Week 1 - Chapter 2

Question 1

who demands accounting

Answer 1

People who make decisions about a company demand information to reduce uncertainties

Question 2

who supplies accounting

Answer 2

• Companies supplies information to address information asymmetry
• accounting standards are like plans to supply the accounting information to meet the demands of the potential users

Question 3

What are accounting standards?

Answer 3

Plans to supply accounting information that meets the demands of potential users.

Question 4

What is a conceptual framework in accounting?

Answer 4

The foundation for accounting standards that organizes important concepts.

Question 5

What are the important concepts of the planning process in a business plan?

Answer 5

• Assessing demand
• Supply planning

Question 6

What does assessing demand involve?

Answer 6

• Considering market structure
• Choosing a target market
• Identifying strategic goals and product characteristics

Question 7

What is meant by supply planning?

Answer 7

• Identifying potential components to meet customer needs
• Starting specific product design
• Making simplifying assumptions

Question 8

What are the elements of financial statements that users demand?

Answer 8

• Financial position elements
• Measuring performance elements

Question 9

Define the term ‘asset’ in financial statements.

Answer 9

Resource owned by the entity due to past events that can produce economic benefits.

Question 10

Define the term ‘liability’ in financial statements.

Answer 10

Obligations to transfer resources from past events.

Question 11

What is ‘equity’ in financial statements?

Answer 11

Residual interest in assets after removing all liabilities.

Question 12

What is the definition of ‘income’ in accounting?

Answer 12

Increases in assets or decreases in liabilities resulting in increased equity.

Question 13

What are ‘expenses’ in accounting?

Answer 13

Decreases in assets or increases in liabilities resulting in decreased equity.

Question 14

What is recognition in financial statements?

Answer 14

Determining if something should be reported in the financial statements.

Question 15

What are the criteria for recognition in financial statements?

Answer 15

If future inflows and outflows are probable and the amount is reasonably measurable.

Question 16

What is the usual measurement basis for accounting?

Answer 16

Historical cost; the value paid/received at the time of the transaction.

Question 17

List the three measurement bases for current value.

Answer 17

• Current cost
• Fair value
• Value in use

Question 18

What is the cost constraint in accounting?

Answer 18

The cost of providing information should not exceed the benefits from using the information.

Question 19

What are the assumptions used in accounting?

Answer 19

• Going concern
• Entity perspective
• Financial capital maintenance

Question 20

What is the ‘going concern’ assumption?

Answer 20

Assuming that the entity will continue to operate in the foreseeable future.

Question 21

What does the entity perspective mean in financial statements?

Answer 21

Preparing statements from the viewpoint of the entity as a whole.

Question 22

What are the two ways to define capital maintenance under IFRS?

Answer 22

• Physical
• Financial

Question 23

Define the objective of IFRS conceptual framework.

Answer 23

To provide financial information useful for decision-making by existing and potential investors, lenders, and creditors.

Question 24

What are the six qualitative characteristics needed to meet users’ needs?

Answer 24

• Relevance
• Representational faithfulness
• Understandability
• Comparability
• Verifiability
• Timeliness

Question 25

What does 'materiality' refer to in accounting?

Answer 25

How omitting or misstating information would influence a user's economic decisions.

Question 26

What is 'representational faithfulness'?

Answer 26

Whether financial information accurately reflects the underlying transactions, resources, and claims.

Question 27

What does 'neutrality' mean in financial reporting?

Answer 27

Ensuring no bias in preparing financial statements.

Question 28

What enhances the usefulness of financial reports?

Answer 28

Attributes like completeness, neutrality, and freedom from error.

Question 29

What is the importance of 'timeliness' in financial reporting?

Answer 29

Information must be available soon to remain useful.

Question 30

What are the entry values in measurement?

Answer 30

* Historical cost * Current cost

Question 31

What are exit values in measurement?

Answer 31

* Fair value * Value in use

Question 32

What is the treatment of transaction costs for inventories under historical cost?

Answer 32

Cost is included when recorded, e.g., cost plus transaction cost.

Question 33

What does IFRS stand for?

Answer 33

International Financial Reporting Standards.

Question 34

Which organization issues accounting standards in Canada?

Answer 34

CPA Canada.

Question 35

What are the five parts of the CPA Canada handbook?

Answer 35

* Part I: IFRS for public enterprises * Part II: ASPE for private companies * Part III: NFPOs * Part IV: Pension plans * Part V: Legacy standards

Question 36

What is GAAP?

Answer 36

Generally Accepted Accounting Principles, the entire handbook and common practices.

Question 37

What is the benefit of global accounting standards?

Answer 37

Increases comparability, reduces reporting complexity, and facilitates international operations.