Exam 8: Liabilities and Owners Equity

Retained profits and share dividends represent elements of earned capital.

A present obligation that will transfer assets from an entity in the future,exists in which of the following cases? i.A sole proprietor takes out a loan to purchase inventory for her business ii.Employees' wages are owed for the previous fortnight iii.A company issues ordinary shares to increase its capital base

The usual measurement basis allowed by the IFRS and adopted in practice for subsequent measurement of long-term borrowings in IFRS consolidated financial statements is:

'Since pension funds are separate legal entities,it might be presumed that unfunded commitments of the plans are not liabilities of an employer firm that pays into a fund.' J.Godfrey,et el,'Accounting Theory',7^th Ed.p.273.Explain and discuss.

Under the entity theory the assets belong to the owners and the liabilities are the obligations of the owners.

Contingent liabilities do not meet the criteria for recognition as liabilities.

The practice that is not based on the proprietary theory is:

The IASB has decided not to treat share-based remuneration as an expense.

Under the proprietorship theory of accounting the incorrect statement(s)is/are: i.Assets belong to the proprietor ii.Liabilities are the obligations of the entity iii.Income and expense accounts are subsidiary accounts of proprietorship iv.An objective of accounting is to determine the net worth of the owner

Which of these is a right of creditors?

Are preference shares debt or equity and does it matter? Discuss.

Generally speaking accountants are more likely to record liabilities later than assets.

The Framework recognises that settlement of liabilities can occur in several ways.What is not one of those ways?

Future warrantee claims should not be recorded as a liability in the balance sheet as there is no objective evidence as to the amount that will be claimed.

The Framework recommends that capital is conceptualised as the invested money or the invested purchasing power of the entity.

The version of the accounting equation that represents the entity theory of accounting is:

Preference shares can have characteristics that are consistent with liabilities.These characteristics include:

Interpretation of the IASB (AASB)Framework suggests that a liability should cease to be recognised when assets or services have been transferred to other entities in satisfaction of the debt.

'Legal rights should be the only basis of distinction between creditor and owner.' Discuss.

An example of where fair value measurement is required subsequent to acquisition is post-employment obligations such as pensions (superannuation)under IAS 19/AASB 119.