CONCEPTUAL FRAMEWORK AND

ACCOUNTING STANDARDS NOTES

CHAPTER 1 – THE ACCOUNTANCY PROFESSION
APRIL 12, 2024

1.) Define Accounting

ASC
- Is a service activity.
- The accounting function is to provide quantitative
information, primarily financial in nature, about economic
entities,
- That is intended to be useful in making economic decisions.

CAT
- Accounting is the art of recording, classifying, and
summarizing
- in a significant manner and in terms of money, transaction,
and events
- Which are in part at least of a financial character and
interpreting the results thereof.

AAA
- Is the process of identifying, measuring, and communicating
economic information to permit informed judgement and
decision by users of information?

2.) Explain IDENTIFYING as a component of accounting

- RECOGNITION AND NONRECOGNITION of “Accountable” events

3.) When is a transaction ACCOUNTABLE or QUANTIFIALBLE

- “Accountable” pertains to economic activities that can be quantified in

terms of a unit of measure
- “” when economic activity has an effect on assets, liability, and equity
4.) Explain MEASURING as a component of accounting

- The process of assigning of peso amounts to the accountable

economic transaction and event
- Either Historical Cost or Current Value
 Historical Cost - the original cost at the time of acquisition
 Current Value – Fair Value, Value in Use, Fulfillment Value,
current cost

5.) Explain COMMUNICATION as a component of accounting

- The process of preparing and distributing accounting reports to

potential users of accounting information
- Implicit in this process are the recording, classifying, and
summarizing aspects of accounting
 RECORDING - aka Journalizing, is the process of systematically
maintaining a record of all business transactions
 CLASSIFYING – is the sorting of similar and interrelated
economic transactions into classes (posting to ledger)
 SUMMARIZING – is the preparation of financial statements
which include: statement of financial position, statement of
comprehensive income, statement of changes in equity,
statement of cash flows

6.) Explain recording, classifying, and summarizing in relation to the communicating

components of accounting.
7.) What is the overall objective of accounting.
8.) Describe the accountancy profession
9.) What is R.A. No. 9298
10.) What do you understand by the Board of Accountancy
11.) Explain the limitation of the practice of public accountancy
12.) Explain the Accreditation to practice accountancy
13.) What are the three main areas in the practice of the accountancy profession
14.) Explain Public Accounting
15.) Explain Auditing, taxation services, and the management advisory services
16.) Explain private accounting
17.) Explain government acconting
18.) What do you understand by the Continuing Professional Development of CPAs
19.) What is the meaning of CPD credit units
20.) How many CPD credit units are required
21.) What is the purpose of the required CPD credit units
22.) What is the exemption from the CPD requirements
23.) Distinguish accounting and auditing
24.) Distinguish accounting and bookkeeping
25.) Distinguish accounting and accountancy
26.) Distinguish financial accounting and managerial accounting
27.) Explain generally accepted accounting principles or GAAP
 CONCEPTUAL FRAMEWORK AND
ACCOUNTING STANDARDS NOTES
CHAPTER 2 – CONCEPTUAL FRAMEWORK
APRIL 12, 2024

1.) What is the meaning of CONCEPTUAL FRAMEWORK

- The Conceptual framework for financial reporting is a document

promulgated by the International Accounting Standards Board
- It is a summary of terms and concepts that underlie the preparation
and presentation of financial statements for EXTERNAL USERS
- The CF describes the concepts for general purpose financial
reporting
- Is an attempt to provide overall theoretical foundation for accounting
- Is intended to guide standard setters, prepares and users of financial
information I the preparation and presentation of statements
- Is the underlying theory for the development of accounting
standards and the revision of previously issued accounting standards
- The CF provides the foundation for standards that:
a.) Contribute to transparency by enhancing international
comparability and quality of financial information
b.) Strengthen accountability be reducing information gap
between the providers of capital and the people whom
they have entrusted their money
c.) Contribute to economic efficiency by helping investors to
identify opportunities and risks across the world

2.) What are the purposes of the Revised Conceptual framework

a.) To assist the International Accounting Standards Board to develop

International Financial Reporting Stan Standards based on consistent
concepts.
b.) To assist preparers of financial statements to develop consistent
accounting policy when no standard applies to a particular transaction
or other event or where an issue is not yet addressed by an IFRS
c.) To assist prepares of financial statements to develop accounting policy
when standards allow a choice of an accounting policy
d.) To assist all parties to understand and interpret the IFRS.
3.) Explain the authoritative status if the Conceptual Framework

- Nothing in the Conceptual Framework overrides any specific

International Financial Reporting Standard
- Standards and Interpretations that apply to a transaction overrides
the Conceptual Framework
- Conceptual Framework is not an IFRS
- In a case of conflict, the IFRS shall prevail over the Conceptual
Framework

4.) Explain the primary users and their information needs

- Include the existing and potential investors, lenders and other

creditors
 Existing and potential investors are concerned with the risk
inherent in and return provided by their investments
 Investors need information to help them determine whether
they should buy, hold, or sell
 Shareholders are also interested in information which enables
them to assess the ability of the entity to pay dividends
 Lenders existing and potential are interested in information
which enables them to assess whether their loans, interest
thereon and other amounts owing will be paid when due
- Financial reports are primarily directed for primary users

5.) Explain the other users and their information needs

- Include employees, customers, governments and their agencies, and

the public
 Employees are interested in information about the stability
and profitability of the entity and therefore q
 Customers,
 Governments

- Are users of financial information other than the existing and

potential investors, lenders and other creditors
 - Financial reports are not directed to them primarily

6.) What is the scope of the Revised Conceptual Framework

1.) Objective of Financial Reporting

2.) Qualitative Characteristics of Useful Financial Information
3.) Financial Statements and Reporting Entity
4.) Elements of Financial Statements
5.) Recognition and Derecognition
6.) Measurement
7.) Presentation and Disclosure
8.) Concepts of Capital and Capital Maintenance

7.) Explain Financial reporting

8.) What is the overall objective of Financial Reporting

- Is to provide FI for decision making.

- the purpose of accounting
-

9.) What are the specific objectives of Financial Reporting

a.) To provide information useful in making decisions about providing

resources to the entity
b.) To provide information useful in assessing the cash flow prospects of
the entity
c.) To provide information about entity resources, claims and changes in
resources and claims

10.) Explain Financial Position

- Is information about entity’s ER and claims against it.

 ER are Assets, Claims are Liabilities & Equity.
- The SFPos comprises of A, L, E, in a particular moment in time.
11.) Explain Liquidity and solvency

- Liquidity
 The Availability of cash in the near future to cover currently
maturing obligations.
- Solvency
 The Availability of cash over a long term to meet F
commitments when they fall due.

12.) Explain Financial performance

- Comprises revenue, expenses, and net income/loss for a period of

time.
- Aka results of operations, income statement, statement of
comprehensive income

13.) Explain accrual accounting

- FPer of an entity must be measured using accrual accounting.

- Depicts the effects of transactions on entity’s ER and claims.
- In the period those effects occur.
- Not when cash is received or paid.
- Income is recognized when earned regardless of when cash is paid.
- Expense is recognized when incurred regardless of when paid.

14.) Explain management stewardship of the entity’s economic resources

- How Efficiently and Effectively Management has used its responsibility

to use the entity’s ERs

15.) What are the limitations of financial reporting

a.) FR Do not and Cannot provide all the information that users need
b.) FR are not Designed to show the value of the entity but provide the
information for users to estimate the value of the entity
c.) FR are intended to provide common information to all users and not
specific users
d.) FR are based on estimate and judgement rather than exact depiction
 CONCEPTUAL FRAMEWORK AND
ACCOUNTING STANDARDS NOTES
CHAPTER 3 – CONCEPTUAL FRAMEWORK
QUALITATIVE CHARACTERISTICS
APRIL 16, 2024

1.) What is the meaning of qualitative characteristics of financial information?

- Characteristics that make financial accounting information useful to

others
- All information included in financial statements must be useful to
users making economic decisions.
- Qualitative characteristics under CFAS are classified into Fundamental
and Enhancing qualitative characteristics.

2.) What are fundamental qualitative characteristics?

- CONTENT or SUBSTANCE of financial information

3.) What are the two fundamental qualitative characteristics?

- RELEVANCE
- FAITHFUL REPRESENTATION

4.) Explain the most efficient and effective process of applying the fundamental qualitative
characteristics.

1. Identify and economic phenomenon or transaction that has potential

to be useful.
2. Identify the type of information about the transaction that would be
most relevant and can be faithfully represented.
3. Determine whether the information is available.

5.) Explain relevance.

- Capacity of information to influence a decision.

- FI must be able to make a difference to decisions of users.
- Means that info is pertinent to ED.
6.) What are the two ingredients of relevance?

- PREDICTIVE Value
- CONFIRMATORY value

7.) Explain predictive value.

- Can be used by users to predict future outcome.

- (i.e.) past performance and position help users predict future
outcome.

8.) Explain confirmatory value.

- Is able to confirm users’ earlier expectations.

- (i.e.) net income helps users confirm or revise expectation about
entity’s ability to generate earnings.

9.) What is an item material?

- Aka Doctrine of Convenience

- Dependent on good judgement, personal expertise, and common
sense
- WHEN knowledge/absence of it would affect the decision of primary
users

10.) Explain the new definition of materiality.

- (IASB) Information is material if omitting, misstating, or obscuring it

could reasonably be expected to influence the economic decisions
that primary users of general-purpose financial statements make on
the basis of those statements which provide financial information
about a specific reporting entity.
- Information is material when the omission, misstatement, and
obscuring of the information can reasonably affect the economic
decision of primary users.
11.) What are the factors that may be considered in determining materiality?

- SIZE
 of the item in relation to the entire group is considered
 (i.e.)
 advertising expense in relation to total selling expenses
 prepaid expenses in relation to total current assests

- NATURE
 An item is material when it inherently, by its nature, affects
economic decisions.
 (i.e.)
 A bribe of only P20,000 is material for a corporation
worth millions of pesos due to its nature as a bribe.

12.) What are the fundamental qualitative characteristics of faithful representation?

- The descriptions and figures must match what really existed of

happened.
- (i.e.)
 An entity reports a sale of merchandise of 8,000,000 as
miscellaneous income of 5,000,000 is an example of
UNFAITHFUL REPRESENTATION

13.) What are the three ingredients of faithful representation?

a.) Completeness
b.) Neutrality
c.) Free from Error

14.) Explain completeness of financial information

- COMPLETENESS requires that relevant information should be

presented in a way that facilitates understanding and avoids
erroneous implication.
- Includes all information necessary to understand the transaction,
including all descriptions and explanations.
 - Notes must be included on financial statements to be considered
complete as required by the PFRS to provide necessary disclosure.

15.) What is the standard of adequate disclosure?

- Completeness is the result of adhering to the standard of adequate

disclosure.
- The standard of adequate disclosure means that all significant and
relevant information leading to the preparation of financial
statements shall be clearly reported.
- This however does not mean the disclosure of just any data

16.) Explain notes of financial information in relation to completeness of financial

information

- Financial statements must be accompanied by notes to be considered

complete.
- The purpose of notes is to provide all necessary disclosures required
by the PFRS

17.) Explain neutrality of financial information

- A neutral depiction is without bias in the preparation or presentation

of financial information.
- “” are not manipulated to increase the probability that financial
information would be received more favorably by users
- FREE FROM BIAS
 CONCEPTUAL FRAMEWORK AND
ACCOUNTING STANDARDS NOTES
CHAPTER 4 – CF FS UNDERLYING ASSUMPTIONS
APRIL 16, 2024

1.) WHAT IS THE GENERAL OBJECTIVE OF FINANCIAL STATEMENTS

- To provide info on:

 economic resources of reporting entity (A, L, Eq, I, Ex)
 claims against entity
 changes in econo resources and claims
- Which is used to assess:
 future cash flows to the entity
 management of entity’s econo resources
- Found in ff:
1.) Statement of Financial Position / Balance Sheet
o recognizes Assets, Liab, Equity
2.) Statement of Profit/Loss / Income statement
o recognizes Inc, Exp
3.) Statement of Cash Flows
o recognizes cash flows from operating,
investing, and financing activities.
4.) Statement of Changes in Equity
o recognizes contributions from equi holders
and distributions to equi holders.
5.) Notes
o recognizes disclosures required by

2.) EXPLAIN REPORTING PERIOD

The reporting period is the period when financial statements are prepared
for general purpose financial reporting.
- Prepared on an interim basis
- Basis that is annual or twelve months

3.) EXPLAIN REPORTING ENTITY

 An entity that is required or chooses to prepare financial statements
- Can be a single entity, portion of an entity, and more than one entity
i.e.
a.) Individual corporation, partnership, and proprietorship
b.) The parent alone
c.) The parent and its subsidiaries as one
d.) Two or more entities w/o a relationship
e.) A business segment of an entity

4.) DEFINE CONSOLIDATED FINANCIAL STATEMENTS, UNCNSOLIDATED FINANCIAL

STATEMENTS, AND COMBINED FINANCIAL STATEMENTS.

Consolidated financial statements provide information about the A, L, E,

I, E of both the parent and its subsidiaries as a single reporting entity.

- Parent and subsidiary company

5.) EXPLAIN THE UNDERLYING ASSUMPTIONS IN THE PREPARATION OF FINANCIAL

STATEMENTS

- The basic notions or fundamental premises on which the accounting

process is based.
- Serve as foundations of accounting.
- To avoid misunderstanding
- And enhance the usefulness and understanding of FS.

6.) EXPLAIN GOING CONCERN ASSUMPTION

- FS are prepared on the assumption that entity is continuing in

operation indefinitely without evidence to the contrary.

7.) EXPLAIN TIME PERIOD ASSUMPTION

- Requires that the indefinite life of the entity be subdivided into

accounting periods of equal length for the preparation of FS.

8.) DISTINGUISH CALENDAR YEAR AND NATURAL BUSINESS YEAR

 - CALENDAR YEAR
 A 12-month period that ends on DECEMBER 31
- NATURAL BUSINESS YEAR.
 A 12-month period that ends on the month the business is at
the lowest season.

9.) EXPLAIN MONETARY UNIT ASUMPTION

10.) EXPLAIN QUANTIFIABILITY AND STABILITY OF THE PESO INRELATION TO

MONETARY ASSUMPTION UNIT.

- Quantifiability – elements are to be expressed in terms of Philippine

Peso

- Stability of Peso – the PP of peso is stable and is adjustments to it are

not needed.
 CONCEPTUAL FRAMEWORK AND
ACCOUNTING STANDARDS NOTES
CHAPTER 5 – CF ELEMENTS OF
FINANCIAL STATEMENTS
APRIL 16, 2024

1.) DEFINE ELEMENTS OF FINANCIAL STATEMENTS

- PORTRAY the financial effects of transactions by grouping them into

broad classes based on their econo-characteristics.
- BROAD CLASSES = ELEMENTS OF FINANCIAL STATEMENTS
- Elements of Financial Statements
 The quantitative information reported in the statement of
financial position and income statement.
 The building blocks FS are constructed from.

2.) WHAT ARE THE ELEMENTS DIRECTLY RELATED TO THE MEASUREMENT OF FINANCIAL
POSITION

a.) ASSET
b.) LIABILITY
c.) EQUITY

3.) WHAT ARE THE ELEMENTS DIRECTLY RELATED TO THE MEASUREMENT OF FINANCIAL
PERFORMANCE

a.) Income
b.) Expense

4.) DEFINE AN ASSET

An asset is defined as a present economic resource controlled by the

entity as a result of past events.

- “Economic Resource”
 a right that can produce economic benefit.
- The new definition sets that the potential economic benefits are not
needed to be expected to be for the entity.
5.) WHAT ARE THE ESSENTIAL CHARACTERISTICS OF AN ASSET

a.) Is a PRESENT economic resource.

b.) The economic resource is a RIGHT that can produce economic
benefits.
c.) Economic resource is CONTROLLED by the entity due to past events.

6.) EXPLAIN THE RIGHT TO PRODUCE ECONOMIC BENEFIT

- RIGHTS that can produce economic benefits are the ff:

 Rights that correspond to an obligation of another entity
 Right to receive cash
 “” goods and services
 Right to exchange economic resources on good terms
 Right to benefit from the future obligation of another
party
 Rights that do not correspond to an obligation of another
entity.
 Rights established by contract or legislation such as owning a
debt instrument.
- For the POTENTIAL/RIGHT to produce economic benefit, it is only
necessary that the said right already exists.
- The economic resource is the CURRENT RIGHT that has potential and
NOT the future economic benefits it may produce.
 (i.e.)
 To receive contractual cash flows
 To exchange economic resources with another
party on good terms
 To produce cash inflows and avoid outflows.
 To receive cash by selling economic resource

7.) EXPLAIN CONTROL OF ECONOMIC RESOURCE

An entity CONTROLS an asset when it has the PRESENT ABILITY to DIRECT

the use of the asset and obtain the economic benefits that flow from it.
 - Control also means the ability to EXCLUDE OTHERS from USING said
asset; therefore also, from obtaining the economic benefits of the
asset.
- It arises when entity ENFORCES its LEGAL RIGHTS
- Control can also exist with out of legal rights, such as when an entity
alone has access to a technical know-how.

8.) DEFINE LIABILITY

A liability is defined as present obligation of an entity to transfer an

economic resource as a result of past events.

- The new definition clarifies that a liability is the OBLIGATION to

transfer an economic resource and NOT the ULTIMATE OUTFLOW of
economic benefits.
- There is conflict between the definition of liability in CF and in IAS 37
 In this case the IASB states that IAS will always prevail over CF

9.) WHAT ARE THE ESSENTIAL CHARACTERISTICS OF A LIABILITY

a.) The entity has an OBLIGATION.

b.) The obligation is to transfer an ECONOMIC RESOURCE.
c.) The obligation is a present obligation that exists as a result of past
events, meaning that it is not recognized until incurred.

10.) EXPLAIN AN OBLIGATION

An obligation is a duty/responsibility that an entity has no practical

ability to avoid. Obligations can either be legal or constructive.
11.) EXPLAIN LEGAL OBLIGATION AND CONSTRUCTIVE OBLIGATION

- Are legally enforceable as consequence of a binding contract or

statutory requirement.
 (i.e.) Accounts Payable
- Constructive obligations come from normal business practice of
wanting to maintain good business relations.
 (i.e.) when an entity as a matter of policy rectifies mistakes in
products even after its warranty period.

12.) DEFINE INCOME

Income is defined as increases in assets or decreases in liabilities that

result in increases in equity, other than those relating to contributions
from equity holders.

- + assets / - liability, that = + in equity

13.) DISTINGUISH INCOME FROM REVENUE

- INCOME encompasses REVENUE and GAINS

- REVENUE is derived from the course ordinary regular activities.
 REGULARITY
 Sales, Fees, Interest, Dividends, Royalties, and Rent Revenue
- GAINS refers to other items that are income but are not derived from
the normal course of regular activities.
 Include the ff:
 Gain from disposal of non-current asset.
 Unrealized gain on trading investment

14.) DEFINE AN EXPENSE

Expense is defined as decreases in assets or increases in liabilities that

result in decreases in equity, other than those relating to distributions to
equity holders.

- - assets / + liability, that = - in equity

- The exact opposite of income
15.) DISTINGUISH AN EXPENSE FROM LOSS

- Expense encompasses loss.

- EXPENSES arise from the course of ordinary regular activities.
 (i.e.) COGS, wages, and depreciation
- LOSSES do not arise from the course of ordinary regular activities.
 (i.e.) losses resulting from disasters.
 CONCEPTUAL FRAMEWORK AND
ACCOUNTING STANDARDS NOTES
CHAPTER 5 – CF RECOGNITION AND MEASUREMENT
APRIL 25, 2024

1.) EXPLAIN RECOGNITION OF THE ELEMENTS OF FINANCIAL STATEMENTS

The process of capturing for inclusion in the financial statements an item

that meets the definition of an asset, liability, equity, income or expense

- The amount at which A, L, E is recognized in SFP is carrying amount

- Recognition links the elements to the SFPos and SFPer
 The statements are linked as the recognition of one item in
one statement requires the recognition of the same item in
the other statement.
 (i.e.) Income is recognized simultaneously with an
increase of asset or decrease in liability.

2.) EXPLAIN THE RECOGNITION CRITERIA FOR THE ELEMENTS OF FINANCIAL STATEMENTS

Only items that meet the definition of an A,L,E are recognized in the
statement of financial position.

Similarly, only items that meet the definition of income or expense are
recognized in the statement of financial performance.

- An item must meet the definition of such account.

- Items are recognized when their recognition provides users with
information that is relevant and faithfully represented.
- Recognition does not focus on if EBs will flow to or form the entity
 An asset or liability and any corresponding income or expense
can exist even if the probability of in/outflow of the benefit is
low.

3.) EXPLAIN DERECOGNITION

Derecognition is defined as the removal of all or part of a recognized

asset or liability from the statement of financial position

- Happens when item no longer meets its accounts’ definition.

- Asset derecognition happens when entity loses control on part or all
the asset.
 - Liability derecognition happens when entity no longer has present
obligation for all or part of liability.

4.) EXPLPAIN POINT OF SALE INCOME RECOGNITION

- Income shall be recognized when it is earned.

- With respect to sale of goods in the ordinary course of business, the
point of sale is unquestionably the point of income recognition.
- This is so as it is at the point of sale that entity transfer to buyer the
risks and rewards, such as control, of owning the goods.
- In few conditions, income can be recognized at point of or during
production and at the point of collection.

5.) WHAT ARE THE THREE APPLICATIONS OF THE MATCHING PRINCPLE

1.) Cause and Effect Association

2.) Systematic and Rational Allocation
3.) Immediate Recognition

6.) EXPLAIN CAUSE AND EFFECT ASSOCIATION PRINCPLE

Under the cause-and-effect association, the expense is recognized when

the revenue is already recognized.

- Involves the simultaneous recognition of revenue and expense that

come from the same transactions.
 (i.e.) in merchandise inventory such cost is considered
an asset while it is still on hand. However, when such merch is
sold, the cost is expensed in the form of COGS as at this time
revenue can be recognized.
 Other examples include doubtful accounts, warranty expense,
and sales commissions.

7.) EXPLAIN SYSTEMATIC AND RATIONAL ALLOCATION PRINCIPLE

Under systematic and rational allocation, some costs are expensed by

simply allocating then over the periods benefited.

- The cost incurred will benefit future periods and that no direct
association of the expense with specific revenue.
- Used when economic benefits are expected to arise over several
accounting periods aka noncurrent accounts.
 (i.e.) Depreciation of PPE, amortization of intangibles,
allocation of prepaid rent, insurance and other payments
8.) EXPLAIN IMMEDIATE RECOGNITION PRINCIPLE

- The cost incurred is expensed outright due to uncertainty of future

EBs or unreliability associating certain costs with future revenue.
- Expense is recognized immediately when:
 Expenditure no longer produces EBs.
 Cost incurred no longer qualifies as an asset.
 (i.e.) officer’s salaries, administrative expenses,
selling expenses, amount to settle lawsuit, worthless
intangibles, loss from disposal of building, loss
from sale of investments.

9.) WHAT ARE THE TWO CATEGORIES OF MEASUREMENT

- Historical Cost
- Current Value
 Includes: Fair Value, Value in use for asset, Fulfillment for
liability, current cost

10.) EXPLAIN HISTORICAL COST

- The original acquisition cost, entry value of an asset

 Comprising consideration paid and transaction cost.
- Application is to measure assets and liabilities at amortized cost.
 Amortized cost reflects estimate of future cash flows
discounted at rate present at initial recognition.
- HC of Asset is updated in:
 Depreciation, Amortization
 Payment received in disposal of asset
 Impairment
 Accrual of interest
 Amortized cost measurement of asset
- HC of Liability is updated in:
 Payment made to deliver goods
 Increase in value of the obligation
 Amortized measurement of liability

11.) EXPLAIN FAIR VALUE

- It is encompassed by Current Value

- It is an Exit Value
- FV of Asset is price to be received for sale of asset at measurement
date.
 - FV of Liability is price paid at measurement date.
- Not adjusted for transaction cost as such is transaction not account.

12.) EXPLAIN VALUE IN USE

- The Present Value of cash an entity expects to derive from use of

asset and ultimate disposal.
- Is also an Exit Value

13.) EXPLAIN FULFILLMENT VALUE

- Present value of cash entity expects to pay settling a liability.

- Includes transaction cost on fulfillment of a liability.
- Is an Exit Value

14.) EXPLAIN CURRENT COST

- CC Asset is cost of a different equivalent asset at measurement date.

 Comprises of consideration paid and transaction cost.
- CC Liability is consideration to be received at measurement date.
- Similar to historical cost as it is an Entry Value

15.) EXPLAIN THE GUIDELINE IN SELECTING AN APPROPRIATE MEASUREMENT BASIS

- It is necessary to consider the nature of the information that will be

measured.
- No single factor will determine which measurement basis will be
selected.
- Information presented must be useful, meaning relevant and faithfully
represented, to users of FS.
- IASB did not mandate a single measurement basis as the different
basis can produce useful information in different circumstances.
 CONCEPTUAL FRAMEWORK AND
ACCOUNTING STANDARDS NOTES
CHAPTER 7 – CF PRESENTATION AND DISCLOSURE
APRIL 25, 2024

1.) Explain presentation and disclosure as an effective communication tool

- A reporting entity communicates information about its ACCOUNTS, by
presenting and disclosing information in the financial statements
2.) Explain classification of a,l,e
- The sorting of a,l,e, in the basis of their shared economic
characteristics
3.) “” of I,e
- Must be included in SFper
- Classified into components of profit/loss and comprehensive income
4.) Define aggregation.
- The adding together of a/l/e/i/e that have similar characteristics and
included in the same classification
5.) Define capital maintenance
- Transaction approach
 Is the traditional preparation of income statement
- Capital maintenance approach
 Net income occurs only after the capital used from the
beginning of the period is maintained
6.) Distinguish return on capital and with return of capital
– Return on Capital is performed by shareholders when they invest
in an entity and expect a return on their capital
- Return of capital is an erosion of capital invested in the entity
7.) Explain Financial Capital
- A financial capital concept, such as invested money,
- It is Net Assets or Equity of the entity
- The monetary amount of the net assets contributed by shareholders
- The amount increase in net assets resulting from earnings retained by
the entity
- Based on historical cost
8.) Explain net income under the financial capital concept
- Net income occers when the nominal amunt of the net assets at the
end of the year exceeds the nominal amount of net assets at te
beginning of the period, not including contribution by shareholders
9.) Explain physical capital
-