C. Completeness. According to Michael Russell, he demonstrates that account is a recording of financial or money transactions. Financial accounting concepts refer to the characteristic of accounting information that provides predictive value to users as the quality of: The statement can also be compered with the figures of other concerns of the same nature. Comparability: The results of financial analysis should be in a way that can be compared to the previous years statements. Percentage of gross profit on sales 17600 x 100 30%, Percentage on operating profit on sales 74500 x 100 18%, = Net profit before interest x 100 (76500 + 3000) x 100, Debtor collection period 0.177 x 365 days 45days, Creditor payments period 0.132 x 365 days 60 days, Comparison between Continental Limited and Industry Averages to Assess Profitability. B) Those who have a reasonable understanding of business and economic activities. Company Registration No: 4964706. Financial Statements show the financial position of the Company. According to Statement of Financial Accounting Concepts No. Chapter 2 – Qualitative characteristics of useful financial information. As described in ... comparability characteristic. Financial statement must be reliability to make sure that it can fulfill accounting user’s needs. Understandability . C) Financial analysts. Under one of these approaches, called “full-goodwill method”, the non-controlling interests may be measured with an application of subjective valuation techniques. Reliability c. Comparability 80. Finally, in order for financial statements to be reliability, they must be neutral. Valuing assets at the amount of cash or equivalents paid or the fair value of the consideration given to acquire them at the time of acquisition most closely describes which measurement of financial statement elements? As described in Statement of Financial Accounting Concepts No. One qualitative characteristic identified in all existing frameworks is neutrality. Examples. Neutrality of information in the financial statements most closely contributes to which qualitative characteristic? Because it might affect the image and the business of the organization. It requires the information presented in financial reports to be concise, complete and clear in presentation. Explanation. In this situation, Continental Limited had longer stock turnover period compare to the industry average, it might cause short-term financial problem because of keeping stock for long time and slowly taken out for resale. Then, prepaid office salary RM2000 is recorded under the current asset in balance sheet. Because it might affect the image and the business of the organization. The conceptual framework's qualitative characteristic of relevance includes: A . Copyright © 2003 - 2020 - UKEssays is a trading name of All Answers Ltd, a company registered in England and Wales. The enhancing qualitative characteristic of understandability means that information should be understood by: A) Those who are experts in the interpretation of financial information. The fifth type is the shareholders or owners of the company. reintroduce prudence as one aspect of the characteristics that make financial statements useful to investors. In task 3, income statement and balance sheet for external reporting or publication must be prepared neatly and precisely. The 5 types of accounting users and their needs. Accounting information also helps managers in organization budgeting process by know the financial situation of the organization and allocate the money to each department wisely. So, when the percentage of ROCE becomes higher, the performances of the organization are better. Proposed dividend to be deducted from net profit at the bottom of income statement, =2% x RM500000 (share capital from trial balance) = RM10000. FASB asked the question, “Will financial statement users’ decisions be affected by this information?” If the answer is no, then the information isn’t relevant and can be excluded from the financial statements. The debtor collection period of Continental Limited is 64.6 days and 45 days for industry average. d. Reliability. sales revenue, dividend income, etc). According to IAS 1 Presentation of Financial Statements; Which of the following reports is not a component of the financial statements. It can help accounting users to predict future outcome such as profit or loss. Next, the industry averages provided to access profitability and liquidity of Continental Limited will be compared. Provision for bad debts closing balance =10% x Debtor closing balance RM70000= RM7000, 31 Dec 2010 Closing Balance C/D 7000 1 Jan 2010 Opening Balance B/D 5000, Balance B/D 300000 Vehicles disposal a/c 50000, Provision for depreciation on vehicle account, Vehicle disposal account 12500 1 Jan 2010 Opening Balance B/D 60000, 31 Dec 2010 Balance C/D 60000 Depreciation as expense put in, Vehicle cost sold 50000 Provision for depreciation on vehicle sold 12500, Difference for loss on disposal of vehicle 2500, Provision for depreciation on premises account, Balance C/D 54000 1 Jan 2010 Opening Balance B/D 40000. Users cannot use such financial information that they cannot understand. C) Financial analysts. FALSE. Registered Data Controller No: Z1821391. Based on this period we can know that Continental Limited is taking longer time than industry average to collect debts from the debtors. b. revenues minus expenses plus gains minus losses plus investments by owners minus distributions to owners. Faithful representation . They are defined as follows: The fundamental qualitative characteristics: Relevance – financial information is regarded as relevant if it is capable of influencing the decisions of users. The move was driven largely by the rush to converge the Conceptual Framework with the position in the US. c. revenues minus expenses … The users’ perception about the qualitative characteristics of corporate financial reporting is far below the acceptable level and as such users have a negative attitude towards disclosures of financial reporting. Predictive Value 2. The pursuit of one characteristic may work against the other characteristics. Also, users are not required to be professional accountants and that is why where we expect to have complex information then its neither fault on part of user nor from the side of the entity preparing financ… September 2010 . It turned out that the IASB fell short of their expectation. Financial statements portray the financial effects of transactions and other events by grouping them into broad classes according to their economic characteristics. The users’ perception about the qualitative characteristics of corporate financial reporting is far below the acceptable level and as such users have a negative attitude towards disclosures of financial reporting. Income statement can help organization to note down the expenses and profit and it usually prepared for 1 time in years. Last, industry averages provided to access profitability and liquidity of Continental Limited will be compared. As described in Statement of Financial Accounting Concepts No. Neutrality: Neutrality in financial reporting information must be free from bias which the information provided does not favor to the particular group over other interested person. Terms of Use - What is the underlying concept governing the recording of gain contingencies? They are the boss of the company, so they were needed to know the performance of the organization and determine the future plan. Question: The Following Selected Items Relate To The Qualitative Characteristics Of Useful Information: 1. Comparability is achieved when companies present information such that knowledgeable users may adjust their financial statements so as to make them comparable to other periods/companies. , prepaid office salary RM2000 is recorded under the current financial situation of an entity, accountants financial. The figures of other concerns of the organization and use to generate more information all... 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