Beruflich Dokumente
Kultur Dokumente
PREVIEW OF CHAPTER 2
Intermediate Accounting
IFRS 2nd Edition
Kieso, Weygandt, and Warfield
2-2
CONCEPTUAL
CONCEPTUAL FRAMEWORK
FRAMEWORK
2-3 LO 1
CONCEPTUAL
CONCEPTUAL FRAMEWORK
FRAMEWORK
2-4 LO 2
FIRST
FIRST LEVEL:
LEVEL: BASIC
BASIC OBJECTIVE
OBJECTIVE
OBJECTIVE
To provide financial information about the reporting entity
that is useful to present and potential equity investors,
lenders, and other creditors in making decisions about
providing resources to the entity.
2-5 LO 3
SECOND
SECOND LEVEL:
LEVEL: FUNDAMENTAL
FUNDAMENTAL CONCEPTS
CONCEPTS
2-6 LO 4
SECOND
SECOND LEVEL:
LEVEL: FUNDAMENTAL
FUNDAMENTAL CONCEPTS
CONCEPTS
ILLUSTRATION 2-2
Hierarchy of Accounting
Qualities
2-7 LO 4
Relevance
Relevance
ILLUSTRATION 2-7
Conceptual Framework
for Financial Reporting
2-8 LO 4
SECOND LEVEL: FUNDAMENTAL CONCEPTS
Fundamental QualityRelevance
2-9 LO 4
SECOND LEVEL: FUNDAMENTAL CONCEPTS
Fundamental QualityRelevance
2-10 LO 4
SECOND LEVEL: FUNDAMENTAL CONCEPTS
Fundamental QualityRelevance
2-11 LO 4
SECOND LEVEL: FUNDAMENTAL CONCEPTS
Fundamental QualityRelevance
2-12 LO 4
Faithful
Faithful Representation
Representation
ILLUSTRATION 2-7
Conceptual Framework
for Financial Reporting
2-13 LO 4
SECOND LEVEL: FUNDAMENTAL CONCEPTS
2-14 LO 4
SECOND LEVEL: FUNDAMENTAL CONCEPTS
2-15 LO 4
SECOND LEVEL: FUNDAMENTAL CONCEPTS
2-16 LO 4
SECOND LEVEL: FUNDAMENTAL CONCEPTS
2-17 LO 4
SECOND LEVEL: FUNDAMENTAL CONCEPTS
Enhancing Qualities
2-18 LO 4
SECOND LEVEL: FUNDAMENTAL CONCEPTS
Enhancing Qualities
2-19 LO 4
SECOND LEVEL: FUNDAMENTAL CONCEPTS
Enhancing Qualities
2-20 LO 4
SECOND LEVEL: FUNDAMENTAL CONCEPTS
Enhancing Qualities
2-21 LO 4
Basic
Basic Elements
Elements
ILLUSTRATION 2-7
Conceptual Framework
for Financial Reporting
2-22 LO 5
SECOND LEVEL: BASIC ELEMENTS
Elements of Financial Statements
Equity
Income
Expenses
2-23 LO 5
SECOND LEVEL: BASIC ELEMENTS
Elements of Financial Statements
Asset
A present obligation of the entity arising
from past events, the settlement of which
Liability
is expected to result in an outflow from the
entity of resources embodying economic
Equity benefits.
Income
Expenses
2-24 LO 5
SECOND LEVEL: BASIC ELEMENTS
Elements of Financial Statements
Asset
Liability
Income
Expenses
2-25 LO 5
SECOND LEVEL: BASIC ELEMENTS
Elements of Financial Statements
Asset
Liability
2-26 LO 5
SECOND LEVEL: BASIC ELEMENTS
Elements of Financial Statements
Asset
Liability
ILLUSTRATION 2-7
Conceptual Framework for
Financial Reporting
2-28 LO 6
THIRD
THIRD LEVEL:
LEVEL: ASSUMPTIONS
ASSUMPTIONS
Basic Assumptions
Economic Entity company keeps its activity separate from its
owners and other business unit.
2-30 LO 6
THIRD
THIRD LEVEL:
LEVEL: BASIC
BASIC PRINCIPLES
PRINCIPLES
Measurement Principles
Historical Cost is generally thought to be a faithful
representation of the amount paid for a given item.
Fair value is defined as the price that would be received to
sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement
date.
IASB has given companies the option to use fair value as the
basis for measurement of financial assets and financial
liabilities.
2-31 LO 7
THIRD
THIRD LEVEL:
LEVEL: BASIC
BASIC PRINCIPLES
PRINCIPLES
Measurement Principles
IASB established a fair value hierarchy that provides insight into
the priority of valuation techniques to use to determine fair value.
ILLUSTRATION 2-4
2-32 LO 7
THIRD
THIRD LEVEL:
LEVEL: BASIC
BASIC PRINCIPLES
PRINCIPLES
Revenue Recognition
When a company agrees to perform a service or sell a product to
a customer, it has a performance obligation.
2-33 LO 7
THIRD
LEVEL:
BASIC
PRINCIPLES
Illustration: Assume
the Airbus (DEU) signs
a contract to sell
airplanes to British
Airways (GRB) for 100
million. To determine
when to recognize
revenue, Airbus uses
the five steps for
revenue recognition
shown at right.
ILLUSTRATION 2-5
The Five Steps of
2-34
Revenue Recognition
THIRD
THIRD LEVEL:
LEVEL: BASIC
BASIC PRINCIPLES
PRINCIPLES
2-35 LO 7
THIRD LEVEL: BASIC PRINCIPLES
Full Disclosure
Providing information that is of sufficient importance to
influence the judgment and decisions of an informed user.
Provided through:
Financial Statements
Notes to the Financial Statements
Supplementary information
2-36 LO 7
THIRD LEVEL: BASIC PRINCIPLES
BE2-9: Identify which basic principle of accounting is best
described in each item below.
(a) Parmalat (ITA) reports revenue in its income Revenue
statement when it delivered goods instead of when Recognition
the cash is collected.
(b) Google (USA) recognizes depreciation expense for Expense
a machine over the 2-year period during which that
Recognition
machine helps the company earn revenue.
(c) KC Corp. (USA) reports information about pending
Full
lawsuits in the notes to its financial statements.
Disclosure
(d) Fuji Film (JPN) reports land on its statement of
financial position at the amount paid to acquire it,
even though the estimated fair market value is Measurement
greater.
2-37 LO 7
THIRD LEVEL: COST CONSTRAINT
Cost Constraint
Companies must weigh the costs of providing the information
against the benefits that can be derived from using it.
Rule-making bodies and governmental agencies use cost-
benefit analysis before making final their informational
requirements.
In order to justify requiring a particular measurement or
disclosure, the benefits perceived to be derived from it
must exceed the costs perceived to be associated with it.
2-38 LO 8
THIRD LEVEL: COST CONSTRAINT
2-39 LO 8
Summary of
the Structure
ILLUSTRATION 2-7
Conceptual Framework
for Financial Reporting
2-40 LO 8