Lecture 1.docx - Accounting Theory What are the fundamental...

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Accounting Theory What are the fundamental things that must be known for this transaction to be recorded in the financial statements? Note: Read chapters 1-3 of the framework 1. Definition: WHAT was the transaction about? 2. Recognition: WHEN should it be recognised? 3. Measurement: HOW MUCH? E.g. should the transaction be recorded at cost or at a current value initially? Implications for subsequent measurements 4. Disclosure: What ELSE do financial statement users need to know? What other information should we disclose? Example A Ltd sells its building to Biggs Finance Ltd and then agrees to lease it for 10 years (sale and lease-back arrangement) 1. WHAT was the transaction about? - Definition/Components – e.g. is the transaction a ‘sale’ or a ‘financing’ transaction? Are assets and liabilities affected? o They don’t have an asset anymore, o they have a right to use an asset, o Obligation to pay rental for the lease. o Income from the sale of asset (instant or over time period, performance obligation?) - Recognition –
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  • One '17
  • Balance Sheet, Generally Accepted Accounting Principles, Biggs Finance Ltd

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