Definitions Flashcards
Basic objective of financial Statements
To provide financial information about the reporting equity that is useful to present and potential equity investors, lenders and other creditors in making decisions about providing resources to the entity.
1st fundamental quality of useful financial information
Be capable of making a difference in the decisions made by users
Have predictive value which helps users predict future outcomes
Have confirmatory value which helps users confirm previous evaluations
2nd Fundamental quality of useful financial information
Correspond to the effect of transactions or events
As far as possible be complete (include all info necessary for all users), neutral (without bias) and free from error
Materiality
Information is material if it’s omission or mis-statement would influence the economic decision that users make based on the financial information about a specific reporting entity
Materiality is an entity-specific aspect of relevance, based on the nature or magnitude, or both of the items to which the information relates in the context of an individuals entity’s financial report
Comparability
Enable users to identify and understand similarities and difference for several years of an entity’s trading or between different companies
Verifiability
Helps to assure users that information is faithfully represented. Can be direct (counting cash, stock take, etc) or indirect (application of inventory value using a specific method).
Understandability
Means that information is classified, characterised and presented clearly and concisely
Timeliness
Means that the information available to decision-making in time to be capable or influencing their decisions. The older the information is, the less useful it is.
Going concern
Means that financial statements are prepared on the assumption that the entity will continue in business for the foreseeable future. Thus there is no intention to liquidate or reduce the size of the business - if this is the case, the financial statement would have to be prepared on a different basis.
Accrual accounting
Means that financial statements are prepared on the assumption that transactions are recorded/recognised when they occur and not when the cash is received or paid. Using accrual accounting means revenue and costs are entered in the accounting period to which they relate and not when the cash is paid or received.
Ias1 full and complete set of financial statements
- statement of profit and loss and other comprehensive income
- statement of financial positions
- statement of cash flow
- statement of changes in equity
- the accounting policies used and explanatory notes
- comparative information for the preceding period
Equation
Assets = equity + liabilities
Assets
Resources controlled by an entity as a result of past events from which future economic benefits are expected to flow to the entity.
Liabilities
Resources controlled by an entity as a result of past events. The settlement of which is expected to result in an outflow of economic benefits from the entity.
Equity
Is the residual interest in the assets of the entity after deducting all its liabilities.
Revenue
Increases in economic benefits during the accounting period in the form of inflows or enhancements of assets or decreases of liabilities that result in increases in equity other than those relating to contributions from equity participants.
Expenses
Decreases in economic benefits during the accounting period in the form of inflows or depletion of assets or incurring of liabilities that result in decreases in equity other than those relating to distributions to equity participants.
Duties and responsibilities of directors
- manage the company on behalf of the shareholders / act as a steward of a shareholders assets / investments.
- report to the shareholders annually on the way running the business
- ensures companies act followed.
- ensures financial statements gives a true and fair view of the company.
- approve the financial statements before they are filed in the time with the registrar of companies
Ltd - 9 month after
Plc - 6 month after
Recognition
The cost of an item of PPE shall be recognised as an asset if and only if;
- it’s probable that future economic benefits associated with the item will flow to the entity
- the cost can be reliably measured
Subsequent expenditure on PPE and how I is dealt with
- day to day servicing and repairs, these costs cannot be recognised as PPE they are to be recognised as expenditure in the SPL and OCI
- regular/routine replacement of part of an asset these costs can be recognised as PPE in the SOFP and are to be added to the carrying value of the PPE
- major regular Inspection costs these costs can be put on the SOFP and are added to the carrying value of the PPE
It’s 10 going concern basis
After the reporting date management determines that the business will be liquidated or ceased trading this is always an adjusting Event even where these conditions Did not exist at the reporting date And the accounts cannot be prepared on the going concern basis
Accrual accounting
Means that the financial statements are prepared on the assumption that transactions are recorded/Recognised when they occur and not when the cash is received or paid. Using accrual accounting means revenues and costs are entered in the accounting period to which they relate and not when the cash is paid or received
Plant property and equipment
Tangible assets that are held for use in the production or supply of gods and services for rental to others or for a ministrative purpose and which they are expected to be used for more than one period
Infantry
Assets held for sale in the ordinary course of business. Inventory should be valued at the lower of cost or net realisable value
Depreciation
Is the systematic allocation of the depreciable amount (costs or valuation less residual value) of an asset over its useful economic life
Measurement
At cost, these include purchase cost delivery cost assembly cost testing and commission costs professional fees import tax and duties. Cannot include admin costs of acquiring assets start-up costs costs of new location.
2 models
- Cost model - the assets is carried on the SOFP at initial cost less accumulated depreciation and impairment losses
- revaluation model - Revalue to fair-value usually for properties
Fair-value
Is the amount for which an asset could be exchanged between knowledge willing to parties in an arms length transaction
Carrying amount/value
Net book value amount in SOFP after deducting accumulated appreciation and impairment loss from the asset
Depreciable amount
Cost or valuation of an asset less any residual value
