{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

Topic01 Solutions - AF3110 Intermediate Accounting 1...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
1 AF3110 Intermediate Accounting 1 2009/10 Semester 1 Topic 1 Suggested Solutions Question 1 Under the conceptual framework of the HKICPA , for an item to appear in a financial statement, it must: 1. satisfy the definition of one of the elements of financial statements; and 2. satisfy the recognition criteria. In the case of employees, generally speaking, they are resources that contribute to generating future economic benefits of an entity. So they normally satisfy the definition of an asset. However, they typically do no satisfy the two recognition criteria set out in the conceptual framework. More specifically, 1. they may quit the entity at any time so that it is uncertain whether the probable criterion is met; 2. the second part of the recognition criteria certainly cannot be met. Employees do not have a cost (note that monthly pay is not the appropriate amount as it relates to only a month s service from employees) or value that could be reliably measured. Question 2 Revenue is generated form the core business of an entity, while gain relates to incidental operations. For example, a supermarket will classify sales of goods as revenue but the profit on disposal of non-current assets as a gain. The distinction between an expense and a loss is similar in that the former results from the core business, while the latter, incidental operations.
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
2 Question 3 In applying the recognition criteria in the HKICPA s conceptual framework, the concept of probability is employed to assess the uncertainty associated with the future inflow or outflow of economic benefits. Paragraph 85 of the framework reads: “The concept is in keeping with the uncertainty that characterises the environment in which an enterprise operates. Assessments of the degree of uncertainty attaching to the flow of future economic benefits are made on the basis of the evidence available when the financial statements are prepared.
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}