Scribd
Upload
183 views

TUTORIAL 1 - Conceptual Framework

1. The document discusses the conceptual framework for financial reporting. It covers topics like the objectives of financial statements, users of financial statements, elements of financial statements, recognition criteria, measurement bases, and factors that affect an entity's financial position. 2. Key points include that financial statements aim to provide useful information to users for decision making, and that users include employees, lenders, suppliers, and investors. The elements are assets, liabilities, equity, income, and expenses. Recognition criteria and measurement bases like historical cost and current cost are also outlined. 3. Factors that can affect financial position are an entity's profitability, asset base, and debt levels. The conceptual framework provides guidance for preparing

Uploaded by

猪mong
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
183 views

TUTORIAL 1 - Conceptual Framework

1. The document discusses the conceptual framework for financial reporting. It covers topics like the objectives of financial statements, users of financial statements, elements of financial statements, recognition criteria, measurement bases, and factors that affect an entity's financial position. 2. Key points include that financial statements aim to provide useful information to users for decision making, and that users include employees, lenders, suppliers, and investors. The elements are assets, liabilities, equity, income, and expenses. Recognition criteria and measurement bases like historical cost and current cost are also outlined. 3. Factors that can affect financial position are an entity's profitability, asset base, and debt levels. The conceptual framework provides guidance for preparing

Uploaded by

猪mong
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
You are on page 1/ 4

KOLEJ UNIVERSITI TUNKU ABDUL RAHMAN

KAMPUS CAWANGAN JOHOR


DEPARTMENT OF ACCOUNTANCY AND
BUSINESS
ABFA3064 FINANCIAL ACCOUNTING IV

TUTORIAL 1: Conceptual Framework

1. What is the main objective of preparing financial statements?


Answer:
The main objective of preparing financial statements is to provide useful financial
information about financial position, performance and changes in financial position and
others of an entity to the users for economic decision making. Besides that, the financial
statements present the results of stewardship of management or accountability of
management for resources entrusted it.

2. State FOUR (4) users of financial statements and briefly explain the use of the
information to each of the users.
Answer:
The first user of financial statements is employees. Employee is an internal user of the
financial statements. They need information on the stability and profitability of their
employers. This is because they want to know about the ability of the entity to provide
remuneration, retirement benefits and employment benefits.

The second user of financial statements is lenders. Lenders is an external user of the
financial statements. They are including all those who have ‘actively’ lent to the entity,
such as banks, debentures holders. They were interested to know if the entity is solvent
and liquid to repay the borrowings and also pay the interest.

The third user of financial statements is suppliers. Suppliers is an external user of the
financial statements. They refer to those who have supplied goods and services on
credit to the entity. Suppliers interested to know the liquidity of the company because
they want to ensure the ability of the entity to settle the amounts due to them.

The fourth user of financial statements is investors. Investors is an external user of the
financial statements. They were interested in the risk and return on their investment.
Investors were concerned about the ability of the entity to pay their dividends and also
monitor the performance of the company.

3. The following are the two ways in which the MASB’s accounting standards can aid
one of the qualitative characteristics as explained in The Conceptual Framework for
Financial Reporting;

(i) By requiring the disclosure of accounting policies and the effect of changes in them.
(ii) By reducing or eliminating the number of possible alternative treatments for
similar items.
Answer:
Comparability

4. The Conceptual Framework sets out the concepts underlying the preparation and
presentation of financial statements for external users. It deals with the definition,
recognition and measurement of the elements of financial statements.

a) Briefly explain the FIVE (5) elements of financial statements as prescribed by


the Conceptual Framework.
Answer:
The first element of financial statements is assets. An asset is a resource control by
the entity. It must have already been acquired or transferred to the control of entity
(as a result of past events). The future economic benefits are expected to flow to the
entity from an asset.

The second element of financial statements is liabilities. A liability id a present


obligation of the entity. It is arising from the past events and expected to result in an
outflow from the entity of resources embodying economic benefits.

The third element of financial statements is equity. An equity is the residual interest
in the assets of the entity after deducting all its liabilities.

The fourth element of financial statements is income. An income is increases in


economic benefits during the accounting period in the form of inflows. It is also an
enhancement of assets or decreases of liabilities that result in increases in equity.

The fifth element of financial statements is expenses. An expense is decrease in


economic benefits during the accounting period in the form of outflows. This means
that it is depletions of assets or incurrences of liabilities that result in decreases in
equity.

b) List the recognition criteria for an entity to incorporate items that meet the
definition of these elements into their financial statements.
Answer:
The recognition criteria refers to note 1.3.5 for general criteria (page 8).

c) Briefly explain the FOUR (4) measurement bases of valuing assets and liabilities
in the financial statements.
Answer:
The first measurement bases of valuing assets and liabilities in the financial
statements is historical cost.
 Assets are recorded at the actual amount of cash paid or consideration given for
the item
 Liabilities are recorded at the amount of proceeds received in exchange for the
debts

The second measurement bases of valuing assets and liabilities in the financial
statements is current cost.
 Assets are recorded at the actual amount of cash that would be paid to replace the
asset at current values
 Liabilities are recorded at the undiscounted value or cash equivalent that will be
required to settle the debts currently

The third measurement bases of valuing assets and liabilities in the financial
statements is realizable value.
 Assets are recorded at the actual amount of cash that would be obtained by
selling the assets in an orderly disposal
 Liabilities are recorded at the settlement values being undiscounted amounts of
cash that need to be paid in the course of business

The fourth measurement bases of valuing assets and liabilities in the financial
statements is present value.
 Assets are recorded at the discounted value of the future cash inflows that the
assets are expected to generate in the normal course of business
 Liabilities are recorded at the discounted value of the future net cash outflows
required to settle liabilities in the normal course of business

5. MASB has come out with the conceptual framework as a basic requirement for
preparation and presentation of financial statements (the Framework) which is similar
to the one issued by the IASB.

a) List the scopes covered by this conceptual framework.


Answer:
The scope covered by this conceptual framework are the objective of general
purpose financial reporting, qualitative characteristics of useful financial
information, financial statements and the reporting entity, the elements of financial
statements, recognition and derecognition, measurement, presentation and disclosure
and concepts of capital and capital maintenance.
b) Discuss the recognition criteria for assets, liabilities, income and expenses.
Answer:

c) A financial statement discloses the financial position of an entity at a point in


time. Explain THREE (3) factors that can affect the financial position of an entity.
Answer:

You might also like