Lectures 1 - 5

Question 1

Fundamental Qualitative Characteristics

Answer 1

Relevance, Faithful Representation, and Neutrality

Question 2

Enhancing Qualitative Characteristics

Answer 2

Comparability, Verifiability, Timeliness, Understandability

Question 3

Accounting Theories help us

Answer 3

explain, understand, evaluate and predict accounting practices

Question 4

Mainstream

Answer 4

ER is objective, measurable, unique, and independent

Question 5

Alternative

Answer 5

ER is subjective and socially constructed

Question 6

Normative (classical) theory

Answer 6

ER is objective and measurable. approach guides accounting regulations

Question 7

Market Based approach

Answer 7

ER is objective, unique and measurable. Markets reflect ER. Accounting info is only useful if it helps markets.

Question 8

Positive Accounting theory

Answer 8

ER cant be defined by markets or unique methods. ER defined by written/unwritten contracts.

Question 9

Behavioural research and Decision Making

Answer 9

different methods influence decisions of users. Seeks to explain behaviour of others.

Question 10

Efficient Market Hypothesis

Answer 10

prices rapidly incorporate all relevant info

Question 11

Stewardship

Answer 11

the role of management is stewardship (acting in the best interest of the resources of the owners)

Question 12

Decision usefulness

Answer 12

accounting info should be relevant and material

Question 13

agency theory paradigm

Answer 13

principal hires agent

shareholder hires manager

Question 14

agency cost

Answer 14

when the agent chooses methods suiting his/her interests

Question 15

Historical cost accounting

Answer 15

the cost of assets at their acquisitions which is relevant for decision making

Question 16

Fair value accounting

Answer 16

uses market value of an asset

Question 17

Group (IFRS 10)

Answer 17

a group exists where a parent controls a subsidiary

Question 18

control exists when

Answer 18

Investor has power over investee
Rights to variable returns
Ability to use its power to affect returns and dividends

Question 19

<20%

Answer 19

investment
influence : passive
reporting method : fair value

Question 20

20% - 50%

Answer 20

Assosciate
influence: significant
Reporting method : fair value

Question 21

> 50%

Answer 21

Subsidiary
influence : controlling
Reporting method : consolidation

Question 22

Goodwill

Answer 22

purchase price - fair value of net assets

Question 23

Goodwill is recognised as

Answer 23

an asset

Question 24

fair value of net assets

Answer 24

net assets +/- fair value changes

Question 25

Non controlling interest represents

Answer 25

the amount not owned by the parent and is recognised in the equity.

Question 26

Consolidation is

Answer 26

combining two or more entities into one (with adjustments)

Question 27

shares belonging to others shown as

Answer 27

non controlling interest in consolidation

Question 28

subsequent goodwill measurement

Answer 28

carry as an asset and amortize OR | retain in the accounts indefinitely

Question 29

Goodwill at acquisition

Answer 29

purchase price * % MINUS fair value of net assets * %

Question 30

NCI at acquisition

Answer 30

fair value of net assets * % MINUS market value * %

Question 31

losing control of an asset

Answer 31

derecognise the asset and | recognise any investment retained

Question 32

impairment

Answer 32

impairment loss will reduce the profit in the consolidated income statement

Question 33

internal impairment indicators

Answer 33

evidence of physical damage | significant changes

Question 34

external impairment indicators

Answer 34

significant changes in the environment | decline in market value of an asset

Question 35

intra group transactions are when

Answer 35

firms sell/buy from each other resulting in mutual balances

Question 36

intra group transactions are recognised

Answer 36

in assets or liabilities are adjusted in full. Only external transactions remain in financial statements

Question 37

joint operations

Answer 37

the parties have joint control and share rights of the assets and obligations for the liabilities

Question 38

joint venture

Answer 38

the parties have joint control of the arrangements and rights to net assets of the arrangement.

Question 39

accounting for joint operations

Answer 39

show share of assets, liabilities incurred and any income and expenses in financial statements

Question 40

accounting for joint ventures EQUITY METHOD

Answer 40

adjust investment amount adjust equity adjust profit / loss adjust dividends

Question 41

Consolidated retained earnings

Answer 41

retained earnings + % * (retained earnings - previous retained earnings - profit adj + tax)

Question 42

consolidated general reserve

Answer 42

general reserve + % * (general reserve - current account )

Question 43

fair value of net assets

Answer 43

common shares + general reserves prev + retained earnings prev

Question 44

current rate (closing method) +/-

Answer 44

+ gain/loss on translation doesnt pass through the income statement +relative proportion of BS accounts remain unchanged -violates accounting principle of carrying BS at historical cost

Question 45

temporal method +/-

Answer 45

+numbers have consistent internal meaning | -volatility in financial statements