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Lecture Framework of financial reporting - Lecture 7

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The main contents of the chapter consist of the following: The main issues covered by IAS 8, historical cost accounting, changes in accounting estimates, the asset might be used in the business. | Revise lecture 7 Revise lecture 7 The main issues covered by IAS 8 are: Selection of accounting policies Changes in accounting policies Changes in accounting estimates Correction of prior period errors Revise lecture 7 Changes in accounting estimates Examples of changes in accounting estimates are changes in : The useful lives of non-current assets The residual values of non-current assets The method of depreciating non-current assets Warranty provisions, based upon more up-to-date information about claims frequency Revise lecture 7 Prior period errors are omissions form, and misstatements in, the financial statements for one or more prior periods arising from failure to use information that Was available when the FS for those periods were authorised for issue and Could reasonably be expected to have been taken into account in preparing those FS Historical cost accounting Under historical cost accounting, assets are recorded at the amount of cash or cash equivalents paid, or the fair value of the consideration given for them Liabilities are recorded at the amount of proceeds received in exchange for the obligation. Historical cost accounting The objective of FS is to provide information about the reporting entity’s financial performance and position that is useful to a wide range of users for assessing the performance of management and for making economic decisions. Whilst being both easy to ascertain and objective, the historical cost basis of measurement fails to relate directly to any of the three decisions that might reasonably be made about an asset: Historical cost accounting 1. Another, similar asset might be purchased. Management need to know the current replacement cost which might have changed substantially since the present asset was purchased at its historical cost. 2. The asset might be sold. Management need to know the amount which would be realised from sale, less any costs involved in disposal, i.e. the NRV. Again this may bear no relationship to . | Revise lecture 7 Revise lecture 7 The main issues covered by IAS 8 are: Selection of accounting policies Changes in accounting policies Changes in accounting estimates Correction of prior period errors Revise lecture 7 Changes in accounting estimates Examples of changes in accounting estimates are changes in : The useful lives of non-current assets The residual values of non-current assets The method of depreciating non-current assets Warranty provisions, based upon more up-to-date information about claims frequency Revise lecture 7 Prior period errors are omissions form, and misstatements in, the financial statements for one or more prior periods arising from failure to use information that Was available when the FS for those periods were authorised for issue and Could reasonably be expected to have been taken into account in preparing those FS Historical cost accounting Under historical cost accounting, assets are recorded at the amount of cash or cash equivalents paid, or the fair