Module 2 by Chat GTP

What is the objective of general-purpose financial statements according to IAS 1?

What is the objective of general-purpose financial statements according to IAS 1?

To provide information about the financial position, financial performance, and cash flows of an entity that is useful to a wide range of users in making economic decisions.

What are the components of a complete set of financial statements as per IAS 1?

A statement of financial position, a statement of profit or loss and other comprehensive income, a statement of changes in equity, a statement of cash flows, and notes to the financial statements.

What is the 'going concern' assumption in financial reporting?

The assumption that an entity will continue its operations for the foreseeable future, without the need or intention to liquidate or significantly curtail its activities.

How does IAS 1 define 'fair presentation'?

Fair presentation requires the faithful representation of the effects of transactions, other events, and conditions in accordance with the definitions and recognition criteria for assets, liabilities, income, and expenses.

What is the 'accrual basis of accounting' as per IAS 1?

The method of accounting where transactions and other events are recognized when they occur, rather than when cash is received or paid.

Define 'materiality' in the context of IAS 1.

Information is material if omitting, misstating, or obscuring it could influence the decisions of users taken on the basis of the financial statements.

What is the requirement for 'offsetting' as per IAS 1?

Assets and liabilities, or income and expenses, should not be offset unless required or permitted by another IFRS.

How should comparative information be presented according to IAS 1?

Comparative information must be presented for all amounts reported in the financial statements for the preceding period, unless a standard or interpretation permits or requires otherwise.

What are 'adjusting events' after the reporting period according to IAS 10?

Events that provide evidence of conditions that existed at the end of the reporting period, requiring adjustments to the financial statements.

What are 'non-adjusting events' after the reporting period according to IAS 10?

Events that indicate conditions that arose after the reporting period, which do not require adjustments but may require disclosure in the notes.

What should be disclosed for significant non-adjusting events?

The nature of the event and an estimate of its financial effect, or a statement that such an estimate cannot be made.

What does IAS 1 require for the presentation of a statement of financial position?

Presentation of assets and liabilities, equity, and distinguishing between current and non-current items.

How should changes in accounting policies be applied according to IAS 8?

Changes in accounting policies should be applied retrospectively unless it is impracticable.

Define 'accounting estimates' as per IAS 8.

Approximations made in the financial statements when precise amounts cannot be determined, such as useful lives of assets or provisions for bad debts.

What is the treatment of prior period errors according to IAS 8?

Prior period errors should be corrected retrospectively by restating the comparative amounts for the prior periods in which the error occurred.

How should an entity report a change in accounting estimates?

Changes in accounting estimates should be recognized prospectively by including them in profit or loss in the period of the change and future periods if the change affects both.

What is the role of the notes to the financial statements?

To provide additional information that is not presented elsewhere in the financial statements but is relevant to an understanding of any of them.

What does IAS 1 specify about the frequency of reporting?

Financial statements should be prepared at least annually, and if the annual period is changed, reasons for the change must be disclosed.

What should an entity disclose about going concern if there is significant doubt?

The entity must disclose the nature of the conditions or events that raise doubt, the management’s plans to address them, and the fact that these conditions or events exist.

What does 'consistency of presentation' refer to in IAS 1?

The entity should retain the presentation and classification of items from one period to the next unless a significant change in the nature of the operations occurs or a new IFRS requires a change.

What is the requirement for 'presentation of income' in IAS 1?

IAS 1 requires income to be presented either by nature (e.g., raw materials, staff costs) or by function (e.g., cost of sales, administrative expenses), depending on which provides more relevant and reliable information.

What should be disclosed if the financial statements are not prepared on a going concern basis?

If the going concern basis is not used, the entity must disclose that fact, along with the basis of preparation and the reason why the entity is not considered a going concern.

Define 'complete set of financial statements' according to IAS 1.

A complete set includes a statement of financial position, a statement of profit or loss and other comprehensive income, a statement of changes in equity, a statement of cash flows, and notes to the financial statements.

What is the 'functional currency' as per IAS 1?

The currency of the primary economic environment in which the entity operates, which is used in preparing the financial statements.

What are the key elements of the statement of cash flows according to IAS 7?

Operating activities, investing activities, and financing activities, which provide a basis to assess the entity's ability to generate cash and cash equivalents.

How does IAS 1 require the presentation of OCI items?

Items of other comprehensive income (OCI) should be presented in a separate section of the statement of profit or loss and OCI, either net of tax or before tax with one amount showing the aggregate amount of income tax relating to those items.

What should be disclosed about dividends according to IAS 1?

The entity should disclose the amount of dividends proposed or declared before the financial statements were authorized for issue, but not recognized as a distribution during the period, and the related amount per share.

How are transactions with owners in their capacity as owners presented?

These transactions are presented separately in the statement of changes in equity, distinguishing between changes resulting from profit or loss and those from transactions with owners.

What does IAS 8 require when no IFRS standard applies to a transaction?

The entity should use judgment to develop and apply an accounting policy that results in information that is relevant and reliable, considering IFRS standards and interpretations, the Conceptual Framework, and accepted industry practices.

What disclosures are required for changes in accounting policies?

Disclosures include the nature of the change, the reasons for the change, the amount of the adjustment for the current and prior periods, and the fact that comparative information has been restated.

What is the significance of 'errors' in financial reporting under IAS 8?

Errors refer to mistakes in recognition, measurement, presentation, or disclosure of financial information that need correction to ensure the financial statements are accurate and complete.

How should an entity handle foreign currency translation adjustments?

Foreign currency translation adjustments should be recognized in OCI, if applicable, and disclosed separately in the statement of profit or loss and OCI.

What is the treatment of dividends received during the reporting period?

Dividends received should be recognized as income unless they represent a recovery of part of the cost of the investment.

What is required if an entity changes its financial year-end?

The entity must disclose the reason for the change and present comparative information that is consistent with the new financial year-end.

How does IAS 1 define 'current assets'?

Current assets are assets expected to be realized, sold, or consumed in the normal operating cycle, or within twelve months after the reporting period, held primarily for trading, or cash equivalents.

How are 'current liabilities' defined in IAS 1?

Current liabilities are those expected to be settled within the entity’s normal operating cycle, due within twelve months after the reporting period, held primarily for trading, or without an unconditional right to defer settlement for at least twelve months.

What should be disclosed in the statement of changes in equity?

The statement should show the total comprehensive income for the period, contributions and distributions to owners, and reconciliation between the carrying amounts at the beginning and end of the period.

How should an entity present cash flows from operating activities?

Cash flows from operating activities can be presented using either the direct method (showing major classes of gross cash receipts and payments) or the indirect method (adjusting profit or loss for non-cash items and changes in working capital).

What are 'significant accounting policies'?

These are specific principles, bases, conventions, rules, and practices applied by an entity in preparing and presenting financial statements.

What is the treatment for borrowing costs in IAS 23?

Borrowing costs directly attributable to the acquisition, construction, or production of a qualifying asset are capitalized as part of the cost of that asset. Other borrowing costs are recognized as an expense in the period in which they are incurred.

What is required if an entity cannot apply a new IFRS standard retrospectively?

If impracticable, the entity should apply the new standard prospectively from the start of the earliest period practicable and disclose that fact along with an explanation.

How should contingent liabilities and contingent assets be treated?

Contingent liabilities are not recognized but are disclosed unless the possibility of an outflow is remote. Contingent assets are not recognized but are disclosed if an inflow of economic benefits is probable.

What should be disclosed about the use of estimates in the financial statements?

Disclosures should include information about the assumptions and other major sources of estimation uncertainty that have a significant risk of causing material adjustments within the next financial year.

What is 'other comprehensive income' (OCI)?

OCI includes items of income and expense that are not recognized in profit or loss as required or permitted by other IFRS standards, such as revaluation surpluses, actuarial gains and losses, and foreign currency translation differences.

Define 'depreciation' according to IAS 16.

Depreciation is the systematic allocation of the depreciable amount of an asset over its useful life.

What is the 'depreciable amount' of an asset?

The depreciable amount is the cost of an asset, or other amount substituted for cost, less its residual value.

How should events after the reporting period that affect the entity’s future operations be disclosed?

Such events should be disclosed in the notes if they are non-adjusting, providing details on their nature and potential financial impact.

What is the purpose of the 'statement of cash flows'?

The purpose is to provide information about the historical changes in cash and cash equivalents, classifying cash flows during the period into operating, investing, and financing activities.

How does IAS 1 define 'equity'?

Equity is the residual interest in the assets of the entity after deducting liabilities.

What is the definition of 'liabilities' in financial reporting?

Liabilities are present obligations of the entity arising from past events, the settlement of which is expected to result in an outflow of resources embodying economic benefits.

What is a 'qualifying asset' according to IAS 23?

A qualifying asset is an asset that necessarily takes a substantial period of time to get ready for its intended use or sale.

How are 'discontinued operations' presented in financial statements?

Discontinued operations are presented separately in the statement of profit or loss and OCI, including the post-tax profit or loss and post-tax gain or loss on the disposal.

Define 'impairment' as per IAS 36.

Impairment is the loss that occurs when the carrying amount of an asset exceeds its recoverable amount.

What does 'recoverable amount' mean in IAS 36?

Recoverable amount is the higher of an asset's fair value less costs of disposal and its value in use.

What should be disclosed about related party transactions?

Entities must disclose the nature of the relationship, the types of transactions, and the amounts involved.

How should changes in fair value of financial instruments be reported?

Changes in fair value are recognized in profit or loss unless they are part of a hedging relationship or recognized in OCI if they meet specific criteria.

What is the 'prudence' principle in financial reporting?

Prudence is the inclusion of a degree of caution in the exercise of judgments needed in making estimates under conditions of uncertainty.

Define 'intangible assets' according to IAS 38.

Intangible assets are identifiable non-monetary assets without physical substance.

What is the treatment of goodwill in financial statements?

Goodwill is not amortized but is tested annually for impairment.

What are 'contingent liabilities'?

Contingent liabilities are possible obligations that arise from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the entity.

How should an entity handle 'subsequent events'?

Subsequent events that provide additional evidence about conditions that existed at the end of the reporting period should adjust the financial statements, while those that provide new evidence should be disclosed in the notes.

What is 'revenue recognition' according to IFRS 15?

Revenue is recognized when the entity transfers control of goods or services to the customer, measured based on the consideration the entity expects to receive.

Define 'financial instruments' according to IFRS 9.

Financial instruments are contracts that give rise to a financial asset of one entity and a financial liability or equity instrument of another entity.

What is 'deferred tax' as per IAS 12?

Deferred tax is the tax attributable to temporary differences between the carrying amount of an asset or liability in the statement of financial position and its tax base.

What is the 'cash-generating unit' (CGU) concept in IAS 36?

A CGU is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets.

How does IAS 2 define 'inventories'?

Inventories are assets held for sale in the ordinary course of business, in the process of production for such sale, or in the form of materials or supplies to be consumed in the production process or in the rendering of services.

What is 'provision' as per IAS 37?

A provision is a liability of uncertain timing or amount.

How should an entity recognize lease liabilities under IFRS 16?

Lease liabilities are recognized at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or the lessee's incremental borrowing rate.

What are 'biological assets' under IAS 41?

Biological assets are living animals or plants.

How are 'financial liabilities' measured initially under IFRS 9?

Financial liabilities are measured initially at fair value minus, in the case of a financial liability not at fair value through profit or loss, transaction costs directly attributable to the issue.

What is the 'useful life' of an asset?

Useful life is the period over which an asset is expected to be available for use by an entity or the number of production or similar units expected to be obtained from the asset.

How should 'share-based payments' be accounted for?

Share-based payments should be recognized as an expense, with a corresponding increase in equity or liability, depending on whether the settlement is in equity or cash.

What is a 'liquidity risk'?

Liquidity risk is the risk that an entity will encounter difficulty in meeting obligations associated with financial liabilities.

Define 'hedging' in the context of IFRS 9.

Hedging involves designating one or more hedging instruments so that their change in fair value offsets the change in fair value or cash flows of the hedged item.

What is 'net realizable value' in the context of inventories?

Net realizable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale.

How are 'deferred tax assets' and 'deferred tax liabilities' presented?

Deferred tax assets and deferred tax liabilities should be offset if the entity has a legally enforceable right to set off current tax assets against current tax liabilities and the deferred tax assets and liabilities relate to income taxes levied by the same taxation authority.

What is 'impairment loss'?

Impairment loss is the amount by which the carrying amount of an asset or a cash-generating unit exceeds its recoverable amount.

How should changes in accounting estimates be treated?

Changes in accounting estimates should be recognized prospectively by including them in profit or loss in the period of the change and future periods if the change affects both.

What is the difference between 'financial assets at amortized cost' and 'financial assets at fair value through profit or loss'?

Financial assets at amortized cost' are held for collecting contractual cash flows that represent solely payments of principal and interest. 'Financial assets at fair value through profit or loss' are measured at fair value, with changes in fair value recognized in profit or loss.

What are the disclosure requirements for earnings per share (EPS) under IAS 33?

Entities must disclose both basic and diluted EPS on the face of the statement of profit or loss and other comprehensive income for each class of ordinary shares with different rights.

What is 'recognition' in financial reporting?

Recognition is the process of incorporating in the financial statements an item that meets the definition of an element and satisfies the criteria for recognition.

What are 'financial liabilities at fair value through profit or loss'?

These are financial liabilities held for trading or designated upon initial recognition as at fair value through profit or loss, with changes in fair value recognized in profit or loss.

What is the 'cost model' in accounting for property, plant, and equipment?

The cost model requires an asset to be carried at its cost less any accumulated depreciation and any accumulated impairment losses.

How is 'useful life' defined in the context of asset depreciation?

Useful life is the period over which an asset is expected to be available for use by an entity or the number of production or similar units expected to be obtained from the asset.

What is 'revaluation surplus'?

Revaluation surplus is the increase in the carrying amount of an asset when its fair value is higher than its carrying amount, recognized in other comprehensive income.

How should 'share capital' be presented in financial statements?

Share capital should be presented as a separate component of equity, showing the amount of capital subscribed by shareholders.

What is 'amortization' in the context of intangible assets?

Amortization is the systematic allocation of the depreciable amount of an intangible asset over its useful life.

What does 'materiality' imply in the preparation of financial statements?

Materiality implies that information is significant if its omission or misstatement could influence the economic decisions of users taken on the basis of the financial statements.

How are 'leases' defined under IFRS 16?

A lease is a contract that conveys the right to use an asset for a period of time in exchange for consideration.

What is the 'revenue recognition principle'?

The principle that revenue should be recognized when it is earned and realizable, regardless of when the cash is received.

Define 'operating segment' as per IFRS 8.

An operating segment is a component of an entity that engages in business activities from which it may earn revenues and incur expenses, whose operating results are regularly reviewed by the entity's chief operating decision maker.

What are 'deferred tax liabilities'?

Deferred tax liabilities are the amounts of income taxes payable in future periods in respect of taxable temporary differences.

What is 'component depreciation'?

Component depreciation is the practice of depreciating the parts of an asset separately if they have significantly different patterns of consumption of economic benefits.

How should changes in accounting policies be disclosed?

Changes in accounting policies should be disclosed with the nature of the change, reasons for the change, and the effect on the financial statements.

What is the 'going concern assumption'?

The going concern assumption is the assumption that an entity will continue in operation for the foreseeable future and does not intend to, nor need to, liquidate or significantly curtail the scale of its operations.

Define 'carrying amount' in financial accounting.

Carrying amount is the amount at which an asset is recognized in the statement of financial position after deducting accumulated depreciation and accumulated impairment losses.

What is 'cash equivalents' in the context of cash flow statements?

Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.

Define 'current tax' as per IAS 12.

Current tax is the amount of income taxes payable (or recoverable) in respect of the taxable profit (or tax loss) for a period.

What are 'deferred tax assets'?

Deferred tax assets are amounts of income taxes recoverable in future periods in respect of deductible temporary differences, the carryforward of unused tax losses, and the carryforward of unused tax credits.

What does 'restructuring' mean in financial terms?

Restructuring is a program that is planned and controlled by management, and materially changes either the scope of a business undertaken by an entity or the manner in which that business is conducted.