F:S p19.6 - Solutions for Practice Questions Lecture Topic2...

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Solutions for Practice Questions Lecture Topic2 Week 2 26 July (DM) Lecture Topic 2 Presentation of Financial Statements Describe the statement of financial position, the statement of comprehensive income, and the statement of changes in shareholders equity and explain their limitations Apply the requirements for presentation of the financial statements Practice Questions: Picker et al. Chapter 19 DQ2, DQ5, DQ 8 Exercise 19.4 Problem 19.6 DQ2 2. What are the major limitations of a statement of financial position as a source of information for users of general purpose financial statements? Refer section 19.3.1. The major limitations of a statement of financial position as a source of information about an entity’s financial position are: (a) The optional measurement of certain assets, such as property, plant and equipment at historical cost or depreciated historical cost (where the asset has a limited useful life) rather than a current value. Hence there may be a lack of comparability between the statement of financial position of one entity with the statement of financial position of another. Further, the use of cost/depreciated cost as the basis of measurement leads to the statement of financial position not giving a view of a current value of recognised assets. (b) The mandatory omission of intangible self-generated assets (such as brand names and mastheads and goodwill) from the statement of financial position as required by AASB 138 Intangible Assets. (c) The omission of various rights and obligations (such as non-cancelable operating leases) from the statement of financial position. This is particularly important as their omission results in off-balance sheet liabilities and assets that distort the reported leverage of the entity. As a consequence of these limitations, the statement of financial position of an entity does not
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This note was uploaded on 12/06/2011 for the course ACCT 2542 taught by Professor Knapp during the One '11 term at University of New South Wales.

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F:S p19.6 - Solutions for Practice Questions Lecture Topic2...

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