Book 7

Question 1

Elements of Accounting

Answer 1

assets
liabilities
equity
income
expenses

Question 2

What is asset?

Answer 2

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

Question 3

What is liabilities?

Answer 3

present obligation of the entity to transfer an economic resource as a result of past event

Question 4

What is equity?

Answer 4

residual interest of the asset after deducting the liabilities

Question 5

What is income?

Answer 5

• increases in assets
• decreases in liabilities
• increases in equity

Question 6

What is expense?

Answer 6

• decrease in asset
• increase in liabilities
• decreases in equity

Question 7

Other changes in economic resource

Answer 7

• contributions from holders of equity claims and distribution to them
• exchange of asset or liabilities that do not result in increases or decreases in equity

Question 8

What is economic resource?

Answer 8

it is a right that has the potential to produce economic benefits

Question 9

What is control?

Answer 9

an entity has control if it has been ability to direct the use of the economic resource and obtain the benefits from it

Question 10

Control of benefits arises from?

Answer 10

Legal right of ownership

Question 11

Control of economic resource arise from?

Answer 11

• ability to enforce legal rights
• exclusive right to possess and use

Question 12

Development process

Answer 12

present ability to keep the know-how secret, even if that know-how is not protected by a registered patent

Question 13

Executory contract

Answer 13

contract that is unperformed - neither party has fulfilled any obligation or both parties have partially fulfilled their obligation to an equal extent

Question 14

Recognition principle

Answer 14

asset is recognized on the balance sheet when :
1. future economic benefits will flow
2. can be measured reliably

Question 15

Recognition of financial assets

Answer 15

recognize when the entity becomes a party to the contractual provisions of the instrument

Question 16

Recognition when assets are acquired through exchanges

Answer 16

when transfer of resources takes place or services are provided

Question 17

Recognition when assets are received through nonreciprocal transfer

Answer 17

when acquired or when transfer occurs

Question 18

Derecognition

Answer 18

removal of all or part of a recognized asset from an entity’s SFP

Question 19

Derecognition occurs when

Answer 19

1. when the entity loses control
2. when the service potential of an asset is no longer available3