SOLUTIONS MANUAL
Financial Accounting IFRS
12 GLOBAL EDITION
CHAPTER 01: Conceptual Framework and
Financial Statements
Short Exercises
(10 min.) S 1-1
a. Corporation and Limited-liability partnership (LLP). If any of
these businesses fails and cannot pay its liabilities, creditors
cannot force the owners to pay the business’s debts from the
owners’ personal assets.
b. Proprietorship. There is a single owner of the business, so
the owner is answerable to no other owner.
c. Partnership. If the partnership fails and cannot pay its
liabilities, creditors can force the partners to pay the
business’s debts from their personal assets. A partnership
affords more protection for creditors than a proprietorship
because there are two or more owners to share this liability.
, (5 min.) S 1-2
1. Assets are the economic resources of a business that are
expected to produce a benefit in the future.
Owners’ equity represents the insider claims of a business,
the owners’ interest in its assets.
Assets and owners’ equity differ in that assets are resources
and owners’ equity is a claim to assets.
Assets must be at least as large as owners’ equity, so equity
can be smaller than assets.
2. Both liabilities and owners’ equity are claims to assets.
Liabilities are the outsider claims to the assets of a business;
they are obligations to pay creditors.
Owners’ equity represents the insider claims to the assets of
the business; they are the owners’ residual interest in its
assets after claims from its creditors.
(5-10 min.) S 1-3
a. Cash and cash equivalents A g. Accounts payable L
b. Long-Term investment A h. Share capital E
,c. Income tax payables L i. Short term bank borrowings L
d. Notes payable L j. Retained earnings E
e. Wages payable L k. Buildings A
f. Trademarks A l. Prepaid expenses A
(5 min.) S 1-4
1. Assets and liabilities
2. Equity
(5 min.) S 1-5
1. The entity assumption applies.
2. Application of the entity assumption will separate Newman’s
personal assets from the assets of Quality Food Brands. This
will help Newman, investors, and lenders know how much in
assets the business controls, and this knowledge will help all
parties evaluate the business realistically.
, (5-10 min.) S 1-6
a. Going concern assumption
b. Accrual accounting assumption, relevance characteristic
c. Comparability characteristic
d. Accrual accounting assumption
(5 min.) S 1-7
Computed amounts in boxes
Total Assets = Total Liabilities + Shareholders’ Equity
a. $211,000 = $50,200 + $160,800
b. 270,000 = 50,290 + 219,710
c. 172,800 = 96,000 + 76,800
(5 min.) S 1-8
1. Owners’ Equity = Assets − Liabilities
This way of determining the amount of owners’ equity
applies to any company, your household, or a single Burger
King outlet.
2. Liabilities = Assets − Owners’ Equity
Financial Accounting IFRS
12 GLOBAL EDITION
CHAPTER 01: Conceptual Framework and
Financial Statements
Short Exercises
(10 min.) S 1-1
a. Corporation and Limited-liability partnership (LLP). If any of
these businesses fails and cannot pay its liabilities, creditors
cannot force the owners to pay the business’s debts from the
owners’ personal assets.
b. Proprietorship. There is a single owner of the business, so
the owner is answerable to no other owner.
c. Partnership. If the partnership fails and cannot pay its
liabilities, creditors can force the partners to pay the
business’s debts from their personal assets. A partnership
affords more protection for creditors than a proprietorship
because there are two or more owners to share this liability.
, (5 min.) S 1-2
1. Assets are the economic resources of a business that are
expected to produce a benefit in the future.
Owners’ equity represents the insider claims of a business,
the owners’ interest in its assets.
Assets and owners’ equity differ in that assets are resources
and owners’ equity is a claim to assets.
Assets must be at least as large as owners’ equity, so equity
can be smaller than assets.
2. Both liabilities and owners’ equity are claims to assets.
Liabilities are the outsider claims to the assets of a business;
they are obligations to pay creditors.
Owners’ equity represents the insider claims to the assets of
the business; they are the owners’ residual interest in its
assets after claims from its creditors.
(5-10 min.) S 1-3
a. Cash and cash equivalents A g. Accounts payable L
b. Long-Term investment A h. Share capital E
,c. Income tax payables L i. Short term bank borrowings L
d. Notes payable L j. Retained earnings E
e. Wages payable L k. Buildings A
f. Trademarks A l. Prepaid expenses A
(5 min.) S 1-4
1. Assets and liabilities
2. Equity
(5 min.) S 1-5
1. The entity assumption applies.
2. Application of the entity assumption will separate Newman’s
personal assets from the assets of Quality Food Brands. This
will help Newman, investors, and lenders know how much in
assets the business controls, and this knowledge will help all
parties evaluate the business realistically.
, (5-10 min.) S 1-6
a. Going concern assumption
b. Accrual accounting assumption, relevance characteristic
c. Comparability characteristic
d. Accrual accounting assumption
(5 min.) S 1-7
Computed amounts in boxes
Total Assets = Total Liabilities + Shareholders’ Equity
a. $211,000 = $50,200 + $160,800
b. 270,000 = 50,290 + 219,710
c. 172,800 = 96,000 + 76,800
(5 min.) S 1-8
1. Owners’ Equity = Assets − Liabilities
This way of determining the amount of owners’ equity
applies to any company, your household, or a single Burger
King outlet.
2. Liabilities = Assets − Owners’ Equity
