Chapter 2

Question 1

What are the main purposes of the conceptual framework ?

Answer 1

To assist in development of IS
To assist prepares of financial reports to develop consistent accounting policies when there is no standard
To assist in understanding of IS

Question 2

What is the purpose of financial reporting?

Answer 2

To provide financial information about an entity that is useful to existing and potential investors, lenders and other creditors in making decisions about providing resources to the entity.

Question 3

What are the fundamental and enhancing qualitative characteristics?

Answer 3

Relevance
Faithful representation

Comparability
Verifiability
Timeliness
Understandability

Question 4

What is the purpose of financial statements?

Answer 4

Provide financial information about the entity that is useful to the users in assessing future net cash inflows and assessing managements stewardship of the entity’s economic resources

Question 5

What is going concern?

Answer 5

The basis that the business will carry on trading for the foreseeable future

Question 6

What is an asset?

Answer 6

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

Question 7

What is a liability?

Answer 7

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

Question 8

What is recognition?

Answer 8

the process of capturing an item that meets the definition of one of the elements in the financial statements

Question 9

What is fair value?

Answer 9

The price that would be received if an item would be sold on the open market

Question 10

What is value in use?

Answer 10

The present value of the net cash flows that the entity expects to derive from use of the asset and from its eventual disposal

Question 11

Current cost (Replacement cost)

Answer 11

The cost that would have to be paid to acquire an equivalent asset at the measurement date