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FAC1502 PREPERATION EXAM 2024
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FAC1502 PREPERATION EXAM 2024 WITH DETAILED ANSWERS
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FAC1502 PREPERATION EXAM 2024Discuss the nature of accounting.
Accounting is a specialized means of communication which is used to convey a
specialized message about an entity's finances. The recipient of this specialized
message (the user of financial information) must understand it otherwise the
information that is conveyed has no value.
Accounting uses words and figures to convey financial information to the users of
such information. As you progress with your study of accounting you will become
familiar with the meaning of these words and figures, which are also known as the
concepts, principles and procedures of accounting. This knowledge will ultimately
help you understand the message contained in financial statements.
Each and every person who is involved in an entity uses financial information to a
greater or lesser degree. Each of us also needs to know something about
accounting to manage our personal financial affairs. Financial resources are limited
or scarce, and if we are going to spend them, we must plan properly. Knowledge of
accounting is therefore also useful in this area. Accounting is therefore a
''language'' used to convey financial information to interested parties
What is the common unit of measurement in accounting?
The common unit of measurement in accounting is money.
Name the four main forms of ownership.
Sole trader
Partnership
Close Corporation
Company
Discuss the different users of financial information.
See section 1.5.
Financial information is required by many users, who analyze the information for
various decision-making purposes. The following are the most common users of
this information:
Investors
,Employees
Lenders
Suppliers and other trade creditors
Customers
Government and their agencies
Public
Differentiate between financial accounting and management accounting.
See section 1.6.
Users of financial information can be subdivided into the following two categories:
internal users - for example, management and employees
external users - for example, investors, creditors and government
Two fields of accounting have developed as a result of this distinction between the
users of the information. Financial accounting is concerned with the provision of
financial information to mainly external parties, while management accounting is
concerned with the provision of financial information to people within the entity.
Financial accounting This field of accounting is concerned with recording
transactions and preparing the financial statements for the entity as a whole.
Financial accounting is governed by international financial reporting standards
(IFRS), which consists of external standards which must be adhered to. These
standards ensure the comparability of financial statements between entities.
Management accounting Management accounting provides financial information
for specific purposes. Managers use this information in their decision making,
which leads to the attainment of the objectives of the entity. Without this financial
information, it would be difficult for management to manage effectively.
Name the qualitative characteristics of financial information.
See section 1.11.2.3
(1) comparability
(2) verifiability
(3) timeliness
(4) understandability
,Define the concept of accounting policy.
See section 1.8
Situations often occur in our everyday lives that are repetitive (i.e. they are always
the same), but they would each have a different outcome if we were to act
differently each time. If we do not have some kind of guideline on how we should
act in such cases, our actions would probably be inconsistent. Our friends would
think we were unreliable. If we lay down a guideline so that we always act the
same way in a particular situation, we can say that we are determining a policy for
our actions, which will result in our actions being consistent.
We encounter precisely the same situation in accounting. Transactions of a
repetitive nature frequently occur, and the requirement of consistency means that
an entity has to establish an accounting policy to determine exactly how such
transactions should be treated. Accounting policy is thus a set of decisions about
how the entity will handle the same type of transaction in order to achieve a
consistent result
What is meant by disclosure of accounting policy?
See section 1.9
Since an accounting policy represents an entity's decisions about situations which it
could deal with in various ways, it has to disclose its accounting policy in its
financial statements. For example, an entity has to indicate what basis it has used
to deal with the depreciation of property, plant and equipment.
Describe the concept of international financial reporting standards.
See section 1.10
This is the next important concept that you will encounter in your accounting
studies. For the sake of conciseness, we will refer to this as IFRS.
If everyone were to develop his or her own language and grammatical rules,
communication would break down. We therefore have generally applicable
language and grammar rules.
Accounting, as a specialized medium of communication, has precisely the same
, problem. If each entity were to prepare financial reports according to its own
accounting rules and its interpretation of accounting theory and principles, chaos
would result in the world of economics and business.
A foundation has therefore been developed over the years for the measurement and
disclosure of the results of financial events (transactions).
This foundation is a general framework and encompasses, in broad terms,
accounting concepts, principles, methods and procedures collectively known as
IFRS.
Discuss the underlying assumption of financial statements.
See section 1.11.2.2
According to the framework, there is one underlying assumption for financial
statements.
This is:
(1) the going concern.
Name the fundamental qualitative characteristics of financial statements.
Relevance
Faithful representation
Name the elements of financial statements
Assets
Liabilities
Equity
Income
Expenses
Define the concept of an accounting entity
An accounting entity is any entity for which separate financial records are kept.
Describe the financial position of an entity in terms of the BAE.
ASSETS = EQUITY + LIABILITIES
Explain the nature of assets.
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