Question 1

It is vital that financial statements can be relied on.What steps would you recommend an organisation takes to ensure that the information in its financial statements achieves this?

Accepted Answer

Accounting information must faithfully represent all material events and transactions during the reporting period based on economic reality and not merely their legal form.It must be free from any bias (be neutral),be complete and as appropriate be conservative in nature (prudent)rather than optimistic.
Possible steps could include:
• More detailed disclosures in financial statements than what is required by accounting standards.
• Identifying in the financial statements the more subjective aspects of the reported information.
• If not already required,having the financial statements audited.

Question 2

Match the assumption/principle in column 1 with the best illustration of an implication in column 2.

Accepted Answer

Understandability - D
Relevance - A
Reliability - B
Comparability - C

Question 3

Briefly contrast cash accounting with accrual accounting,in terms of the types of transactions that are recorded under each system.Which is the most objective system?

Accepted Answer

Cash accounting only records cash transactions - i.e.a transaction is recognised (recorded)only when cash is either paid or received.
Accrual accounting records cash transactions,but also transactions on credit as well as balance day adjustments.
Cash accounting is the most objective system,as it allows no discretion in the amount or timing of recording transactions;there is no scope for manipulation.
Accrual accounting involves estimates and judgement to be applied to the recording of transactions,and thus it is less objective.It provides an opportunity for managers to manipulate results and positions to make them look good.

Question 4

Briefly explain the purpose and function of Accounting Standards,distinguishing between an IFRS and an NZ IFRS.

Accepted Answer

The answer of Briefly explain the purpose and function of...

Question 5

Match the assumption/principle in column 1 with the best illustration of an implication in column 2.

Accepted Answer

The answer of Match the assumption/principle in column 1 with...

Question 6

In a company that you work for,a building which cost $150,000 ten years ago now has a market value of $400,000.For financial statement purposes,what arguments would you put forward to convince your Chief Executive Officer that this building should be shown in the financial reports at its current market value?

Accepted Answer

The answer of In a company that you work for,a...

Question 7

Distinguish between 'general purpose' and 'special purpose' financial statements and outline the significance of this distinction.

Accepted Answer

The answer of Distinguish between 'general purpose' and 'special purpose'...

Question 8

There are 3 main points to the NZ Framework definitions of an asset.Apply those 3 main points to each of the following scenarios,and determine whether an asset should be recognised and recorded in the Balance Sheet.
a A firm is involved in a court case in which it is suing a competitor for $100,000 for copying its product and trademark.The court case has not yet been decided.
b A firm has signed a contract of purchase for 2 tonnes of bananas in Ecuador,and also has an insurance contract for loss of sales and profits if the bananas are damaged,lost or held back in any way from the voyage to New Zealand.
c A firm has just signed a world-famous New Zealand netballer to work for them in a marketing position.The netballer's international contacts and high profile are expected to win the firm several lucrative contracts.The contract of employment may be terminated by either party,provided written notice is given 2 weeks in advance of the termination date.

Accepted Answer

The answer of There are 3 main points to the...

Question 9

Match the assumption/principle in column 1 with the best explanation or illustration in column 2.

Accepted Answer

The answer of Match the assumption/principle in column 1 with...

Question 10

According to the NZ Framework,it is appropriate to use multiple measurement bases.What does this mean,and what disclosure must be made?

Accepted Answer

The answer of According to the NZ Framework,it is appropriate...

Question 11

The NZ Framework serves four main functions in supporting the presentation of a true and fair view in financial reporting - interpretation,benchmarking,audit and philosophical.Discuss how the NZ Framework works in each of these functions.

Accepted Answer

The answer of The NZ Framework serves four main functions...

Question 12

How does the Statement of Accounting Policies and its required content fulfil the 'concept of comparability'?

Accepted Answer

The answer of How does the Statement of Accounting Policies...

Question 13

Explain the term 'period reporting'.Why is this concept important?

Accepted Answer

The answer of Explain the term 'period reporting'.Why is this...

Question 14

Explain the 'monetary assumption',the 'going concern assumption' and the 'accounting period assumption',giving an example for each assumption in the financial statements.

Accepted Answer

The answer of Explain the 'monetary assumption',the 'going concern assumption'...

Exam 3: The New Zealand Framework

It is vital that financial statements can be relied on.What steps would you recommend an organisation takes to ensure that the information in its financial statements achieves this?

Match the assumption/principle in column 1 with the best illustration of an implication in column 2.

Briefly contrast cash accounting with accrual accounting,in terms of the types of transactions that are recorded under each system.Which is the most objective system?

Briefly explain the purpose and function of Accounting Standards,distinguishing between an IFRS and an NZ IFRS.

Match the assumption/principle in column 1 with the best illustration of an implication in column 2.

Distinguish between 'general purpose' and 'special purpose' financial statements and outline the significance of this distinction.

Match the assumption/principle in column 1 with the best explanation or illustration in column 2.

According to the NZ Framework,it is appropriate to use multiple measurement bases.What does this mean,and what disclosure must be made?

The NZ Framework serves four main functions in supporting the presentation of a true and fair view in financial reporting - interpretation,benchmarking,audit and philosophical.Discuss how the NZ Framework works in each of these functions.

How does the Statement of Accounting Policies and its required content fulfil the 'concept of comparability'?

Explain the term 'period reporting'.Why is this concept important?

Explain the 'monetary assumption',the 'going concern assumption' and the 'accounting period assumption',giving an example for each assumption in the financial statements.