accounting 5 ques

Question 1

A)

The conceptual framework is a plan or set out of the concepts which are used to help the preparation and presentation of the concepts to the external users. Therefore the set out of financial reports and statements will have the same lay out for external users to read and understand it better. It is the conceptual frame is a set of statements and reports for the government and other external users.

There are many reasons why the Conceptual framework is necessary to:

to assist the Board in the development of future IFRSs and in its review of existing IFRSs;

to assist auditors in forming an opinion on whether financial statements comply with IFRSs;

to assist users of financial statements in interpreting the information contained in financial statements prepared in compliance with IFRSs;

to assist national standard-setting bodies in developing national standards;

to assist the Board in promoting harmonisation of regulations, accounting standards and procedures relating to the presentation of financial statements by providing a basis for reducing the number of alternative accounting treatments permitted by IFRSs;

to assist preparers of financial statements in applying IFRSs and in dealing with topics that have yet to form the subject of an IFRS;

B)

i) This is an operating lease, as after the lease is finished, the company may return the vehicle at no cost. However as the lessor has stated, if the lessee decides to pay the $7,000 and take ownership of the car, then this would become a financial lease.

ii) The criteria of figuring out whether a lease is a financial lease or operating lease, is whether there has been a change in ownership. If the owner remains the lessor, than it is an operating lease. If the ownership is then given to the customer or Lessee after the lease has finished, it is then a financial lease.

Question 2

Question 3

When the amount and time of a liability is not yet known

A contingent liability will become a provision when the amount of the liability or the time of when the liability is due is unknown.

Temporary differences are differences between the carrying amount of an asset or liability recognized in the statements of financial position and the amount attributed to that asset or liability for tax

It arises when a tax or some other sort of liability has not been paid yet.

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Operating activities

Investing activities

Financing activities

These activities are very different and are monitored and calculated in different ways. It is much more easier to separate these activities in order to get an accurate and useful cash flow statement.

Question 4

Expenditure in research and development should only be counted as an asset if the research and development lead to an upgrade or new product. Expenditure should be expenses is one that will be used up within the current financial year. Expenditure should be capitalised if it can benefit the company.

Provision – provision of bad debts

Contingent Asset – a potential settlement of a lawsuit

Contingent Liability – Estimated warranty liability

Revenue is the amount of money made by sales and operating. Income is also referred to as the profit of the company when the expenses have been subtracted from the revenue.

Revenue is recognised when the amount of revenue can be reliably measured, it is probable that the future economic benefits will flow to the University and specific criteria have been met for each of the following activities as described below.

Revenues from rendering services are recognized when services are completed and billed.

An asset should be recognised in the statement of financial position when and only when:

(a) It is probable that the future economic benefits embodied in the asset will eventuate; and

(b) The asset possesses a cost or other value that can be measured reliably

Question 5

Cash received = Sales + difference in Accounts receivable

$900,000

+ 50,000 = $950,000

Question 6

Cash payments to Supplier = COGS – difference in accounts payable

$230,000

-(–$16,000) = +$16,000

= $246,000

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