Question 1

a) Explain the role of qualitative characteristics of accounting information in financial reporting and comment on the relationship between the feedback value and the predictive value as part of the qualities of accounting information.

b) Revenue is usually recognized at the point of sale, however under special circumstances other bases are used. Disregarding these special circumstances, discuss the merits of the following objections to the sales basis of revenue recognition:

i. It is too conservative because revenues are earned throughout the production process

ii. It is not conservative enough because accounts receivable do not represent disposable funds, sales returns and allowances may be made, doubtful accounts may be incurred in a later period.

(25 Marks)