Otvety Na Ekz Voprosy 1-30

7/25/2019 Otvety Na Ekz Voprosy 1-30

1/39

1.Basic principles of financial information presentation. Main users of financial

statements, informational needs of stakeholders

Relevance. Information is considered to be relevant if it is capable of influencing theeconomic decisions of the users and it is provided in time to influence those decisions.Reliability. Information is considered to be reliable if it is: faithfully represented; free frommaterial misstatement; neutral; complete; and prudent.Materialityis a threshold of significance to the users of the financial statements. It is the

point at which information, either through its omission or misstatement, could influence theeconomic decisions of the users when taken on the basis of the financial statements as awhole.Neutrality. The information presented in the financial statements should be free from biasand, most importantly, information should not be presented in such a manner as to achieve a

pre-determined goal or objective.Completeness. The information presented to the shareholders should be complete, within the

bounds of materiality. This means that all relevant transactions and events relating to theaccounting period must appropriately reflected in the financial statements in accordance with

relevant accounting principles.Prudence. The outcome of many events and circumstances presented in the financialstatements may be uncertain. For example; a company can only be sure of receiving the cashfrom a credit sale when the customer physically transfers the cash to the seller. Prudencemeans exercising a degree of caution when preparing financial statements so thatassets/revenues are not overstated and liabilities/expenses are not understated.Comparability. Users must be able to compare financial information relating to the entityover time and against other business entities. To this end accounting treatments should beapplied consistently from year to year and should be disclosed in the financial statements.

Understandability. It is assumed that the users of financial statements have a reasonableknowledge of business and economic activity. Even so, the information must be understood

by the audience to be of any use.Faithful representation. This means that financial information must reflect economicsubstance, not merely the legal form of a transaction. An example of the latter could bewhere a business sells assets at the year-end but they contractually agree to buy them backagain the day after the year-end. Although legally a sale has taken place the substance is that

the company has not really sold the goods at all; they are 'window dressing' to boost theiryear-end revenues.

The main users of information from financial statements are as follows;Investorsand potential investors are interested in their potential profits and the security oftheir investment.Lendersneed to know if they will be repaid. This will depend on thesolvency of the company, which should be revealed by the statement of financial position.The public may wish to assess the effect of the company on the economy, local environmentand local community. Suppliers need to know if they will be paid. New suppliers may alsorequire reassurance about the financial health of a business before agreeing to supply goods.Customersneed to know that a company can continue to supply them into the future.

Government departmentsneed to know how the economy is performing in order to planfinancial and industrial policies. Employees and trade unionrepresentatives need to knowif an employer can offer secure employment and possible pay rises.

7/25/2019 Otvety Na Ekz Voprosy 1-30

2/39

2.Capital structure and financial expensesFinance is provided by the capital invested in the business.Capital is something that on itsown has little or no use but can be employed in the generation of wealth.Money is a form offinancial capital; there is not an awful lot you can do with physical currency (except perhapsadmire its shiny appearance or burn it if it is the paper sort) but it can be used in exchangefor goods and services which can be put to good use. n general all forms of finance can beloosely categorised into two distinct groups:

Debt, which requires some form of mandatory transfer of economic benefit to theprovider of the finance, or

Equity, which gives the provider of the finance the rights to share in the residual assetsof the business when it ceases to trade.

If a company were to issue shares at their nominal value the double entry to record thisraising of finance would be:

Dr Cash - Issue price x no. shares

Cr - Share capital Nominal value x no. shares

In reality companies generally issue shares at a price above their nominal value. This isreferred to as issuing shares at a premium.The double entry to record such an issue is:

Dr Cash- Issue price x no. shares

Cr Share capital - Nominal value x no. shares

Cr Share premium - (i.e. the difference between the issue price and the nominal

value x no. of shares sold).

A rights issue is:theoffer of new shares to existing shareholders in proportion to theirexistingshareholding at a stated price (normally below market values). A bonus issueis:the issue of new shares to existing shareholders in proportion to theirexistingshareholding. No cash is received from a bonus issue.Dr share premium/ Cr share capitalDividends represent the distribution of profits to shareholders. They are usually expressed asan amount per share e.g. 10c per share or 10% of nominal value.

Dr Retained earnings (and disclose in statement of changes in equity)

Cr Bank

A limited company can raise funds by issuing loan notes . These are fixed term loans. Theterm 'loan note' simply refers to the document that is evidence of the debt, often a certificatethat is issued to the lender.When the finance is first received the company receiving the finance must recognise theobligation to repay the loan holder as follows:

Dr Cash

Cr Long-term liability

Every year the business should recognise a finance charge (i.e. interest) based upon the termsof the agreement as follows:

7/25/2019 Otvety Na Ekz Voprosy 1-30

3/39

Dr Finance charges (income statement)

Cr Cash/current liabilities (depending on whether the interest has been paid or not).

In the same way that loan capital is subject to a financing cost, the profits generated by abusiness are subject to a cost; corporation tax. The charge for corporation tax is based upon

the level of profits recorded and the tax rates in place at the time of calculation. Corporatetax on profits:

End of year estimate: DR tax charge/ CR tax liability

Pay tax liability; DR tax liability/ CR cash

Prior year overestimate: DR tax liability/ CR tax charge

Prior year underestimate: DR tax charge/ Cr tax liability

7/25/2019 Otvety Na Ekz Voprosy 1-30

4/39

3. Characteristic of definitions in process of financial statements consolidation

Consolidated financial statementsrefer to the financial statements which lead tothe subsidiaries of the holding company its summative accounting figure. Puttinganother way, consolidated financial statements can be addressed as the combinedfinancial statements of a parent company and its subsidiaries.The basic method ofpreparing a consolidated statement of financial position

(1) Theassetsandliabilitiesoftheparentandthesubsidiaryareadded together on a line-by-line basis.

(2) Theinvestmentshownintheparent'sSoFP(i.e.theinvestmentinthe subsidiary) is replaced by agoodwill figure.

(3) Thesharecapitalandsharepremiumbalancesarenotaddedtogether;; only the balances related tothe parent are used in the consolidation. This reflects the fact that the consolidated SoFP showsall of the assets and liabilities under the control of the parent entity.

(4) Theamountattributabletonon-controllinginterestsiscalculatedand shown separately on the faceof the consolidated SoFP.

(5) Thegroupshareofthesubsidiary'sprofitiscalculatedandaddedto overall group retained earnings.

7/25/2019 Otvety Na Ekz Voprosy 1-30

5/39

7/25/2019 Otvety Na Ekz Voprosy 1-30

6/39

7/25/2019 Otvety Na Ekz Voprosy 1-30

7/39

4.Characteristics of accounting systems1. Anglo-Saxon (Anglo - American) model. This model works in the US, Canada, Mexico,Great Britain and its former colonies (eg , Australia, New Zealand, South Africa). Thismodel is oriented on the interests of users such as shareholders and investors, a developedsecurities market, especially public companies. Financial reporting is built so that this groupof users could get as much information as possible for decision-making process. The main

principle is the principle of authenticity, acting superior to the others. This distinguishes theAnglo-Saxonaccounting system from Latin. The difference between the Anglo-Saxonaccounting countries and the Rhine (or also called Continental accounting) countries is themoment of taking the Cost of Goods Sold versus Cost of Sales. Anglo-Saxons accountingdoes take the cost when sales invoice is created, Continental accounting will take the cost atthe moment the goods are shipped.

2 .Continental or European model. This model brings together Germany, France , Italy,Belgium, Switzerland , etc. Its main features are a strong impact on the regulation ofaccounting legislation, a close relationship of accounting and taxation, focus on state needs a

weaker development of professional organizations, advisory role . The main financial donorsin most European countries are banks. Continental model is characterized by the fact that itcaters to the interests of the creditor and of their claims. Statements in this model depend onthe tax system. This system allowed the digressive depreciation method and unscheduled

payments. For stock assessment the LIFO method is used. Countries of this model specializeon creating of hidden reserves.

3 .Latin American model. This model works in Brazil, Argentina, Chile, Peru and othercountries, which are characterized by high inflation and government regulation of many

accounting issues. This model is that it is clearly oriented towards the needs of the state,primarily taxation. For countries in this model is characterized by a large commonality andless complexity statements. Also, they are characterized by advanced mechanisms inflation.Russia meets most traits that are characteristic of this model. In drawing up the balance sheetand evaluation plays an important role using a single national system of accounts.There are a number of other accounting principles that underpin the preparation of financialstatements. The most significant ones include:The business entity conceptThis principle means that the financial accounting information presented in the financial

statements relates only to the activities of the business and not to those of the owner. Froman accounting perspective the business is treated as being separate from its owners.

The accruals basis of accountingThis means that transactions are recorded when revenues are earned and when expenses areincurred. This pays no regard to the timing of the cash payment or receipt.For example; if a business enters into a contractual arrangement to sell goods to anotherentity the sale is recorded when the contractual duty has been satisfied; that is likely to bewhen the goods have been supplied and accepted by the customer. The payment may not bereceived for another month but in accounting terms the sale has taken place and should be

recognised in the financial statements.The going concern assumption.Financial statements are prepared on the basis that theentity will continue to trade for the foreseeable future (i.e. it has neither the need nor theintention to liquidate or significantly curtail its operations).

7/25/2019 Otvety Na Ekz Voprosy 1-30

8/39

5.Characteristics of control accounts and peculiarities of reconciliation

Control accounts are general ledger accounts that summarise a large number of transactions.They are mainly used with regard to receivables and payables balances. When a companytransfers the daily total of the sales book into the general ledger the double entry is:

Dr Receivables ledger control account

Cr Sales revenue.

When they transfer the total of the purchase day book the double entry is:

Dr Purchases

Cr Payables ledger control account

Memorandum accountledger accounts include a separate account for each credit customeror credit supplier. Memorandum accounts are not part of the double-entry system.

A key control operated by a business is to compare the total balance on the control account atthe end of the accounting period with the total of all the separate memorandum balances. Intheory they should be identical. This is referred to as a control account reconciliation.The reconciliation is a working to ensure that the entries in the ledger accounts(memorandum) agree with the entries in the control account. If not it indicates an error ineither the memorandum account or the control account. All discrepancies should beinvestigated and corrected. The format of a control account reconciliation, in this case forreceivables, is as follows:

Contra entriesThe situation may arise where a customer is also a supplier. Instead of both owing each othermoney, it may be agreed that the balances are contrad, i.e. cancelled.The double entry for this type of contra is: Dr Payables ledger control account Cr

Receivables ledger control accountThe individual receivable and payable memorandum accounts must also be updated to reflectthis.Preparing a control account reconciliation:

Compare the balance on the ledger account with the control account

Review the list of errors to see which account needs amending

Set up a T-account for the control accounts

Prepare a reconciliation for the ledger account

Nature and purpose of a bank reconciliation statement.

The objective of a bank reconciliation is to reconcile the difference between:

7/25/2019 Otvety Na Ekz Voprosy 1-30

9/39

the cash book balance, i.e. the business record of their bank account, and

the bank statement balance, i.e. the banks record of the bank account.

The cash book is the double entry record of cash and bank balances contained within the

nominal ledger accounting system. It is, in effect, the cash control account. Note that debits

and credits are reversed in bank statements because the bank will be recording the

transaction from its point of view, in accordance with the business entity concept.The cash

book records all transactions with the bank. The bank statement records all the banks

transactions with the business.The contents of the cash book should be exactly the same as

the record provided by the bank in the form of a bank statement, and therefore the

business' records should correspond with the bank statement.

This is in fact so, but with three important provisos:

(1) The ledger account maintained by the bank is the opposite way round to the

cash book.(2) Timing differences must inevitably occur. A cheque payment is recorded in the

cash book when the cheque is despatched. The bank only records such a

cheque when it is paid by the bank, which may be several days later.

(3) Items such as interest may appear on the bank statement but are not recorded in

the cash book as the business is unaware that they have arisen.

When attempting to reconcile the cash book with the bank statement, there are threedifferences between the cash book and bank statement:

unrecorded items

timing differences

errors

Adjust to cash book: bank interest and charges. Adjust to bank statement: outstandingcheques and unclearedlodgements.

7/25/2019 Otvety Na Ekz Voprosy 1-30

10/39

6.Classification and nature of accounts in financial accountingAn account(inbookkeeping)refers toassets,liabilities,income,expenses,andequity,asrepresented by individualledgerpages, to which changes in value are chronologicallyrecorded withdebit and credit entries. These entries, referred to as postings, become part of abook of final entryorledger.Examples of common financial accounts arecash,accountsreceivable,mortgages,loans,PP&E,common stock,sales,services,wages,andpayroll.Achart of accountsprovides a listing of all financial accounts used by particular business,organization, or government agency.

Based on nature.

Based on periodicity of flow

The further classification of accounts is based on the periodicity of their inflows or outflowsin the context of thefiscal year.Income is immediate inflow during the fiscal year. Expenseis the immediate outflow during the fiscal year. An asset is a long-term inflow withimplications extending beyond the financial period and by the traditional view couldrepresent unclaimed income. Alternatively, an asset could be valued at the present value ofits future inflows. Liability is long term outflow with implications extending beyond thefinancial period and by the traditional view could represent unamortized expense.Alternatively, a liability could be valued at the present value of future outflows.

7/25/2019 Otvety Na Ekz Voprosy 1-30

11/39

7.Double-entry method in international financial accounting

Double-entry accounting is a standard accounting method that involves each transactionbeing recorded in at least two accounts, resulting in a debit to one or more accounts and acredit to one or more accounts. Double entry accounting provides a method for quicklychecking accuracy because the sum of all accounts with debit balances should equal the sumof all credit balance accounts.The best accounting software for business uses double entry accounting; without that featurean accountant will have difficulty preparing year end and tax records. Personal financesoftware does not necessarily require double entry accounting, although some personalfinance titles provide this feature but hide it from the user to prevent confusion.

Double Entry Account Types:Asset accounts- something you own, such as your checking account or the unmortgaged

portion of your home.

Liability accounts - something that you owe, like a mortgage, car loan or credit cardbalances.Income accounts- money you receive.Expense accounts- money you spend.

An equation that reflects the two-sided nature of abusiness entity, assets on the one sideand the sources of assets on theother side (assets = liabilities + owners equity). The assetsof a businessentity are subject to two types of claims that arise from its two basicsourcesof capitalliabilities and owners equity. The accountingequationis the foundation fordouble-entrybookkeeping, which uses ascheme for recording changes in these basic types

of accounts as eitherdebits or credits such that the total of accounts with debitbalancesequals the total of accounts with credit balances. The accountingequationalsoserves as the framework for the statement of financial condition,or balance sheet, which isone of the three fundamental financialstatements reported by a business.

7/25/2019 Otvety Na Ekz Voprosy 1-30

12/39

8.Draft (Trial) balance: purpose and contents, preparation procedures

At the end of the year, once all ledger accounts have been balanced off, the closing balancesare summarised on a long list of balances. This is referred to as a trial balance.A 'Trial

Balance'is a list of all the General ledger accounts (both revenue and capital) contained inthe ledger of a business. This list will contain the name of the nominal ledger account andthe value of that nominal ledger account. The value of the nominal ledger will hold either adebit balance value or a credit balance value. The name comes from the purpose of a trial

balance which is to prove that the value of all the debit value balances equal the total of allthe credit value balances. The trial balance is a part of thedouble-entry bookkeepingsystemand uses the classic'T' accountformat for presenting values. The trial balance is a part of thedouble-entry bookkeepingsystem and uses the classic'T' accountformat for presentingvalues.

Errors where the trial balnce still balances

Errors where the trial balance is unbalanced

Suspense account is created to record the second type of errors. There are two main reasonswhy suspense accounts may be created:On the extraction of a trial balance the debits are not equal to the credits and the difference is

put to a suspense account.When a bookkeeper performing double entry is not sure where to post one side of an entry hemay debit or credit a suspense account and leave the entry there until its ultimate destinationis clarified.

7/25/2019 Otvety Na Ekz Voprosy 1-30

13/39

9.Error classification in Draft (Trial) balance

Errors where the trial balance still balances

Error of omission: A transaction has been completely omitted from the accounting records

Error of commission: A transaction has been recorded in the wrong account

Error of principle: A transaction has conceptually been recorded incorrectly

Compensating error: Two different errors have been made which cancel each other out

Error of original entry: The correct double entry has been made but with the wrong amount

Reversal of entries: The correct amount has been posted to the correct accounts but on the

wrong side

Errors where the trial balance does not balance

Singlesided entrya debit entry has been made but no corresponding credit entry or vice

versa.

Debit and credit entries have been made but at different values.

Two debit or two credit entries have been posted.

An incorrect addition in any individual account, i.e. miscasting.

Opening balance has not been brought down.

Extraction error the balance in the trial balance is different from the balance in the

relevant account or the balance from the ledger account has been placed in the wrong column

of the TB.

Suspense account make it balanced. A suspense account is an account in which debits orcredits are held temporarily until sufficient information is available for them to be posted tothe correct accounts.

7/25/2019 Otvety Na Ekz Voprosy 1-30

14/39

10.Financial accounting primary documents: characteristics and way of preparation

Income Statement The purpose of the income statement is to calculate a company's netprofit of loss for a given period, whether a year, a quarter or any other time frame.Income statements begin by adding total revenues for the period, including capital gainsand interest income in addition to sales revenue. Next, income statements calculate andsubtract the cost of goods sold to arrive at the company's gross profit. Gross profitrepresents the profit generated on inventory sales and other income over the cost of goodssold, before considering additional business expenses. Finally, income statementscalculate and subtract additional expenses, including overhead, administrative expensesand interest payments to arrive at a company's net income.Statement of Cash Flows The statement of cash flows serves much the same purpose asthe income statement, with the major difference being the cash flow statement's exclusionof non-cash income and expenses. Accountants commonly begin with the net incomefigure from the income statement when developing a statement of cash flows.Accountants adjust net income by adding back non-cash expenses and subtracting non-cash income, arriving at a net increase or decrease in cash.

Balance Sheetpresent a snapshot of a company's assets, liabilities and owners' equityaccounts at a given point in time. Unlike the statements described, which consider a

period of time, balance sheets represent a single moment in time resulting from thebusiness activities of the period in question. A balance sheet may list accounts receivableat $20,000, for example, but that figure may have been different the day before the

balance sheet was compiled, and is likely to change soon after.If there is a discrepancy inthe totals, it is a sign of an error somewhere in the accounting cycle.Owners' Equity Statement Owners' equity statements are less commonly found in small

business accounting than in corporate accounting. Corporate owners' equity statements go

into detail about stock sales, retained earnings and long-term investments held by thecompany. Corporate statements also delve into pension liabilities and capital gains/losseson illiquid investments. Small business owners' equity statements are much lesscomplicated than their corporate counterparts. A statement for a small business can detailany changes in the balance of cash accounts on which company owners have the right towithdrawal, showing the net increase or decrease in the balance for the period in question.

7/25/2019 Otvety Na Ekz Voprosy 1-30

15/39

11.Financial statements and its main elementsFinancial statements are written records of a business's financial situation. In a technicalsense, financial statements are a summation of the financial position of an entity at a given

point in time. Generally, financial statements are designed to meet the needs of many diverseusers, particularly present and potential owners and creditors. Financial statements resultfrom simplifying, condensing, and aggregating masses of data obtained primarily from acompany's (or an individual's) accounting system.A set of financial statements include:

the statement of financial position this summarises the assets, liabilities and equitybalances of the business at the end of the reporting period. This used to be referred toas a 'balance sheet.'

the statement of comprehensive income this summarises the revenues earned andexpenses incurred by the business throughout the whole of the reporting period. Thisused to be referred to as a 'profit and loss account.'

the statement of changes in equity this summarises the movement in equity

balances (share capital, share premium, revaluation reserve and retained earnings - allexplained in greater detail later in the text) from the beginning of the reporting periodto the end.

the statement of cash flowsthis summarises the cash physically paid and receivedthroughout the reporting period.

the notes these comprise the accounting policies disclosures and any otherdisclosures required to enable to the shareholders to make informed decisions aboutthe business.

In order to appropriately report the financial performance and position of a business thefinancial statements must summarise five key elements:(1) AssetsAn asset is a resource controlled by the entity as a result of past events fromwhich future economic benefits are expected to flow to the entity. For example, a buildingthat is owned and controlled by a business and that is being used to house operations andgenerate revenues would be classed as an asset. Can current and non-current.(2) LiabilitiesA liability is an obligation to transfer economic benefit as a result of pasttransactions or events. For example, an unpaid tax obligation is a liability. Can current andnon-current.

(3) EquityThis is the 'residual interest' in a business and represents what is left when thebusiness is wound up, all the assets sold and all the outstanding liabilities paid. It iseffectively what is paid back to the owners (shareholders) when the business ceases to trade.(4) IncomeThis is the recognition of the inflow of economic benefit to the entity in thereporting period. This can be achieved, for example, by earning sales revenue or through theincrease in value of an asset.(5) ExpensesThis is the recognition of the outflow of economic benefit from an entity inthe reporting period. This can be achieved, for example, by purchasing goods or services offanother entity or through the reduction in value of an asset.

12.Financial statements disclosures

7/25/2019 Otvety Na Ekz Voprosy 1-30

16/39

Financial statement disclosures are secondary information provided by companies to clarify orinterpret certain published financial information. Disclosures are designed to assist outsidereviewers of financial information for the purpose of making investments in the business.Management also use disclosures to attest to the accuracy and validity of reported financialinformation as required by the Securities and Exchange Commission (SEC).Financial statement disclosures are comments and explanations listed in a company's financialreports or public filings that explain certain aspects of the company's procedures. Disclosures aregoverned by Generally Accepted Accounting Principles (GAAP) and the SEC for publicly tradedcompanies. While most disclosure requirements are similar for all publicly traded companies,some industries are required to provide more specific disclosures based on the operations of abusiness.Disclosures are required by GAAP for certain items in a financial statement, such as accountingchanges or errors, asset retirement and insurance contract modifications. By requiring disclosuresfor these technical items, investors will have a clearer picture of the financial health of thecompany. Additionally, future expenses can be calculated so investors can determine long-termgrowth opportunities and projected cash outflows for a business.

When disclosure is made by note, the note should state: the nature of the contingency the uncertain factors that may affect the future outcome an estimate of the financial effect, or a statement that such an estimate cannot

be made.

13.Financial statements regulatory bodies

7/25/2019 Otvety Na Ekz Voprosy 1-30

17/39

One of the most important documents underpinning the preparation of financial statements isthe Framework for the Preparation and Presentation of Financial Statements ('theFramework'), which was prepared by the IASB (see chapter 2 for a discussion of theregulatory bodies).The framework presents the main ideas, concepts and principles upon which all InternationalFinancial Reporting Standards, and therefore financial statements, are based. It includesdiscussion of:

the objectives of financial reporting

the qualitative characteristics of useful financial information

the definition, recognition and measurement of the elements from which the financialstatements are constructed

the accruals and going concern concepts, and

the concepts of capital and capital maintenance (not on the syllabus).

International Accounting Standards Board (IASB) The IASB is the independent

standard setting body of the IFRS foundation. Its members are responsible for thedevelopment and publication of IFRSs and interpretations developed by the IFRS IC. Uponits creation the IASB also adopted all existing International Accounting Standards. All ofthe most important national standard setters are represented on the IASB and their views aretaken into account so that a consensus can be reached. All national standard setters can issueIASB discussion papers and exposure drafts for comment in their own countries, so that theviews of all preparers and users of financial statements can be represented. Each majornational standard setter leads certain international standard-setting projects.The IFRS Interpretations Committee (IFRS IC)The IFRS IC reviews widespreadaccounting issues (in the context of IFRS) on a timely basis and provides authoritativeguidance on these issues (IFRICs). Their meetings are open to the public and, similar to theIASB, they work closely with national standard setters.The IFRS Advisory Council (IFRS AC)The IFRS AC is the formal advisory body to theIASB and the IFRS Foundation. It is comprised of a wide range of members who areaffected by the IASB's work. Their objectives include:

advising the IASB on agenda decisions and priorities in the their work,

informing the IASB of the views of the Council with regard to major standard-settingprojects, and

giving other advice to the IASB or to the Trustees.

14.Generalities and differences between financial and management accounting

7/25/2019 Otvety Na Ekz Voprosy 1-30

18/39

Financial accountingFinancial accounting is concerned with the production of financial statements for externalusers. These are a report on the directors stewardship of the funds entrusted to them by theshareholders.Investors need to be able to choose which companies to invest in and compare theirinvestments. In order to facilitate comparison, financial accounts are prepared using acceptedaccounting conventions and standards. International Accounting Standards (IASs) andInternational Financial Reporting Standards (IFRSs) help to reduce the differences in theway that companies draw up their financial statements in different countries.The financialstatements are public documents, and therefore they will not reveal details about, forexample, individual products profitability.Managementrequire much more detailed and up-to-date information in order to control the

business and plan for the future. They need to be able to cost-out products and production

methods, assess profitability and so on. In order to facilitate this, management accountspresent information in any way which may be useful to management, for example byoperating unit or product line.

Management accounting is an integral part of management activity concerned withidentifying, presenting and interpreting information used for:

formulating strategy

planning and controlling activities

decision making

optimising the use of resources.

15.Main purpose of statements of cash-flows, its format and method of preparation

7/25/2019 Otvety Na Ekz Voprosy 1-30

19/39

Whilst a business might be profitable this does not mean they will be able to survive. Toachieve this they need cash to be able to pay their debts. If they could not pay their debtsthey would be put into administration or liquidated.

The main reason for this problem is that profit is not the same as cashflow. Profits (from theincome statement) are calculated on the accruals basis. Most goods and services are sold oncredit so at the point of sale revenue is recognised but no cash is received. The same can be

said of credit purchases. There are also a number of expenses that are recognised that haveno cash impact;;depreciation is a good example of this. So a business can at thesame time be

profitable but have no cash left to pay its suppliers.

For this reason it is important that users of the financial statements can assess the cashposition of a business at the end of the year but also how cash has been used and generatedby the business during the accounting period.

The objectives of IAS 7 are to ensure that companies:

report their cash generation and cash absorption for a period by highlighting the

significant components of cash flow in a way that facilitates comparison of the cash

flow performance of different businesses.

provide information that assists in the assessment of their liquidity, solvency and

financial adaptability.

IAS 7 Statement of cash flows requires companies to prepare a statement of cash flows as part oftheir annual financial statements. The cash flow must be presented using standard headings.

Note: there are two methods of reconciling cash from operating activities, which will be discussedlater in this chapter.

Calculation of proceeds of issue of sharesThis cash inflow is derived by comparison of the sum brought forward and sum carried forwardbalances on two accounts: share capital share premium.

Calculation of proceeds of issue of loans/repayment of loans This cash flow is derivedby simply subtracting the brought forward balance from the carried forward. Dividends paid As companies can only record dividends paid in the financial statements the

cash flow is simply the dividend deducted from retained earnings. Operating activities are the principal revenue producing activities of the business. This section of the

statement begins with cash generated from operations.. Investing activities are cash spent on noncurrent assets, proceeds of sale of noncurrent assets and

income from investments. Financing activities include the proceeds of issue of shares and long-term borrowings made or

repaid. Net increase or decrease in cash and cash equivalents is the overall increase (or decrease) in cash and

cash equivalents during the year. Cash means cash in hand and bank account balances, including overdrafts. Cash equivalents means current asset investments (short-term, highly liquid investments, e.g. a 30

day bond).

7/25/2019 Otvety Na Ekz Voprosy 1-30

20/39

Direct method

This method uses information contained in the ledger accounts of the company to calculate thecash from operations figure as follows:

Indirect method

This method reconciles between profit before tax (as reported in the income statement) and cashgenerated from operations as follows:

7/25/2019 Otvety Na Ekz Voprosy 1-30

21/39

Cash from operating activitiesCash flows may include:

interest paid

income taxes paid.

Calculation of interest/income taxes paid The cash flow should be calculated by reference to: the charge to profits for the item (shown in the income statement);; and any opening or closing payable balance shown on the statement of financial position.Cash from investing activitiesCash inflows may include:

interest received

dividends received proceeds of sale of equipment. Cash outflows may include: purchase of property, plant

and equipment.Calculation of interest and dividends receivedAgain, the calculation should take account of both the income receivable shown in the incomestatement and any relevant receivables balance from the opening and closing statement offinancial positions.Calculation of purchase of property, plant and equipment and proceeds of sale ofequipmentThese amounts are often the trickiest to calculate within a statement of cash flows. It is thereforerecommended that T account workings are used.The following T accounts will be required for each class of assets:

cost account

accumulated depreciation account

disposals account (where relevant). Data provided in the source financial statements should then

be entered into these T accounts and the required cash flows foundoften as balancing figures.

Cash from financing activitiesCash inflows may include:

proceeds of issue of shares

proceeds of issue of loans/debentures. Cash outflows may include:

repayment of loans/debentures.

7/25/2019 Otvety Na Ekz Voprosy 1-30

22/39

16.Main purpose of statements of comprehensive income, its format and method of

preparation

The income statementThis summarises the incomes earned and expenses incurred during the financial period.

The statement of comprehensive income

This is simply an extension of the income statement. The reason for this is that some gains thebusiness makes during the year are not realised gains. The main example is the revaluation oftangible assets. The gain is not realised until the asset is sold and converted into cash. Therevaluation represents a hypothetical gain (i.e. what gain would a company make if the asset was

sold).

For this reason it should not be included in net profit for the period, which represents the profitearned from realised sales. Instead the unrealised gains are added onto the end of the incomestatement, as follows:

Certain items need to be separately disclosed on the face of the income statement so that theyare clearly visible to the users of the financial statements. The main items requiring suchtreatment are significant, one-off transactions or events. They need to be disclosed becausethey are not part of the normal trading activity of the business and could significantly distortthe reported profits or losses for the year. They include:

restructuring or reorganisation of the company

profits or losses on disposal of property, plant and equipment (or investments), and

impairments of inventory, property, plant and equipment.

All such items should be included on their own, separate line in the incomestatement/statement of comprehensive income.

7/25/2019 Otvety Na Ekz Voprosy 1-30

23/39

17.Main purpose of statements of financial position, its format and method of

preparationThis summarises the asset, liability and equity balances (i.e. the financial position of the company) at theend of the accounting period.

Note that IAS 1 requires assets and liabilities to be classified as either current or non-current.

The suggested statement of financial position format makes a distinction between currentand non-current assets and liabilities. IAS 1 sets down the rules to be applied in making thisdistinction.Current assetsAn asset should be classified as a current asset if it is:

held primarily for trading purposes expected to be realised within 12 months of the statement of financial position date;; or cash or a cash equivalent (i.e. a short term investment, such as a 30 day bond).All other assets should be classified as non-current assets.

Note that this definition allows inventory or receivables to qualify as current assets under (a)above, even if they may not be realised into cash within twelve months.Current liabilitiesThe rules for current liabilities are similar to those for current assets. A liability should beclassified as a current liability if: it is expected to be settled in the normal course of the enterprises operating cycle it is held primarily for the purpose of being traded it is due to be settled within 12 months of the statement of financial position date or thecompany does not have an unconditional right to defer settlement for at least 12 monthsafter the statement of financial position date.All other liabilities should be classified as non-current liabilities.

7/25/2019 Otvety Na Ekz Voprosy 1-30

24/39

18.Nature, purpose, principles and objectives of international financial accounting

Financial accounting may be defined as the process of designing and operating an infor-mation system for collecting, measuring and recording an enterprises transactions, and

summarizing and communicating the results of these transactions to users to facilitatemaking financial economic decisions.The first part of this definition, relating to collecting and recording transactions, refers todouble-entry bookkeeping, which consists of maintaining a record of the nature and moneyvalue of the transactions of an enterprise. In many organizations this may be done using acomputer. The second part of the definition, relating to communicating the results, refers to

preparing final accounts and statements from the books of account (or any other system ofrecording), showing the profit earned during a given period and the financial state of affairsof a business at the end of that period.Financial accounting information appears in financial statements that are intended

primarily for external use (although management also uses them for certain internal

decisions). Stockholders and creditors are two of the outside parties who need financialaccounting information. These outside parties decide on matters pertaining to the entirecompany, such as whether to increase or decrease their investment in a company or to extendcredit to a company. Consequently, financial accounting information relates to the companyas a whole, while managerial accounting focuses on the parts or segments of the company.International Financial Reporting Standards(IFRS) are designed as a common globallanguage for business affairs so that company accounts are understandable andcomparable across international boundaries. They are a consequence of growinginternational shareholding and trade and are particularly important for companies that have

dealings in several countries. The principal objectives of the IFRS Foundation are: to develop a single set of high quality, understandable, enforceable and globally

accepted International Financial Reporting Standards (IFRSs)through itsstandard-setting body, the International Accounting Standards Board (IASB);

to promote the use and rigorous application of those standards;

to take account of the financial reporting needs of emerging economies and small andmedium-sized entities (SMEs); and

to promote and facilitate adoption of IFRSs, being the standards and interpretationsissued by the IASB, through the convergence of national accounting standards and

IFRSs.Financial accounting information is historical in nature, reporting on what has happened inthe past. To facilitate comparisons between companies, this information must conform tocertain accounting standards or principles called generally accepted accounting principles(GAAP). These generally accepted accounting principles for businesses or governmentalorganizations have developed through accounting practice or been established by anauthoritative organization. We describe several of these authoritative organizations in thenext major section of this Introduction.

7/25/2019 Otvety Na Ekz Voprosy 1-30

25/39

19.Peculiarities of accounting entries in international financial accounting

In the double-entry accounting system, two accounting entries are required to record eachfinancial transaction. These entries may occur in asset, liability, income, expense, or capitalaccounts. Recording of a debit amount to one or more accounts and an equal credit amountto one or more accounts results in total debits being equal to total credits for all accounts inthe general ledger. If the accounting entries are recorded without error, the aggregate balanceof all accounts having positive balances will be equal to the aggregate balance of all accountshaving negative balances. The rules for formulating accounting entries are known as"Golden Rules of Accounting". The accounting entries are recorded in the "Books ofAccounts". Regardless of which accounts and how many are impacted by a giventransaction, the fundamental accounting equation A = L + OE will hold, i.e. assets equalsliabilities plus owner's equity. The double entry accounting system records financial transactions in relation to asset,liability, income or expense related to it through accounting entries. Any accounting entry in double entry accounting system has two effects one of increasing

one account and decreasing another account by equal amount. As any financial transaction has two different effects on two different accounts, it is known

as "double entry" book keeping system. If the accounting entries are recorded without any errors, at any point of time the aggregate

balance of all accounts having positive balances will be equal to the aggregate balance of allaccounts having negative balances. The double entry bookkeeping system ensures that the financial transaction has equal and

opposite effects in two different accounts. The accounting entries use terms such as debit and credit to avoid confusion regarding the

opposite effect of the accounting entry e.g. If a accounting entry debits a particular account,the opposite account will be credited and vice versa.

In simple terms the ledger accounts are where the double entry records of all transactions andevents are made. They are the principal books or files for recording and totalling monetarytransactions by account. A company's financial statements are generated from summarytotals in the ledgers. For example; a business buys a vehicle for cash. The two effects on the

business are:(1) It has increased the vehicle assets it has at its disposal for generating income, and(2) There is a decrease in cash available to the business.

Summary of steps to record a transaction(1) Identify the items that are affected.(2) Consider whether they are being increased or decreased.

(3) Decide whether each account should be debited or credited.(4) Check that a debit entry and a credit entry have been made and they are both for thesame amount.

7/25/2019 Otvety Na Ekz Voprosy 1-30

26/39

20.Peculiarities of accounting for accruals and prepayments

The accruals concept is identified as an important accounting concept by IAS 1 Presentationof Financial Statements. The concept is that income and expenses should be matchedtogether and dealt with in the income statement for the period to which they relate,regardless of the period in which the cash was actually received or paid. Therefore all of theexpenses involved in making the sales for a period should be matched with the sales incomeand dealt with in the period in which the sales themselves are accounted for.

Sales revenue.The sales revenue for an accounting period is included in the incomestatement when the sales are made. This means that, when a sale is made on credit, it isrecognised in the income statement when the agreement is made and the invoice is sent tothe customer rather than waiting until the cash for the sale is received. This is done by settingup a receivable in the statement of financial position for the amount of cash that is due fromthe sale (debit receivables and credit sales revenue).Purchases.Similarly purchases are matched to the period in which they were made byaccounting for all credit purchases when they took place and setting up a payable in thestatement of financial position for the amount due (debit purchases and credit payables).

Cost of sales.The major cost involved in making sales in a period is the actual cost of thegoods that are being sold. As we saw in a previous chapter, we need to adjust for openingand closing inventory to ensure that the sales made in the period are matched with the actualcosts of those goods. Any goods unsold are carried forward to the next period so that theyare accounted for when they are actually sold.Expenses.The expenses of the period that the business has incurred in making its sales, suchas rent, electricity and telephone, must also be matched with the sales for the period. Thismeans that the actual expense incurred in the period should be included in the incomestatement rather than simply the amount of the expense that has been paid in cash.

7/25/2019 Otvety Na Ekz Voprosy 1-30

27/39

21. Peculiarities of accounting for debtors and creditors

Under the accruals concept, the sale is recorded in the ledger accounts when the right to theincome is earned. That is usually the point at which the goods/services are delivered.Therefore when sales are made on credit the revenue is recorded with a corresponding assetthat represents the customer's commitment to pay. The asset is referred to as a'receivable.'The double entry is recorded as follows:Dr ReceivablesCr SalesrevenueWhen the customer eventually settles the debt the double entry will be: Dr Cashaccount- Cr ReceivablesThis then clears out the balance on the customers account.Thereis also can be credit limit for customer.

An irrecoverable debt is a debt which is, or is considered to be, uncollectable. With suchdebts it is prudent to remove them from the accounts and to charge the amount as an expensefor irrecoverable debts to the income statement. The double entry required to achieve this is:Dr Irrecoverable debts expense- Cr Receivables.Accounting for irrecoverable debtsrecovered: Dr Cash- Cr Irrecoverable debts expense

An allowanceis set up which is a credit balance. This is netted off against trade receivablesin the statement of financial position to give a net figure for receivables that are probablyrecoverable. Specific-There will be some specific debts where the customer is known to bein financial difficulties, is disputing their invoice, or is refusing to pay for some other reason(bad service for example), and therefore the amount owing may not be recoverable.General- The past experience and history of a business will indicate that not all of its tradereceivables will be recoverable in full. An allowance for receivables is set up with thefollowing journal: Dr Irrecoverable debts expenseCr Allowance for receivables.

Under the accruals concept, the purchase is recorded in the ledger accounts when theexpense has been incurred. That is usually the point at which the goods/services arereceived/rendered. Therefore when purchases are made on credit the cost is recorded with acorresponding liability that represents the obligation to pay the supplier of thegoods/services. The liability is referred to as a 'payable.'The double entry is recorded as follows:Dr Purchases/expensesCr PayablesWhen the

payable liability is actually paid the double entry to reflect this is: Dr Payables/ Cr Cash

Contingent liabilities are also made with regard to liabilities of uncertain timing oramount.When a contingent liability is necessary the business will include a narrative note inthe financial statements describing the potential liability to the users.

A contingent liability is recognised when there is:

(1) apossibleobligationthatarisesfrompastevents;or(2)

aprobableobligationthatarisesfrompasteventsbuttheamountoftheobligation cannot bemeasured with sufficient reliability.Examples of contingent liabilities include outstanding litigation where the potential costs

cannot be estimated with any degree of reliability or when the likelihood of losing thelitigation is only deemed possible.

7/25/2019 Otvety Na Ekz Voprosy 1-30

28/39

22.Peculiarities of accounting for provisions

A provision can be defined as a liability of uncertain timing or amount.For example; a business is facing legal action for breaching health and safety law. The likelyrepercussion is that they will be fined. The timing and severity of the fine will be decided bycriminal court at some point in the future. The key question is should the business attempt toreflect this cost in their financial statements? as the owners of the business they are entitledto know about this potentially significant issue that could damage the profits of the businessand, therefore, their own personal wealth.

Accounting for a provisionThe first potential course of action management can take is to record a provision in theaccounts. This is done by estimating the potential cost of the uncertain event and recognisingit immediately. As the amount would be settled in the future a corresponding liability isrecorded, as follows:

Dr Expenses

Cr Provision liability

The provision liability will need to be categorised as either current or non- current as befits

the situation.

Criteria for recognising a provisionGiven the uncertainty surrounding provisions there is significant scope for accounting error,or even fraudulent manipulation of provisions to alter profits. To reduce this risk IAS 37Provisions, Contingent Liabilities and Contingent Assets provides three criteria that must bemet before a provision can be recorded:

There must be a present obligation (legal or constructive) that exists as the result of a

past event. There must be a probable transfer of economic benefits. There must be a reliable estimate of the potential cost.

The requirements of IAS 37 as regards contingent liabilities and assets are summarised in thefollowing table:

Note that the standard gives no guidance as the meaning of the terms in the left-handcolumn. One possible interpretation is as follows:Virtually certain > 95% ;Probable 51%95% ; Possible 5%50% ; Remote < 5%.

7/25/2019 Otvety Na Ekz Voprosy 1-30

29/39

23.Peculiarities of cash accountingCash Accounting is an accounting method where receipts are recorded during the period theyare received, and expenses are recorded in the period in which they are actually paid. Cashaccounting is one of the two forms of accounting. Cash transactions are those where paymentis made or received immediately (i.e. when cash is exchanged at the point of sale/purchase).Sales and purchases made by cheque, however, are classed as cash transactions. The mainreason for this is that traditionally such transactions would be processed using a cash registeror cash till. The cheques and cash in the till would be counted at the end of the day and thentransferred to the bank account. Acash accounting system is based on cash flow. You recordtransactions when cash is actually exchanged. Income is recorded when you receive a cash,credit card, or check payment. Expenses are recorded when you pay them by cash, creditcard, or check. Your particular business or industry may also have alternative methods of

payment. When cash is received (i.e. receipt of an asset) the entry in the cash ledger is adebit. When cash is paid out (i.e. a reduction in an asset) the entry in the cash ledger is acredit.The cash book

All transactions involving cash at bank are recorded in the cash book. Many businesses havetwo distinct cash books a cash payments book and a cash receipts book. A note of cashdiscounts given and received is also recorded in the cash book. This is to facilitate therecording of discounts in both the general and accounts payable/receivable ledgers. It iscommon for businesses to use a columnar format cash book in order to analyze types of cash

payment and receipt. Larger firms usually divide the cash book into two parts. The first partis the cash disbursement journal that records all cash payments, such as accounts payable andoperating expenses. The second part is the cash receipts journal, which records all cashreceipts, such as accounts receivable and cash sales.

Recording sales and purchases returns

7/25/2019 Otvety Na Ekz Voprosy 1-30

30/39

24.Peculiarities of intangible assets accountingIdentifiable long-term assets of a company having no physical existence are called intangibleassets. They include goodwill, patents, copyrights, etc. Intangible assets are either acquiredin a business combination or developed internally.Intangible asset:an identifiable non-monetary asset without physical substance. An asset is a resource that is controlled by theentity as a result of past events (for example, purchase or self-creation) and from whichfuture economic benefits (inflows of cash or other assets) are expected. [IAS 38.8] Thus, thethree critical attributes of an intangible asset are:

identifiability

control (power to obtain benefits from the asset)

future economic benefits (such as revenues or reduced future costs)

Examples of possible intangible assets include: computer software; patents; copyrights;motion picture films; customer lists; mortgage servicing rights; licenses; import quotas;franchises; customer and supplier relationships; marketing rights.Intangible assets are classified as:

Indefinite life:no foreseeable limit to the period over which the asset is expected to

generate net cash inflows for the entity.

Finite life:a limited period of benefit to the entity.

Research can be defined as original and planned investigation undertaken with the prospectof gaining new scientific or technical knowledge and understanding. All researchexpenditure should be written off to the income statement as it is incurred. This is incompliance with the prudence concept. Research does not necessarily directly lead to future

benefits. Any capital expenditure on research equipment should be capitalised and

depreciated as normal. DR research cost/ CR cash or payablesDevelopment can be defined as the application of research findings or other knowledge to a

plan or design for the production of new or substantially improved materials, devices,products, processes, systems or services before the start of commercial production or use.Development expenditure must be capitalised as an intangible asset provided that certaincriteria are met:

Separate project

Expenditure identifiable and reliably measured

Commercially viable

Technically feasible

Overall profitable

Resources available to complete

If criteria not met- it should be expenses. The financial statements should disclose thefollowing for capitalised development costs:

theamortisation method used and the expected period of amortisation

a reconciliation of the carrying amounts at the beginning and end of the period,showing new expenditure incurred, amortisation and amounts written off because aproject no longer qualifies for capitalisation

amortisation during the period.

7/25/2019 Otvety Na Ekz Voprosy 1-30

31/39

Double entry for capitalization: DR asset cost/ Cr cash or paybles

AmortizationIf the useful life of an intangible asset is finite, its capitalised development costs must beamortised once commercial exploitation begins.The amortisation method used should reflectthe pattern in which the assets economic benefits are consumed by the enterprise. If that

pattern cannot be determined reliably, the straight-line method should be used.An intangibleasset with an indefinite useful life should not be amortised. An asset has an indefinite usefullife if there is no foreseeable limit to the period over which the asset is expected to generatenet cash inflows for the business.DR Amortization charge/ CR accrued amortization

7/25/2019 Otvety Na Ekz Voprosy 1-30

32/39

25.Peculiarities of inventory accountingInventory Accounting is The body of accounting that deals with valuing and accounting forchanges in inventoried assets. Changes in value can occur for a number of reasons includingdepreciation, deterioration, obsolescence, change in customer taste, increased demand,decreased market supply and so on. Inventory is only recorded in the ledger accounts at theend of the accounting period. During the year the relevant sales and purchases are recorded

but the increase and decrease in inventory assets is ignored. The movement in inventory isonly considered on an annual basis.At the end of the year two basic adjustments are required to recognize opening and closinginventories in the correct place:2.(1) Inventory brought forward from the previous year is assumed to have been used to

generate assets for sale. It must be removed from inventory assets and recognized asan expense in the year

Dr opening inventory in costs of sales/Cr inventory assets3.(2) The unused inventory at the end of the year is removed from purchase costs and

carried forward as an asset into the next year:

Dr inventory assets/Cr closing inventory in cost of sales

Inventory consists of:

goods purchased for resale

consumable stores (such as oil)

raw materials and components (used in the production process)

partly-finished goods (usually called work in progressWIP)

finished goods (which have been manufactured by the business).

Inventory is included in the statement of fin.position at lower of:

Cost- all the expenditure incurred in the bringing the product or service to itspresent location and condition. This includes cost of purchase-material costs,import duties, freight; and cost of conversion-this includes direct costs and

production overheads.

Net residual value- revenue expected to be earned in the future when the goods aresold, less any selling costs.

Methods of calculating the cost of inventory

7/25/2019 Otvety Na Ekz Voprosy 1-30

33/39

Similarly any incorrect valuation of inventory will impact the financial statements.If inventory is overvalued then:

assets are overstated in the statement of financial position

profit is overstated in the income statement (as cost of sales is too low)

If inventory is undervalued then:

assets are understated in the statement of financial position

profit is understated in the income statement (as cost of sales is too high).

7/25/2019 Otvety Na Ekz Voprosy 1-30

34/39

26.Peculiarities of preparation of notes to financial statements

Additional information provided in a company's financial statements. Footnotes to thefinancial statements report the details and additional information that are left out of the mainreporting documents, such as the balance sheet and income statement. This is done mainlyfor the sake of clarity because these notes can be quite long, and if they were included, theywould cloud the data reported in the financial statements.It is very important for investors to read the footnotes to the financial statements included ina company's periodic reports. These notes contain important information on such things asthe accounting methodologies used for recording and reporting transactions, pension plandetails and stock option compensation information - all of which can have material effects onthe bottom-line return that a shareholder can expect from an investment in a company.Disclosure notes are required for a variety of reasons, including:

7/25/2019 Otvety Na Ekz Voprosy 1-30

35/39

27.Peculiarities of sales and purchases accounting, recognition of revenuePurchase accounting is another term foracquisition accounting and refers to the process ofchanging the book value of the assets of an acquired company into the market value of thoseassets for the purchasing company. Companies use this process in acquisitions ormergers,the purchase of a company or a combination of two companies to form a new company. Thesource documents used to journalize merchandise purchases include the seller's invoice, thecompany's purchase order, and a receiving report that verifies the accuracy of the inventoryquantities. A sale is a transfer of property for money or credit.Indouble-entry bookkeeping,asale ofmerchandise is recorded in thegeneral journal as adebit to cash oraccountsreceivable and acredit to the sales account. Gross salesare the sum of all sales during a time

period. Net sales are gross sales minus sales returns, sales allowances, and sales discounts.Revenueor Salesreported on the income statement are net sales after deducting SalesReturns and Allowances and Sales Discounts.Recording sales and purchases returns

A business may give its customer a discountknown as Discount allowed. A business mayreceive a discount from a supplierknown as Discount received.

Sales tax is charged on purchases (input tax) and sales (output tax). A business registered forsales tax will effectively pay over the sales tax it has added to its sales and recover the salestax it has paid on its purchases.

The revenue recognitionprinciple is a cornerstone ofaccrual accounting together with

matching principle.They both determine theaccounting period,in whichrevenues andexpenses are recognized. According to the principle, revenues are recognized when they arerealized or realizable, and are earned, no matter when cash is received. Incash accountingin contrastrevenues are recognized when cash is received no matter when goods or

7/25/2019 Otvety Na Ekz Voprosy 1-30

36/39

services are sold.Cash can be received in an earlier or later period than obligations are met and relatedrevenues are recognized that results in the following two types of accounts:

Accrued revenue:Revenue is recognized before cash is received.

Deferred revenue:Revenue is recognized after cash is received.

IFRS provides five criteria for identifying the critical event for recognizing revenue on thesale of goods:4.Risks and rewards have been transferred from the seller to the buyer5.The seller has no control over the goods sold6.Collection of payment is reasonably assured7.The amount of revenue can be reasonably measured8.Costs of earning the revenue can be reasonably measuredThe first two criteria mentioned above are referred to as Performance. Performance occurswhen the seller has done most or all of what it is supposed to do to be entitled for the

payment.The third criterion is referred to as Collectability. The seller must have a

reasonable expectation of being made. The fourth and fifth criteria are referred to asMeasurability, the amount of Revenues and Expenses should both be reasonablymeasurable.Recognition of revenue from four types of transactions:1.Revenues from sellinginventory are recognized at the date of sale often interpreted as the

date of delivery.2.Revenues from rendering services are recognized when services are completed and billed.3.Revenue from permission to use company's assets (e.g. interests for using money, rent for

usingfixed assets,and royalties for usingintangible assets)is recognized as time

passes or as assets are used.4.Revenue from selling an asset other than inventory is recognized at thepoint of sale,when

it takes place.In practice, this means that revenue is recognized when an invoice has been sent.

7/25/2019 Otvety Na Ekz Voprosy 1-30

37/39

28.Purpose of consolidated financial statements

Consolidated financial statementsrefer to the financial statements which lead tothe subsidiaries of the holding company its summative accounting figure. Puttinganother way, consolidated financial statements can be addressed as the combinedfinancial statements of a parent company and its subsidiaries.Purpose of consolidated financial statementsThe key purpose of preparing consolidated financial statements is reporting thefinancial condition and operating result of a consolidated business group, which isconsidered as a single entity comprised of more than one companies under acommon control (also counting entities other than companies)General principles of consolidated financial statementsThe general principles involved in consolidated financial statements are:1. A consolidated financial statement should essentially provide true and fair pictureof financial condition and operating result of the business faction.2. A consolidated financial statement needs to be prepared on the basis of legal-entity based financial statements of the parent company and its subsidiaries which

belong to the business faction, and prepared in accordance with the GAAP.3. A consolidated financial statement needs provide a clear vision about the financialinfo requisite for interested parties not to mislead their judgments about the businessgroups condition.4. The procedures and policies used for preparing consolidated financial statementsneed to be applied ad infinitum and should not be changed without any reason.The basic method of preparing a consolidated statement of financial position

(1) Theassetsandliabilitiesoftheparentandthesubsidiaryareadded together on a line-by-line basis.

(2) Theinvestmentshownintheparent'sSoFP(i.e.theinvestmentinthe subsidiary) is replaced by agoodwill figure.

(3) Thesharecapitalandsharepremiumbalancesarenotaddedtogether;; only the balances related tothe parent are used in the consolidation. This reflects the fact that the consolidated SoFP showsall of the assets and liabilities under the control of the parent entity.

(4) Theamountattributabletonon-controllinginterestsiscalculatedand shown separately on the faceof the consolidated SoFP.

(5) Thegroupshareofthesubsidiary'sprofitiscalculatedandaddedto overall group retained earnings.

Consolidated financial statements: [IFRS 10:B86]

combine like items of assets, liabilities, equity, income, expenses and cash flows of theparent with those of its subsidiaries

offset (eliminate) the carrying amount of the parent's investment in each subsidiary and theparent's portion of equity of each subsidiary (IFRS 3Business Combinationsexplains howto account for any related goodwill)

eliminate in full intragroup assets and liabilities, equity, income, expenses and cash flows relating to

transactions between entities of the group (profits or losses resulting from intragroup transactions

that are recognised in assets, such as inventory and fixed assets, are eliminated in full).

7/25/2019 Otvety Na Ekz Voprosy 1-30

38/39

29.Requirements in respect of financial information and financial reportsThe main objective is to provide financial information about the reporting entity to users ofthe financial statements that is useful in making decisions about providing resources to theentity, as well as other financial decisions.

Relevance. Information is considered to be relevant if it is capable of influencing theeconomic decisions of the users and it is provided in time to influence those decisions.

Reliability. Information is considered to be reliable if it is: faithfully represented; free frommaterial misstatement; neutral; complete; and prudent.Materialityis a threshold of significance to the users of the financial statements. It is the

point at which information, either through its omission or misstatement, could influence theeconomic decisions of the users when taken on the basis of the financial statements as awhole.Neutrality. The information presented in the financial statements should be free from biasand, most importantly, information should not be presented in such a manner as to achieve a

pre-determined goal or objective.

Completeness. The information presented to the shareholders should be complete, within thebounds of materiality. This means that all relevant transactions and events relating to theaccounting period must appropriately reflected in the financial statements in accordance withrelevant accounting principles.Prudence. The outcome of many events and circumstances presented in the financialstatements may be uncertain. For example; a company can only be sure of receiving the cashfrom a credit sale when the customer physically transfers the cash to the seller. Prudencemeans exercising a degree of caution when preparing financial statements so thatassets/revenues are not overstated and liabilities/expenses are not understated.

Comparability. Users must be able to compare financial information relating to the entityover time and against other business entities. To this end accounting treatments should beapplied consistently from year to year and should be disclosed in the financial statements.Understandability. It is assumed that the users of financial statements have a reasonableknowledge of business and economic activity. Even so, the information must be understood

by the audience to be of any use.Financial Reporting. According to the Financial Accounting Standards Board, financialreporting includes not only financial statements but also other means of communicatingfinancial information about an enterprise to its external users. Financial statements

provide information useful in investment and credit decisions and in assessing cash flowprospects. They provide information about an enterprise's resources, claims to thoseresources, and changes in the resources. Financial reporting is a broad conceptencompassing financial statements, notes to financial statements and parentheticaldisclosures, supplementary information (such as changing prices), and other means offinancial reporting. Financial reporting is but one source of information needed by thosewho make economic decisions about business enterprises. Every financial statement is

prepared on the basis of several accounting assumptions: that all transactions can beexpressed or measured in dollars; that the enterprise will continue in businessindefinitely; and that statements will be prepared at regular intervals. Financial statementsalso must be prepared in accordance with generally accepted accounting principles, andmust include an explanation of the company's accounting procedures and policies.

7/25/2019 Otvety Na Ekz Voprosy 1-30

39/39

30.Stages of financial accounting introduction

Financial accountingis the field ofaccountancy concerned with the preparation offinancialstatements for decision makers. The fundamental need for financial accounting is to reduce

principalagent problemby measuring and monitoring agents' performance and reporting theresults to interested users.The financial accounting process -- also is known as the accounting cycle -- starts withsorting through initial transaction invoices, proceeds to recording and posting them in

journals and ledgers, further goes into adjusting and closing certain journal entries and ledgeraccounts, and finishes with trial balance testing and compiling financial statements. Someaccounting steps repeat themselves throughout the accounting cycle, such as data entry and

posting, while others take place once at certain phases of the accounting process, such asentry adjusting and closing, as well as compiling financial statements.