DAIF Chapter 2 The Conceptual Framework for Financial Reporting

Question 1

What does the Conceptual Frame Work for Financial Reporting outline?

Answer 1

The principles and concepts that should be used when developing or applying IFRS Standards and IAS standards

Question 2

What is the value in use?

Answer 2

Assets would be carried at the discounted value of the future cash inflows that the item will generate. Liabilities would be carried at the discounted value of the cash flows required to settle them.

Question 3

What is the fair value?

Answer 3

Assets would be carried at the amount that would be obtained from their sales. Liabilities would be carried at the amount required to settle them.

Question 4

What is the current cost?

Answer 4

Assets would be carried at the cost of an equivalent asset. Liabilities would be carried at the amount required to settle them.

Question 5

What are the variations that can be used for current value?

Answer 5

• Current cost
• Fair value
• Value in use

Question 6

What are the fundamental qualitative characteristics of useful financial information?

Answer 6

-Relevance
-Faithful representation

Question 7

What are the enhancing qualitative characteristics of useful financial information?

Answer 7

-Comparability
-Verifiability
-Timeliness
-Understandability

Question 8

What does relevance mean in regards to useful financial information?

Answer 8

Capable of influencing decision making of others

Question 9

What does Comparability mean in regards to useful financial information?

Answer 9

It should be possible to compare an entity over time and with similar information about other entities

Question 10

What does faithful representation mean in regards to useful financial information?

Answer 10

Financial information must be complete, neutral and free from errors

Question 11

What does Verifiability mean in regards to useful financial information?

Answer 11

If information can be verified through and audit it provides assurance to the users that it is credible and reliable

Question 12

What does Timeliness mean in regards to useful financial information?

Answer 12

Information should be provided within a suitable timescale for decision making purposes

Question 13

What does understandability mean in regards to useful financial information?

Answer 13

Information should be understandable to users with reasonable knowledge of the business who are prepared to analyse the information diligently

Question 14

What is going concern basis?

Answer 14

The going concern basis assumes that the entity will continue in operation for the foreseeable future and has neither the need nor the intention to slow the scale of its operations

Question 15

If a business is no longer considered to be a going concern what would the value of the assets need to be recognised at?

Answer 15

The amount expected from their sale.

Question 16

If a business is no longer considered to be a going concern what would the value of the liabilities need to be recognised at?

Answer 16

the amount that they are likely to be paid to settle them

Question 17

What is the accruals basis?

Answer 17

Effects of transactions and other events, recognised when they occur not when monies paid or received

Question 18

What are the 5 elements of financial statements?

Answer 18

-Assets
-Liabilities
-equity interest
-income
-expenses

Question 19

What is definition of an Asset in terms of an element of financial statements?

Answer 19

A present economic resource controlled by an entity as a result of a past event

Question 20

What is definition of an Liability in terms of an element of financial statements?

Answer 20

A present obligation of the entity to transfer an economic resource as a result of a past event

Question 21

What is definition of an Equity in terms of an element of financial statements?

Answer 21

The residual interest in the assets of the entity after deducting all its liabilities

Question 22

What is definition of an Income in terms of an element of financial statements?

Answer 22

The increase in economic benefits during an accounting period

Question 23

What is definition of an Expense in terms of an element of financial statements?

Answer 23

The decrease in economic benefits during an accounting period

Question 24

What is an economic resource?

Answer 24

An economic resource is a right that has the potential to produce economic benefit

Question 25

If a business started renting a property on January 1st of a year and has to pay £1000 per month, inwhich the rent is paid in advance every 6 months, if year end is September 30th how much of an expense would appear in the P&L for the year end?

Answer 25

due to the accruals basis £9000 for 9 months of rent

Question 26

The framework says that an item should be recognised in the financial statements if what?

Answer 26

- It meets one of the definitions of an element - It provides relevant information regarding the particular element - It provides a faithful representation of the particular element

Question 27

What 2 ways does the framework identify for measuring of the elements?

Answer 27

- Historical cost - Current value

Question 28

What is the historical cost?

Answer 28

This is typically determined by reference to the original transaction price

Question 29

What is the current value?

Answer 29

The price needed to pay now, reflecting current conditions

Question 30

Who are users of financial statements?

Answer 30

Investors Management Lenders Suppliers (Creditors) Government Employees Customers Public

Question 31

Why do investors use financial statements?

Answer 31

To make decisions about buying, selling or holding equity based on the future performance of the business by using the past figures as a guide

Question 32

Why do lenders use financial statements?

Answer 32

To decide whether to give a loan or not based on if the company will be able to pay off the loan with interest or not

Question 33

Why do suppliers (Creditors) use financial statements?

Answer 33

To determine if they should sell supplies on credit and under what terms

Question 34

Why do Governments use financial statements?

Answer 34

To calculate the correct tax payable, and when collecting statistical data

Question 35

Why do the employees use financial statements?

Answer 35

To determine job safety and any potential opportunities

Question 36

Why do the public use financial statements

Answer 36

To obtain information about companies of interest in regards to things such as the environment or for local communities

Question 37

Why do management use financial statements?

Answer 37

They are interested in an analysis of revenues and expenses so they can make plans on decisions to boost growth