Financial Reporting Asset CPA CORE 1 100%
Correct Latest Update
Who are the stakeholders or users of financial statements? List as many as possible -
ANSWER Auditors - render opinion on financials
Shareholders/potential investors - assess ROI and get feedback on operating decisions.
Creditors - interested in collateral and cash flows
Analysts - use historic info to predict future performance and stock price
employees - assess job security/compensation
Customers - assess quality of products
Suppliers - stability of customers/ ability to pay balances owed
labour unions - assess reasonableness of wage demands
Govt - assist in formulating policies, special deductions/tax rates for unique industry
Competitors - measure own performance relative to others
What are the two basic qualitative characteristics of financial reporting in the
conceptual framework? ANSWER Relevance
- predictive value
- confirmatory value
- material
Faithful representation
-complete
-neutral
- free from error
What are the 4 enhancing qualitiative characteristics of financial reporting in the
conceptual framework? - ANSWER -comparability
,- verifability
- timeliness
- understandability
What is the definition of an asset? - ANSWER resource controlled by entity as result of
past events from which econ benefits are expected to flow to entity. Cost/value can be
measured reliably.
What are the 3 types of adjusting entries? - ANSWER prepayments - adjust items
recorded previously when cash flow occured. expiry of prepaid, depreciation, earning
of unearned revenue
accruals - record items for which cash flow has not occured. create/increase an
expense/revenue
estimates - recording bad debts/unrealized gains/losses
What are the equity accounts for corporations, proprietorships and partnerships? -
ANSWER Corporations - retained earnings = excess of NI exceeding losses. Shares
issued/sold bt company recorded in share capital accounts, also uses contributed
surplus and accumulated comprehensive income
Proprietorships - unincorporated/ have one owner. One equity account called capital
account. When the owner contributes cash to business or closes the income statement
accounts at the end of the year, the balance will increase or decrease.
Partnerships- just like proprietorship, set up a capital account for each owner.
No limited liability for properitorships and partnerships
What is FOB shipping point and FOB destination? - ANS FOB shipping point - sale takes
place when goods leave suppliers dock
,FOB destination - sale takes place when goods arrive at their destination
What is the difference between periodic and perpetual inventory system? - ANSWER
Periodic - occasional count of inventory to determine ending inventory balance and cost
of goods sold. Uses prucahse expense account instead of inventory, no cost of goods
sold entries are made. end of accounting period need to update inventory count balance
Perpetual system - keeps continual track of inventory balances. Balance in acct
requires no adjustments if no theft or spoilage.
Uses and limitations of the income statement What is a good measurement of
performance? - ANSWER Useful
- evaluate performance of enterprise
- provide basis for predicting future performance
- determine risk and uncertainty of acheiving future cash flows
NI not accurate measurement of performance
- items that cannot be measured reliably are not recorded
- different amts (COGS) can be arrived at using different accounting policies
- Income measures depend on estimates of useful life of PPE
- there is no consensus on one way to measure income
Discontinued Operations Component under IFRS 5 and ASPE 3475 Component of an
entity that has been disposed of, or is classified as held for sale Any account related to
discontinued operations is segregated on the financials.
IFRS -component is a separate line of business/geographic area of operation
ASPE - any of the following is included:
- separate operating segment, significant line of business (operate business,
performance reviewed by management, discrete accounting info available)
, - reporting unit
- subsidiary
- asset group w/ cash flows largely independent of other cash flows of business
Both of the following criteria must be met
- operations and cash flows related to business have been/will be eliminated
-no more continuing involvement with the business
Income/loss related to component separated and presented at the bottom of income
statement below tax expense
What are assets held for sale? What are the criteria to meet the category? How are they
measured? Assets of discontinued operation that have not yet been sold. Shown as held
for sale on balance sheet and are not depreciated. Under IFRS if sales agreement,
assets/liabiltiies from discontinued op can be shown as current. Under ASPE they are
shown as they were originally classified).
Other assets can be included in this category when the following criteria are met
there is a commitment to a plan to sell the asset
it is available for immediate sale in its present condition
an active program to locate a buyer has been initiated
it is probable that the sale will be made within one year of the date of classification
asset is reasonably exposited, and actively marketed
it is unlikely that the plan will significantly change
Asset to be abandoned is not held for sale
Long-lived Asset Measurement
Measured at the lower of
carrying amount
Fair Value less cost to sell
Correct Latest Update
Who are the stakeholders or users of financial statements? List as many as possible -
ANSWER Auditors - render opinion on financials
Shareholders/potential investors - assess ROI and get feedback on operating decisions.
Creditors - interested in collateral and cash flows
Analysts - use historic info to predict future performance and stock price
employees - assess job security/compensation
Customers - assess quality of products
Suppliers - stability of customers/ ability to pay balances owed
labour unions - assess reasonableness of wage demands
Govt - assist in formulating policies, special deductions/tax rates for unique industry
Competitors - measure own performance relative to others
What are the two basic qualitative characteristics of financial reporting in the
conceptual framework? ANSWER Relevance
- predictive value
- confirmatory value
- material
Faithful representation
-complete
-neutral
- free from error
What are the 4 enhancing qualitiative characteristics of financial reporting in the
conceptual framework? - ANSWER -comparability
,- verifability
- timeliness
- understandability
What is the definition of an asset? - ANSWER resource controlled by entity as result of
past events from which econ benefits are expected to flow to entity. Cost/value can be
measured reliably.
What are the 3 types of adjusting entries? - ANSWER prepayments - adjust items
recorded previously when cash flow occured. expiry of prepaid, depreciation, earning
of unearned revenue
accruals - record items for which cash flow has not occured. create/increase an
expense/revenue
estimates - recording bad debts/unrealized gains/losses
What are the equity accounts for corporations, proprietorships and partnerships? -
ANSWER Corporations - retained earnings = excess of NI exceeding losses. Shares
issued/sold bt company recorded in share capital accounts, also uses contributed
surplus and accumulated comprehensive income
Proprietorships - unincorporated/ have one owner. One equity account called capital
account. When the owner contributes cash to business or closes the income statement
accounts at the end of the year, the balance will increase or decrease.
Partnerships- just like proprietorship, set up a capital account for each owner.
No limited liability for properitorships and partnerships
What is FOB shipping point and FOB destination? - ANS FOB shipping point - sale takes
place when goods leave suppliers dock
,FOB destination - sale takes place when goods arrive at their destination
What is the difference between periodic and perpetual inventory system? - ANSWER
Periodic - occasional count of inventory to determine ending inventory balance and cost
of goods sold. Uses prucahse expense account instead of inventory, no cost of goods
sold entries are made. end of accounting period need to update inventory count balance
Perpetual system - keeps continual track of inventory balances. Balance in acct
requires no adjustments if no theft or spoilage.
Uses and limitations of the income statement What is a good measurement of
performance? - ANSWER Useful
- evaluate performance of enterprise
- provide basis for predicting future performance
- determine risk and uncertainty of acheiving future cash flows
NI not accurate measurement of performance
- items that cannot be measured reliably are not recorded
- different amts (COGS) can be arrived at using different accounting policies
- Income measures depend on estimates of useful life of PPE
- there is no consensus on one way to measure income
Discontinued Operations Component under IFRS 5 and ASPE 3475 Component of an
entity that has been disposed of, or is classified as held for sale Any account related to
discontinued operations is segregated on the financials.
IFRS -component is a separate line of business/geographic area of operation
ASPE - any of the following is included:
- separate operating segment, significant line of business (operate business,
performance reviewed by management, discrete accounting info available)
, - reporting unit
- subsidiary
- asset group w/ cash flows largely independent of other cash flows of business
Both of the following criteria must be met
- operations and cash flows related to business have been/will be eliminated
-no more continuing involvement with the business
Income/loss related to component separated and presented at the bottom of income
statement below tax expense
What are assets held for sale? What are the criteria to meet the category? How are they
measured? Assets of discontinued operation that have not yet been sold. Shown as held
for sale on balance sheet and are not depreciated. Under IFRS if sales agreement,
assets/liabiltiies from discontinued op can be shown as current. Under ASPE they are
shown as they were originally classified).
Other assets can be included in this category when the following criteria are met
there is a commitment to a plan to sell the asset
it is available for immediate sale in its present condition
an active program to locate a buyer has been initiated
it is probable that the sale will be made within one year of the date of classification
asset is reasonably exposited, and actively marketed
it is unlikely that the plan will significantly change
Asset to be abandoned is not held for sale
Long-lived Asset Measurement
Measured at the lower of
carrying amount
Fair Value less cost to sell
