What is the objective purpose of general-purpose financial reporting?

Q2 (4 Marks)

Users of financial statements can face different questions about the recognition and measurement of financial items. To help develop the type of financial information that can be used to answer these questions financial accounting and reporting rules are based on a conceptual framework.

Requirements:

1. What are the basic components of the Conceptual Framework?

2. What are your views about the success of the conceptual framework?

Q3 (4 Marks)

Presented below are a number of accounting procedures and practices in Ramirez Corp. For each of these items, list the assumption, principle, qualitative characteristic, or constraint that is violated.

1. Because the companys income is low this year, a switch from accelerated depreciation to straight-line depreciation is made this year.

2. The president of Ramirez Corp. believes it is foolish to report financial information on a yearly basis. Instead, the president believes that financial information should be disclosed only when significant new information is available related to the companys operations.

3. Ramirez Corp. decides to establish a large loss and related liability this year because of the possibility that it may lose a pending patent infringement lawsuit. The possibility of loss is considered remote by its attorneys.

4. An officer of Ramirez Corp. purchased a new home computer for personal use with company money, charging miscellaneous expense.