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.