MGAB01H3 Chapter 2.1: chapter 2.1

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26 Oct 2010

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MGAB01H3 Full Course Notes

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The conceptual framework of accounting is a coherent system of inter-related objectives and fundamentals that can lead to consistent standards and that prescribes the nature, function, and limits of financial accounting statements. Conceptual framework ensures that existing standards and practices are clear and consistent, makes it possible to respond quickly to new issues, and increases the relevance, faithful representation, comparability, and understandability of financial reporting results. It is impossible to create a rule for every situation; therefore there are general principles rather than specific rules. The international accounting standards board (isab) was formed to try to reduce the lack of uniformity with other governments. The conceptual framework of accounting has four main sections: the objective of financial reporting, the qualitative characteristics of accounting information, the elements of financial statements, and recognition and measurement criteria. The main objective of financial reporting is to provide information that is useful to individuals who are making investment and credit decisions.

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Unit 6 GAAP Application-Conceptual Framework of Accounting TheConceptual Framework allows for the systematic adaptation ofaccounting standards to a changing business environment. The FASBuses the conceptual framework to aid in an organized and consistentdevelopment of new accounting standards. The conceptual frameworkoutlines the objectives of financial reporting and the qualities ofgood accounting information, precisely defines commonly used termssuch as asset and revenue, and provides guidance about appropriaterecognition, measurement, and reporting. Understanding theterminology associated with the framework is imperative. Match thenumbered statements below with the lettered terms. An answer(letter) may used more than once, and some terms require more thanone answer (letter). 1. Key ingredients in quality of relevance. 2.Traditional assumptions that influence the FASB's conceptualframework. 3. The idea that information should represent what itpurports to represent. 4. An important constraint relating to costsand benefits. 5. An example of conservatism 6. The availability ofinformation when it is needed. 7. Recording an item in theaccounting records. 8. Determines the threshold for recognition. 9.Implies consensus. 10. Transactions between independent parties. a)Cost-effectiveness b) Representational faithfulness c) Recognitiond) Verifiability e) Time periods f) Unrealized g) Completeness h)Timeliness i) Materiality j) Predictive value k) Economic entity l)Lower-of-cost-or-market rule m) Phrenology n) Arm's-lengthtransactions Now that you have reviewed the terminology, for eachsituation listed below, indicate by letter the appropriatequalitative characteristic(s) or accounting concept(s) applied. Aletter may be used more than once, and more than one characteristicor concept may apply to a particular situation. Explain why youchose your answer.

1. Goodwill is recorded in the accounts only when it arises fromthe purchase of another entity at a price higher than the fairmarket value of the purchased entity's identifiable assets. 2. Landis valued at cost. 3. All payments out of petty cash are debited toMiscellaneous Expense. 4. Plant assets are classified separately asland or buildings, with an accumulated depre-ciation account forbuildings. 5. Periodic payments of $1,500 per month for services ofH. Hay, who is the sole propri-etor of the company, are reported aswithdrawals. 6. Small tools used by a large manufacturing firm are^recorded as expenses when purchased. 7. Investments in equitysecurities are initially recorded at cost. 8. A retail storeestimates inventory rather than taking a complete physical countfor purposes of preparing monthly financial statements. 9. A notedescribing the company's possible liability in a lawsuit isincluded with the financial statements even though no formalliability exists at the balance sheet date. 10. Depreciation onplant assets is consistently computed each year by thestraight-line method. a) Understandability b) Verifiability c)Timeliness d) Representational faithfulness e) Neutrality f)Relevance g) Going concern h) Economic entity i) Historical cost j)Measurability k) Materiality l) Comparability Type your answers ina Word Document, and submit to the Drop Box.

maroonoyster77

Outline the key building blocks of conceptual frameworks.Conceptual Frameworks are yet to provide significant prescriptionin relation to measurement issues in accounting. Why do you thinkthis is the case? Would you consider conceptual frameworks to havebeen successful in achieving their objectives? Justify yourresponse.

apricotpig911

(Conceptual IssuesâEquity) Statements of Financial AccountingConcepts set forth financial accounting and reporting objectivesand fundamentals that will be used by the Financial AccountingStandards Board in developing standards. Concepts Statement No. 6defines various elements of financial statements.

Instructions

Answer the following questions based on SFAC No. 6.

a. Define âdistributions to ownersâ and provide examples of thistype of transaction. What financial statement element other thanequity is typically affected by distributions?

b. What are examples of changes within ownersâ equity that donot change the total amount of ownersâ equity ?

MGAB01H3 Chapter 2.1: chapter 2.1

MGAB01H3 Full Course Notes

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