Lecture 2

Question 1

assets conditions

Answer 1

1. capacity to increase cash inflows or decrease outflows
2. entity must be able to obtain benefits and control others’ access to the benefits
3. transaction must have occurred in past

Question 2

R & D? patents?

Answer 2

R&D: no
Patents: if internally developed, no
if purchased from another co., yes

Question 3

how to value asset

Answer 3

historical cost; frequently used even though it may not be the most relevant measure of value

Question 4

we don’t use historical cost for:

Answer 4

inventory (asymmetric)
long-term asset impairments (asymmetric)
marketable securities (symmetric)

Question 5

revenues

Answer 5

represents resources acquired or obligations satisfied by the firm in exchange for the goods/services sold by the firm to others

Question 6

expenses

Answer 6

represent assets used or liabilities incurred to generate revenue by selling goods/services to others

Question 7

SoOE =

Answer 7

BB RE
+ NI
- Dividends (declared)
= EB RE