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Lecture notes Financial accounting (Fiac6211) Introduction to IFRS
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FAC2601 Assignment 2 (ANSWERS) Semester 1 2024 - DISTINCTION GUARANTEED.
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Lecture notes Financial accounting (Fiac6211) Introduction to IFRS
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The Conceptual Framework-classThis is NOT A STANDARD
- therefore does NOT
override other IFRS
notes
statements
IN CASE OF CONFLICT –
IFRS PREVAILS
Tuesday, 14 March 2023 16:19
What is the conceptual Framework:
Financial statements are prepared & presented by many entities around the world to a variety of external users.
They appear similar, but there are variations caused by different legal, social & economic circumstances of the
countries concerned. This has led to a variety of definitions, recognition criteria, measurement principles &
disclosure in the preparation of financial statements.
In 2nd Year we focus on Chapter 4: The elements of Financial Statements The elements of financial statements:
→ The elements of the financial statements are: Recognise an element if it:
• assets, liabilities & equity relating to an entity’s financial position; AND 1. Meets the definition
• income and expenses relating to an entity’s financial performance. 2. Satisfies recognition criteria.
Financial statements portray the financial effects of transactions by grouping them into categories according to
their economic characteristics. These categories are termed the elements of financial statements.
Financial position
The elements directly related to financial position are assets, liabilities & equity.
Assets: A present economic resource controlled by the entity as a result of past events.
An economic resource is a right that has the potential to produce economic benefits.
Three components to the definition:
• right;
• potential to produce economic benefits;
• control.
Liabilities A present obligation of the entity to transfer an economic resource as a result of past events.
Three criteria must be met for a liability to exist:
• entity has an obligation;
• obligation is to transfer an economic resource;
• obligation is a present obligation that exists as a result of past events.
Assets & liabilities: Unit of account
The unit of account is the right or group of rights, the obligation or group of obligations or the group of rights &
obligations, to which the recognition criteria & measurement concepts are applied.
A unit of account is selected to provide useful information.
Example: A group of assets & liabilities may be identified as a single unit if they will be disposed of in a single transaction.
Equity: Residual interest in the assets of an enterprise after deducting all the liabilities.
Financial performance
The elements directly related to performance are income and expenses.
Income: Increase in assets or decreases in liabilities that result in increases in equity, other than those relating to
contributions from holders of equity claims.
Expenses: Decrease in assets or increases in liabilities that result in decreases in equity, other than those relating
to distributions to holders of equity claims.
Steps when answering:
1. Definitions- from above
2. Application- Link the definition to the question
3. Conclusion- Link to definition eg: Based on the definition of an asset, the machinery can be considered an asset and
recognised in the financial statements under…
NB: LOOK AT PRACTICE SOLUTIONS GIVEN AND SEE HOW QUESTIONS WERE ANSWERED,
LU1- Conceptual Framework Page 1
,LU1- Conceptual Framework Page 2
, 2. Application- Link the definition to the question
3. Conclusion- Link to definition eg: Based on the definition of an asset, the machinery can be considered an asset and
recognised in the financial statements under…
NB: LOOK AT PRACTICE SOLUTIONS GIVEN AND SEE HOW QUESTIONS WERE ANSWERED,
LAYOUT AND PRACTICE!
LU1- Conceptual Framework Page 3
,
LU1- Conceptual Framework Page 4
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