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1. Relevance : all the information that may affect a user’s decision must
be present in the financial statements.
- Liabilities: A debt or legal obligation that the business owes and must
pay with an outflow of resources.
- Equity: The owners’ investment in the business (i.e their claim on the
assets of a business)
The following is the actual incurred costs over the next 2 years
The company is making $500m over the contract so that can be allocated
using the percentage of completion
A. $0
B. $45m
C. $50m
D. $200m
Measurement
Historical Cost: The historical cost is the price actually paid, or the value of
resources given up for the item.
Fair Value: Fair value is the price that would be received in exchange for
an item in a transaction between independent parties.
Amortized Cost: This amount is most often used to value financial assets
and liabilities such as bonds
Errors and Misuse of Recognition and Measurement
Concepts