Task 3 or 4 Definitions etc Flashcards
(38 cards)
What is the conceptual framework?
Sets out the concepts which underlie the preparation and presentation of financial statements for external users.
Who are the primary uses of financial statements according to the conceptual framework?
Investors
Lenders
Creditors
What is the objective of financial reporting?
To provide financial information about the reporting entity that is useful to existing and potential investors, lenders and creditors in making decisions relating to providing resources to the entity.
What does comparability mean?
Enables users to identify and understand similarities in and differences among items for other years and companies
What does verifiability mean?
Helps assure users that information is faithfully represented.
What does timeliness mean?
Having information available to decision-makers in time to be capable of influencing their decisions.
What does understandability mean?
Classifying, characterising and preparing information clearly and concisely
What does materiality mean?
Information is material if omitting, misstating or obscuring it could reasonably be expected to influence decisions of the primary users of the financial statements.
What is an asset?
A present economic resource controlled by the entity as a result of past events. An economic resource is a right which has the potential to produce economic benefits.
What is a liability?
A present obligation of the entity to transfer economic benefits as a result of past events. An obligation is a duty or responsibility which the entity has no practical ability to avoid.
What is equity?
Residual interest in the assets of the entity after deducting all its liabilities. It includes funds contributed by shareholders, retained earnings and other gains and losses.
How is an intangible asset defined?
An identifiable monetary asset without physical substance
What are the three key elements of an intangible asset?
Identifiability - asset is separable from the entity and is capable of being sold or transferred, or it arises from contractual or other legal rights
Control - The entity has the power to obtain future economic benefits from the asset
Future economic benefits - including revenue from sale of products or services, cost savings.
What must be demonstrated for development costs to be captalised?
Technical feasibility of completing the intangible asset so that it can be used or sold
It’s intention to complete the intangible asset and to use it or for it to be sold
Its ability to use or sell the intangible asset
The way in which the intangible asset will generate probable future economic benefits
Availability of resources to complete the development and to use or sell the asset
Its ability to measure the development expenditure reliably.
What is amortisation and when does it occur?
Amortisation is used when an intangible asset has a finite life, if it has an indefinite life it will be tested for impairment.
Amortisation is depreciation for intangible assets
What should leases be valued at at the commencement of a lease?
Discounted/present value of lease payments
Dr right of use assets
Cr lease liability
When does an impairment loss incur?
If the carrying amount exceeds the recoverable amount. The recoverable amount is the higher of fair value - disposal costs or value in use
Name examples of adjusting events?
The settlement after the end of the reporting period of a court case which confirms that a present obligation existed at the year-end.
The determination of purchase price or sale price of assets bought or sold before the year-end
Assets where a valuation shows impairment
Where a customer becomes insolvent
Any profit sharing or bonus payments
Discover of fraud
Name some non-adjusting events?
Discontinuing a part of the business
major purchase or assets
loss of production capacity fire flood etc
major share transactions
announcing a major reconstruction
How to recognise revenue according to IFRS 15?
1: Identify contract with customer
2: Identify performance obligations in contract
3: Determine contract price
4: Allocate transaction price to the performance obligations in the contract
5: Recognise revenue when a performance obligation is satisfied
How is revenue to be measured in exchange for goods or services?
At the consideration to which the entity expects to be entitled.
Define an adjusting event?
Adjusting events provide evidence of conditions that existed before the end of the reporting period.
Define a non-adjusting event?
Are indicative of conditions that arose after the end of the reporting period.
When can a provision be recognised as a liability?
An entity has a present obligation as a result of a past event
Probable that an outflow of economic benefits will be required to settle the obligation.
A reliable estimate can be made of the amount of the obligation
