Chapter 1 - Frameworks

Question 1

What are some of the key purposes of the framework are?

Answer 1

• assist the international accounting standards board when developing new standards
• help national standard setters develop new standards
• guidance in issues not covered by IFRS standards
• assist auditors

Question 2

What is the objective of the conceptual framework?

Answer 2

To provide useful information to lendors, potential lenders and other creditors when making investment decisions

Question 3

What are the fundamental qualitative characteristics?

Answer 3

Relevance and faithful representation

Question 4

What are the enchanting qualitative characteristics?

Answer 4

• comparability
• verifiability
• timeliness
• understandability

Question 5

What is the definition of an asset?

Answer 5

Resources controlled by an entity from a past event that will lead to a probably inflow of economic benefits

Question 6

What is the definition of a liability?

Answer 6

Obligations of an entity arising from a past event that will lead to a probably outflow of economic resources

Question 7

What is the definition of equity?

Answer 7

The residual net assets of an entity after deducting its liabilities

Question 8

What is the definition of income?

Answer 8

Increases in economic benefits during the period

Question 9

What is the definition of an expense?

Answer 9

Decreases in economic benefits during the period

Question 10

When should an item be recognised in the financial statements?

Answer 10

• it meets the definition of an element
• it is probable that future economic benefits will flow to or from the entity
• the item can be measured reliably

Question 11

What are the four measurement bases?

Answer 11

• historic costs
• realisable value
• current costs
• present value

Question 12

What is the objective of IFRS 13?

Answer 12

Provide a single source of guidance for fair value measurement where it is required by a reporting standard

Question 13

What is the definition of fair value?

Answer 13

The price received when selling an asset, or the price paid to transfer a liability, in an orderly transaction between market participants at the measurement date

Question 14

What are market participants?

Answer 14

Knowledgable third parties

Question 15

What would a market participant take into account when pricing a transaction?

Answer 15

• condition
• location
• restictions on use

Question 16

What are the various approaches when determining fair value?

Answer 16

• market approaches
• cost approaches
• income approaches

Question 17

What is an active market?

Answer 17

Where transactions for the asset or liability occur frequently

Question 18

What is level 1?

Answer 18

Quoted prices for identical assets in active markets

Question 19

What is level 2?

Answer 19

Inputs are observable inputs that are not level 1 inputs, for example quoted prices for similar assets in active markets

Question 20

What is level 3?

Answer 20

Inputs are unobservable (entity’s own data)

Question 21

Common non-financial assets include?

Answer 21

Property, plant and equipment and intangible assets

Question 22

The fair value of a non-financial asset should be based on?

Answer 22

Highest and best use

Question 23

What must non-financial assets take into account?

Answer 23

• physically possible
• legal
• financially feasible

Question 24

IFRS 13 says that fair value should be determined by?

Answer 24

Reference to the principal market

Question 25

What is the principal market?

Answer 25

The market with the greatest volume and level of activity for the asset or liability in

Question 26

What should happen if no principal market exists?

Answer 26

Should be measured based on the price in the most advantageous market

Question 27

What is the most advantageous market?

Answer 27

The market that maximises the net amount received when selling an asset