Flashcards in Ethical C Fwork Deck (61)
What is PPE, under IAS 16?
Property, Plant and Equipment.
What does IAS 16 say about depreciation?
Companies MUST depreciate their non-current assets.
Define Faithful Representation
Information must be as true as possible. Information must be complete, neutral and free from MATERIAL erros. Estimates should be as accurate as possible.
What does IAS 2 dictate?
It dictates that closing Inventory must be valued at the lower of COST and NET REALISABLE VALUE.
This is so Profit is not understated.
What is a Advocacy threat?
When a position is developed to the point that subsequent objectivity may be compromised.
What is the Accruals Accounting Principle?
Recognition that sales and costs should be accounted for when they are made and not when they are paid for.
Under IAS 16, what shouldn't be recorded as capital expenditure?
What is a intimidation threat?
When threats, perceived or actual, cause one to not act objectively.
The information must be useful to the user.
Confirmation of what has already occurred and aid in predicting what will happen in future.
What is the Going Concern Accounting Principle?
Assumes that the business will be in existence long enough for all its asset to be fully utilised.
This affects the way the business values its assets e.g. depreciation.
What are the enhancing characteristics of Financial Information?
Under IAS 16, what is useful life?
The length of time the asset is expected to be used by the business, or the number of units that the asset is expected to produce during its life.
What are the two ways to value PPE (Plants, Property and Equipment) under IAS 16?
Cost model - Cost of asset minus any depreciation.
Valuation model - professional valuation (usually for land and property).
Information must be readily available to users so that they can make informed decisions as soon as possible.
What is the Consistency Accounting Principle?
Once a method is adopted, it should be stuck to. Any deviation must be declared and explained.
List the 6 fundamental accounting principles
Under IAS 16, what is Residual Value?
The amount the business estimates that it will be able to sell the asset for at the end of its useful life.
What are the fundamental characteristics of Financial Information?
Under IAS 16, what should be recorded as capital expenditure?
Purchase price of the asset;
Site preparation and installation;
Under IAS 16, what is the depreciable value?
The cost of the asset minus any estimated residual value.
What is the Prudence Accounting Principle?
When choosing alternative outcomes, choose the one which is less favourable.
Users must be presented with as similar formats as possible so that they can easily compare statements from different periods.
What is the Materiality Accounting Principle?
Any information that could influence the economic decisions of users of the financial statements is Material.
If it is not material it can't be used as a non-current asset.
Immaterial items are grouped together.
No valuation is needed at year-end.
Accruals and Prepayments are only calculated on material amounts.
What is the Business Entity Accounting Principle?
The business is a different legal entity from its owners.
i.e. nothing can be taken without being paid for
Under IAS 16, what is Fair Value?
Is the market price = the price at which something is sold or bought when dealing with an unrelated stranger.
What does the IAS 16 state?
Non-current assets must be capitalised i.e. entered in the accounts as capital expenditure.
What is a familiarity threat?
When close personal relationship causes one to be too sympathetic to the interest of others.
Information should be as simple and understandable as possible; and it should be expected that any financially professional should be able to read it.
What is a Self-interest threat?
When financial or other interests will inappropriately influence behaviour or decisions making.