lecture 2

Question 1

what is an accounting policy?

Answer 1

specific principle, measurement basis and practices applied by an entity in preparing and presenting their financial statement

Question 2

what are the four measurement basis in accounting?

Answer 2

-historic cost
-present value
-current value
-fair value

Question 3

what types of IAS are dictated by IAS can not be changed?

Answer 3

IAS2- inventory must be valued at the lower of cost or net realisable value.

IAS38: prohibits entities from recognising internally generated brands as an intangible asset

Question 4

what are some of the IFRS accounting policy which do permit a choice for certain accounting treatments?

Answer 4

IAS 2: Inventory can be valued at either FIFO methods or weighted average.

IAS16: PP&E can be revalued using cost or revaluation models.

Question 5

what does IAS 1 require?

Answer 5

requires entities to disclose significant accounting policies and treatment used in its notes.

Question 6

what does IAS8 outline?

Answer 6

Gives guidance with selection accounting policies that are applicable with international standards

Question 7

what usually happens in the absence of IFRS?

Answer 7

Management are meant to make their own decisions based on similar cases dealt with IFRS or Accounting literature and accepted industry practices.

Question 8

what only two conditions can accounting policies change in?

Answer 8

-if change is required by IFRs.
-change results to more reliable and relevant information been produced

Question 9

what happens when there is a change in accounting policies resulting form the initial application of a standard?

Answer 9

-a transition period is given and change must take place accordingly

Question 10

what happens if upon an initial application of a standard there is no specific transitional period?

Answer 10

apply change retrospectively and make a disclosure financial statement which explains the restatements

Question 11

what are the adjustments required for retrospective applications?

Answer 11

When a retrospective application is made, adjustments are made to the previous financial statements and disclosures are made to the current period financial statement. For previous period, restatements are done.

Question 12

what is required in changes by the initial application of an international standard?

Answer 12

title of standard and the charges in transitional provisions for that period

Question 13

what is required in changed by voluntary changes?

Answer 13

disclosure of why the change has been made

Question 14

what is required for all changes in accounting policies?

Answer 14

nature of change

adjustment made retrospectively

Question 15

what does IAS 8 suggest about changes in estimates?

Answer 15

should be done prospectively, previous comparative figures should not be restated.

Question 16

what are accounting estimates?

Answer 16

estimates include policies used by a company to determine the value. for example, depreciation policies. companies may use estimates for:

-bad debts
-inventory obsolesce
-useful lives or expected pattern of consumption of future benefits for a depreciable asset.
-warranty obligation

Question 17

when must a change of accounting estimates may be necessary?

Answer 17

when there is a change of circumstance or there is new information available

Question 18

is a change in accounting estimate a correction of error?

Answer 18

no

Question 19

difference between accounting policy and estimates?

Answer 19

accounting policy is the objective and accounting estimate is the tools used to reach the objective

Question 20

what happens if there is a change only for the current period?

Answer 20

everything on the financial statement for that current period get restated

Question 21

the values of the following will have an affect on a periods p&l if changed…

Answer 21

amount of bad debts
amount of provisions for inventory obsolesce
amount of warranty provision

Question 22

what is required for disclosures to change in accounting estimates?

Answer 22

nature amount of change:
-effect on current period
-effect on future period
-if there are no effects on future periods, it would be deemed impracticable

Question 23

what is current period error?

Answer 23

errors recognised in the current period and corrected in the current period, no disclosures would be required.

Question 24

prior period errors?

Answer 24

omissions from misstatements in the entity’s financial statements for one or more prior periods arising from a failure to use, misuse of reliable information

Question 25

how should current period error be corrected?

Answer 25

retrospectively, all the opening balances should be restated if the error occurred before the period

Question 26

what disclosures should be made for errors in prior periods?

Answer 26

-nature of the prior period error -for each period presented, the amount of corrections for each item in the financial statement -if retrospective re-statement for a particular prior period is not applicable then, a description of circumstance and how it is corrected should be disclosed

Question 27

what are control accounts

Answer 27

control accounts are summary accounts in the general ledger that consolidate and reflect the total balances of individual transaction form subsidiary ledgers. they help streamline accounting by providing a single balance for a group related accounts.

Question 28

what are suspense accounts?

Answer 28

if errors are presented and the accounting equation does not end up balancing, the balance is put in to a suspense account temporarily until it is allocated to its respective account