Solutions To Chapter 2 Problems
Solution sto Chapter 2 Problems Accounting Judgements
Questions
1. Accounting principles include:
(a) Underlying assumptions – basic underlying assumptions that make accounting possible.
(b) Qualitative criteria – standards to judge policy choices in conjunction with reporting objectives.
(c) Measurement methods – ways to measure results and financial position.
2. The importance of establishing a document such as the IASB’s Framework is that this material helps standard setters when setting new standards or evaluating old ones, and also helps those trying to (1) provide the most useful information to financial statement users, (2) understand and interpret standards, (3) set policy in areas where there are no specific standards, or (4) interpret information prepared in conformity with the concepts.
3. Ethical professional judgement is important in accounting because of the pervasiveness of choice in accounting policy and estimates. The credibility of accounting information rests on appropriate judgement, applied to be fair to all stakeholders.
4. Underlying assumptions include:
1. Time-period—financial information can be reported over a series of time spans shorter than the total life of the enterprise.
2. Separate-entity—financial reports relate to the activities of the business enterprise separate from its owners.
3. Continuity—the business entity will continue in operations for the foreseeable future (going concern assumption).
4. Proprietary approach—results are reported from the perspective of the owners, who hold residual return and risk.
5. Unit-of-measure—results can be meaningfully expressed in monetary terms.
6. Nominal dollar financial capital maintenance—profits are earned after historical cost is recovered; neither general inflation nor specific changing prices are considered.
5. The time-period assumption requires accruals and deferrals in accounting because cash transactions are not always completed in the accounting period to
Questions
1. Accounting principles include:
(a) Underlying assumptions – basic underlying assumptions that make accounting possible.
(b) Qualitative criteria – standards to judge policy choices in conjunction with reporting objectives.
(c) Measurement methods – ways to measure results and financial position.
2. The importance of establishing a document such as the IASB’s Framework is that this material helps standard setters when setting new standards or evaluating old ones, and also helps those trying to (1) provide the most useful information to financial statement users, (2) understand and interpret standards, (3) set policy in areas where there are no specific standards, or (4) interpret information prepared in conformity with the concepts.
3. Ethical professional judgement is important in accounting because of the pervasiveness of choice in accounting policy and estimates. The credibility of accounting information rests on appropriate judgement, applied to be fair to all stakeholders.
4. Underlying assumptions include:
1. Time-period—financial information can be reported over a series of time spans shorter than the total life of the enterprise.
2. Separate-entity—financial reports relate to the activities of the business enterprise separate from its owners.
3. Continuity—the business entity will continue in operations for the foreseeable future (going concern assumption).
4. Proprietary approach—results are reported from the perspective of the owners, who hold residual return and risk.
5. Unit-of-measure—results can be meaningfully expressed in monetary terms.
6. Nominal dollar financial capital maintenance—profits are earned after historical cost is recovered; neither general inflation nor specific changing prices are considered.
5. The time-period assumption requires accruals and deferrals in accounting because cash transactions are not always completed in the accounting period to