Unit 3 Accrual Accounting1

Unit 3 Accrual Accounting1 - BFA103 FINANCIAL ACCOUNTING...

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BFA103 FINANCIAL ACCOUNTING AND DECISION MAKING TUTOR NOTES Unit 3 – Accrual Accounting Chapter 3 – Measuring and Reporting Financial Position Suggested Solutions Discussion Questions 3.1 The typical characteristics of assets today follows from the definition from ‘SAC 4: Definition and Recognition of the Elements of Financial Statements’ (a) Future economic benefits (ie in use or exchange) (b) Control over these economic benefits (ie legal or other) (c) Resulting from a past transaction or event (ie purchase; construction; discovery; donation) 3.3 Capital is a label given to owner’s equity. Other labels used for capital would include: Owner’s equity (general) Accumulated funds (not-for-profit organisations) Residual equity (general) Proprietorship (sole proprietor) Partner’s capital (partnership) Shareholder’s funds (company) 3.5 (a) Valuable resources are typically excluded on two grounds: (i) They do not next meet the definition test (ie control or past transaction) (ii) They do not meet the recognition test (ie insufficient likelihood of the future economic benefits arising or problems with measurement reliability) (b) Examples: (i) Human resources (skilled staff) would fail the control test. (ii) Research expenditure may fail the probability test. (iii) Internal goodwill would fail the measurement test. 3.13 (a) Non-current in relation to liabilities refers to obligations that are expected to be satisfied (paid/met) in the period beyond the greater of 12 months or the current operating cycle period. F ACULTY OF B USINESS UNIVERSITY OF TASMANIA 13
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BFA103 FINANCIAL ACCOUNTING AND DECISION MAKING TUTOR NOTES (b) There could be one of two possible meanings attaching to current/non-current dissection for the Long Service Leave liability. Firstly it may be an assessment of the expected future cash outflows (payments to staff) who are expected to take Long Service Leave. Secondly, it may be a measure of the expected legal obligation for Long Service Leave that is current and refers to the extent of the obligation that exists now, or will exist in the next twelve months or operating cycle). The non-current Long Service Leave obligation represents the expected future obligation that will arise as a result of staff continuing
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Unit 3 Accrual Accounting1 - BFA103 FINANCIAL ACCOUNTING...

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