ADMS 4510 - Ass.3 F2012.pdf

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York University
Administrative Studies
ADMS 3330
Douglas Kong

Chapter 7 Exercise 5A Relevant information provides investors or all of the stakeholders with information about organizations future economic prospectsUnder IAS 39 the loans are valued at their amortized cost which takes into consideration discounted future cash flows but not credit losses The latter is recognized when the loans become impaired As such the delay in recognition reduces the relevance of the information to almost a nil as it represents the occurred event rather than prediction or warning of the future Second proposed policy recommended including writedowns amounts in determining effective interest rate and expected credit losses over the life of the loan This information is relevant as it takes into consideration the organizations future economic prospectsThird the Basel Committee proposed to provide for credit losses through the business cycle and as such to adjust to economic activityin periods of high economic activity lenders should provide greater than expected credit losses when calculating expected present value of future loan receipts which would also allow to absorb this greater than expected credit losses in periodsof low economic activity As such this policy is the most relevant B Reliable information represents a high degree of faithfulness that represents what is intended While all three policies represent more or less reliable information their reliability is reduced due to the time spam with the
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