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Chapter 1 Introduction to Financial Accounting Exercises T1AY2324-1

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Exercise 1 – 1: Identify the term being defined by each item.
1. A fundamental characteristic of a financial information which
enables it to influence the decision of financial statement users
2. Non-inclusion of such information could change the decision a
financial statement user makes on the basis of the financial
information of a specific entity
3. A fundamental qualitative characteristic of a financial
information which states that the information should be
complete, neutral, and free from material mistakes
4. Without partiality in the selection or presentation of financial
information
5. Qualitative characteristic that allows users to compare and
contrast items presented in the financial information, whether
from the same entity at different periods or with different
entities in the same period
6. Refers to the application of the same procedures for the same
items, either from across periods within a reporting entity or in
a single period among different reporting entities
7. Different informed and independent observers could reach the
same conclusion, although not necessarily complete agreement,
that a particular financial information is faithfully presented
8. Having available information to decision makers just in time to
allow them to make their decisions
9. Classifying, characterizing, and presenting information plainly
and succinctly
10. Assumes that the entity has neither the intention nor the need
to liquidate or reduce materially the scale of its operations
11. A present economic resource controlled by the entity as a
result of past events
12. A present obligation of the entity to transfer an economic resource
as a result of past events
13. Residual interest in the assets of the entity after deducting all
its liabilities
14. Increases in economic benefits during the accounting period in
the form of inflows or enhancements of assets or decreases of
liabilities that result in increases in equity, other than those
relating to contributions from equity participants
15. Decreases in economic benefits during the accounting period
in the form of outflows or depletions of assets or incurrences of
liabilities that result in decreases in equity, other than those
relating to distributions to equity participants
Exercise 1 – 2: Identify the term being described by each item.
1. Process of incorporating on the statement of financial position
or profit or loss statement an item that meets the definition of
an element
2. Process of determining the monetary amounts at which the
elements of the financial statements are to be recognized and
carried on the statement of financial position and profit or loss
statement
3. Amount of cash or cash equivalents given or the fair value of
the asset exchanged to obtain an item at the time of its
acquisition
4. Amount of cash or cash equivalents that would have to be paid
if the same or an equivalent asset is acquired currently
5. Amount of cash or cash equivalents that could currently be
received through the sale of an asset in an orderly manner
6. A particular form of general purpose financial reports that
provide information about the reporting entity’s assets,
liabilities, equity, income and expenses
7. Standards and interpretations issued by the International
Accounting Standards Board
8. They Contain information that supplements the information
already presented on the face of the financial statements
9. Items of income and expense that are not recognized in profit
or loss as required or permitted by other PFRSs
10. Total of income less expenses, excluding the components of
other comprehensive income
11. Change in equity during a period resulting from transactions
and other events, other than those changes resulting from
transactions with owners in their capacity as owners
12. The financial statement that shows an entity’s assets,
liabilities, and equity as of a particular date
13. Shows the entity’s profit or loss, and its components, during a
particular period
14. The financial statement that shows the changes in the entity’s
net assets during a particular period
15. Inflows and outflows of cash equivalents
Exercise 1 – 3: True or False– Theory
1. The Conceptual Framework is not a PFRS and hence does not define
standards for any particular measurement or disclosure issue.
2. The objective of general purpose financial reporting is to provide financial
information about the reporting entity that is useful to existing and potential
investors, lenders, and other creditors in making decisions about providing
resources to the entity.
3. Financial statements provide all the information that existing and potential
investors, lenders and other creditors need.
4. Financial statements show the value of a reporting entity.
5. Focusing on common information needs does not prevent the reporting entity
from including additional information that is most useful to a particular
subset of primary users.
6. Accrual accounting recognizes the effects of transactions and other events and
circumstances on a reporting entity’s economic resources and claims in the
periods in which those effects occur, even if the resulting cash receipts and
payments occur in a different period.
7. If financial information is to be useful, it must be relevant and faithfully
represent what it intends to represent.
8. The usefulness of financial information is enhanced if it is comparable,
verifiable, timely, and understandable.
9. The fundamental qualitative characteristics of useful financial information are
relevance and timeliness.
10. Faithful representation does not mean accurate in all respects.
Exercise 1 – 4. True or false - Theory
1. Verifiability helps assure users that information faithfully represents the
economic phenomena it intends to represent.
2. Financial statements are prepared for users who have a reasonable knowledge
of business and economic activities and who review and analyze the
information diligently.
3. In assessing whether an item meets the definition of an asset, liability, or
equity, analysis should focus not only to its legal form but also to its
underlying substance and economic reality.
4. Physical form is essential to the existence of an asset.
5. Obligations also arise from normal business practice, custom, and a desire
to maintain good business relations or act in an equitable manner.
6. A decision by the management of an entity to acquire assets in the future
gives rise to a liability.
7. The definition of income encompasses both revenue and gains.
8. The definition of income also includes rent collected in advance.
9. The definition of expenses encompasses losses as well as those expenses
that arise in the course of the ordinary activities of the entity.
10. When losses are recognized on the profit or loss statement, they are usually
displayed separately because knowledge of them is useful for the purpose of
making economic decisions.
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