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ACCTG 102 Midterm: Accounting 102 exam

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1. Week 1&2 the financial reporting environment
1.1. Nz law : Financial Reporting Act of 2013
1.1.1. Cover “ for profit” and “not for profit” , focus on “for profits” entity
1.2. The players :
1.2.1. International Accounting Standards Board (IASB)
(two primary accounting standard are IASB and FASB-financial accounting
standards boards) IASB Determined the International financial reporting
standards(IFRS) which is followed by more than 130 countries Most companies in US is following the GAAP which is
determined by FASB
1.2.2. Nz external reporting board(XRB)
1.2.3. Nz accounting standards boards (NZASB/XRB)
1.3. As for nz law
1.3.1. ---IASB
Researches topics/ Discussion papers
Due process
Exposure Drafts
Due process
Standard issued if 9 of 14 members approve
1.3.2. ---NZASB
Receives IASB standard
Submits atandard to XRB for approval
1.3.3. The XRB and financial reporting standards
1.4. Under FRA,only private sector,for profit entities that are “publicly accountable”
or “ large” must follow GAAP
1.4.1. ------Publicly accountable(means accountable to public and issues
shares to public)
1.4.2. ------Large ($3,000,000 revenue or $6,000,000 assets) Tier 1 : full IFRS ; know as the “ gold standard” ( if entity is
accountable must follow,if the entity is large enough can
choose follow ) Tier 2 : reduced disclosure IFRS ( not accountable ,but large
1.5. Three level of conceptual framework
1.5.1. First Level = Objective of financial reporting.
1.5.2. Second Level = Qualitative characteristics of accounting
information; and definitions and recognition criteria for financial
statement elements.
1.5.3. Third Level = Underlying assumptions and measurement
1.6. Framework
Fundamental qualitative characteristics of financial information

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1.6.1. Relevance
Information is relevant if it is capable of making a difference to a
decision. Materiality: Is the information large enough or special enough
to matter?
1.6.2. Faithful representation
Information must be a faithful representation of the economic
phenomena. Complete Neutral Free from error
1.7. Enhancing qualittive characteristics of financial information
1.7.1. Comparability
1.7.2. Verifiability
1.7.3. Timeliness
1.7.4. Understandability
1.8.1. An asser is recognised on the blance sheet of an entity A past event The entity controls an economic resource That provides probable future economic benefits Be measured reliabliy
1.9.1. A liability is recognised on the balance sheet of entity if An obligation event causes a present obligation Whose settlement probably will result in an outflow of
resources That can be measured reliably
1.10. EQUITY
1.10.1. Defined : owners’ residual interest in asset,is not always equal the
market value; after deducting all liabilities(net assets) Amount is dependent on the measurement of assets and
liabilities Income increase and expenses decrease equity
1.11. INCOME
1.11.1. Income is recognised id ,during the period There is an increase to total assets and / or a decrease to total
liability So that net assets( and therefore equity)increase From events other than owner contributions
1.11.2. The amount of income recognised depends on the measurement of
assets and liability
1.12.1. Expenses are recognised if, during the period, There is a decrease to total assets and/or an increase to total

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1.12.2. The amount depends on the measurement of assets and liabilities.
1.13. Residual analysis (asset up or down why - liability up or down why - net
asset -owner contribution or discontribution - equity up or down
1.14. Five financial statements from the summarized accounting data
1.14.1. Income statement
1.14.2. Retained earnings statement
1.14.3. Statement of financial position(balance sheet)
1.14.4. Statement of cash flows
1.14.5. Comprehensive income statement
2. Assignment problem 1 and tutorial 1
Assignment 1 :
Problem One:
Refer to Nestle’s financial statements in Appendix B in the textbook (back of text,
pages B1 – B6), and answer the following:
a) Nestle’s shares are publicly traded. If it were a New Zealand company, would
it be allowed to follow Tier II IFRS, if it elected to do so? Explain your answer.
How do the IFRS rules for Tier I and Tier II differ? Would Fenchurch Liquor
(located in Glen Innes, Auckland) have to follow either Tier I or Tier II? Explain
Nestle, a publicly accountable entity because its shares are traded on an
exchange, would fall under Tier I—no election to Tier II is available. Large
entities that are not publicly accountable may choose Tier II. Tier II requires
the same rules be followed as Tier I, except that fewer note disclosures are
required under Tier II. Fenchurch would have to follow neither Tier I nor Tier II.
Why? It is neither publicly accountable nor large.
b) Using the elements for defining and recognising assets in the Conceptual
Framework (“CF”), explain why trade receivables (part of “Trade and Other
Receivables”) are listed as an asset.
Trade receivables are listed as an asset because past events (sales to
customers) created a controlled resource (the right to receive money that
belongs only to Nestle) with probable future economic benefits (there is a
greater than 50% likelihood of cash being received) that can be reliably
measured (with reference to the invoices).
c) Using the elements for defining and recognising liabilities in the CF, explain
why trade payables (part of “Trade and Other Payables”) are listed as a liability.
Trade payables are listed as a liability because past events (purchases from
suppliers) created unavoidable present obligations to pay for those purchases.
It is probable that resources will be expended to meet those obligations (with
cash) and the obligations can be reliably measured (with reference to the
d) Why are Provisions listed under both current and non-current liabilities?
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