Accounting measurements are enhanced by the presence of the qualities of relevance (predictive and confirmatory value), comparability, verifiability, timeliness, and faithful representation. For each of the following, indicate the quality demonstrated: Comparability Faithful representation Freedom from bias 1. The value assigned to equipment is checked by referring to the original invoice. Predictions concerning this year's income, issued 12 months ago, are compared with the actual results to assess the accuracy of the prediction. Past trends are used to forecast this year's sales. An outside expert is retained to assess the value of the recorded amounts for tangible and intangible capital assets. Adjustments are made to financial statements that both increase and decrease net income despite the manager's preference to report lower net income. e Financial statements are issued four weeks after the year-end, even though this requires the use of estimates for some elements. Preferred shares that have to be repaid on a given date are classified as a liability despite their legal status as equity. . The company releases estimates of operating results for the coming year, based on its budgets. 9. Cash received in advance of work done is recorded as a liability, unearned revenue. Relevance, specifically confirmatory value Relevance, specifically predictive value Relevance specifically predictive value/Faithful 10. Lawyers provide an estimate of the company's potential liability for product defects. Relevance, specifically predictive value Financial statements are issued four weeks after the year-end, even though this requires the use of estimates for some elements. z Preferred shares that have to be repaid on a given date are classified as a liability despite their legal status as equity. The company releases estimates of operating results for the coming year, based on its budgets. 9. Cash received in advance of work done is recorded as a liability, unearned revenue. Relevance, specifically predictive value/Faithful representation Timeliness Verifiability 10. Lawyers provide an estimate of the company's potential liability for product defects. Verifiability/Faithful representation Match the important aspect of the definition of the element with the elements of financial statements by entering appropriate letters in the blanks. More than one letter can be placed in a blank. A. Assets B. Liabilities C. Owners' equityet assets D. Revenues obtained by an entity E. Expenses F. Gains G. Losses H. None of the above Important Aspect of the Definition of the Element Elements of Financial Statements Using up of assets or incurrence of liabilities 2. Probable future economic benefits 3. Enhancement of assets or settlements of liabilities 4. Residual interest in assets after deducting liabilities Increases in net assets from peripheral or incidental activities Changes in net assets from peripheral or incidental transactions of the entity Future sacrifices arising from past transactions 8. Results from the entity's ongoing major or central operation 7. At the beginning of 20X5, its first year of business, Marsalis Ltd. invested $40,000 in inventory and $200,000 in equipment. Total sales were $100,000. Of the initial inventory purchases, $16,000 remained in inventory at the end of the period. Marsalis depreciated the equipment by 20% straight-line, taking a full year's depreciation in 20X5. The replacement cost of the inventory, both that sold and that remaining in year-end inventory, had decreased by 10% by the end of the year. The replacement cost of the equipment, however, had increased by 3% over the year. Required: Determine the net income (using only the costs indicated above), under each of the following assumptions: 1. Nominal dollar capital maintenance. Net income $ 76,000 2. Physical capital maintenance. Net income Which measurement method would be most appropriate for the following items: historical cost, fair value, lower of cost and net realizable value, net realizable value, or present value? Required: Identify the most appropriate measurement method for each item. 11111111111111111111111111111IIULIUUUUUUUUU 1. Decommissioning Costs 2. Shares in a public company 3. Land Current value (fair value) 4. Lease 5. Long-term receivable Current value (fair value) or historical cost (amortized cost) Current value (fullfillment value) Historical cost Historical cost (ASPE) or historical cost or current value (fair value) (IFRS) Net realizable value
