to retained earnings

Question 3

monetary unit assumption

Answer 3

events and transactions are quantitatively measured in terms of the equivalent amount of money they represent or the equivalent amount of money that has been exchanged.

Question 4

3 basic elements of financial reporting are

Answer 4

assets, liabilities, and equity or net assets.

Question 5

component of comprehensive income

Answer 5

Revenues, expenses, gains, and losses are elements of comprehensive income, which is a component of equity

Question 6

Recognition

Answer 6

is the process of reporting an item on the financial statements.

Question 7

allocation

Answer 7

Allocation is the process of spreading a cost over more than one period.

Question 8

matching

Answer 8

Matching is the process of recognizing an expense in the same period in which a related benefit is recognized.

Question 9

realization

Answer 9

Realization is the conversion of an item or service into cash or a claim to cash

Question 10

appropriate means of measuring an element of financial reporting in monetary terms

Answer 10

Historical cost, replacement cost, fair market value, net realizable value, and present value

Question 11

Relevance

Answer 11

refers more generally to information that can make a difference in the user’s decision-making process

Roger is PC : predictive value & confirmatory value

Question 12

Materiality

Answer 12

usually refers to an entity-specific amount that can make a difference in the user’s decision-making process

Materiality is determined using professional judgment

Question 13

methods for recognizing expenses

Answer 13

cause and effect, such as charging inventory to cost of goods sold;

systematic and rational allocation, such as depreciation of property and equipment;

immediate recognition, such as recognizing salaries expense as it is incurred.

Question 14

asset

Answer 14

1. economic resource
2. controlled by the entity,
3. has a probable future benefit
4. results from a past event or transaction

Question 15

comprehensive income includes

Answer 15

1. net income
2. other comprehensive income

revenues, expenses, gains, and losses

NOT owner investments or distributions

Question 16

Substance over form

Answer 16

refers to reflecting the financial reality of an event or transaction, regardless of the form in which the event or transaction appears.

For example, an independent contractor’s wages should be accounted for as a salary expense (rather than a consulting expense) when the contractor has identical job responsibilities and hour requirements as full-time employees

Question 17

level one (measuring fair value)

Answer 17

most reliable: Unadjusted quoted prices for identical assets or liabilities in active markets

Question 18

level two (measuring fair value)

Answer 18

Quoted prices for similar assets or liabilities in active markets and inputs that are principally derived from or corroborated by observable market data

Question 19

level three (measuring fair value)

Answer 19

least reliable: Inputs based on the reporting entity’s internal data

Question 20

other comprehensive income (DENT-R)

Answer 20

1. Deferred gain on cash flow hedge
2. Excess amortization on defined benefit pension plan (expense)
3. Net unrealized gain/loss on AFS securities
4. Translation gain/loss on foreign currencies
5. Revaluation surplus for fixed asset/intangibles (IFRS only)

Question 21

valuation account (contra account)

Answer 21

is used to indirectly reduce the value of the account it is paired with.

A/R paired w allowance for doubtful accounts

Question 22

required to use fair value reporting

Answer 22

1. trading securities
2. equity security investments
3. derivatives
4. goodwill and intangibles
5. assets and liab acquired in business combinations

Question 23

prohibited to use fair value reporting

Answer 23

1. mots non financial assets and liab
2. pension and post retirement benefit
3. leases
4. financial instruments that are component of equity
5. shared-based payments and stock options

Question 24

optional to use fair value reporting

Answer 24

1. most non financial assets and liab
2. avail for sale securities
3. held to maturity securities
4. equity method investments
5. financial instruments