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Homework answers / question archive / 1)Differentiate between fundamental qualities and enhancing qualities for qualitative characteristics of financial information, give examples 2)if the initial deposit is 40850 and the rate is 13
1)Differentiate between fundamental qualities and enhancing qualities for qualitative characteristics of financial information, give examples
2)if the initial deposit is 40850 and the rate is 13.6% find the interest earned after 400 days.
3)Tandaveka Corporation, a limited company, prepares its annual financial statements at 31 December At 31 December 2019, the company's list of account balances were as follows: Revenue Purchases Inventories (1 Jan. 2019) Distribution costs Administrative expenses Debenture interest Rental income Land and building at cost Accumulated depreciation Land & building at 1 January 2019 Plant and equipment at cost Accumulated depreciation plant & equipment at 1 January 2019 Investment property at 1 January 2019 Trade receivables Cash and cash equivalents Ordinary share capital Share premium Retained earnings 1 January 2019 Interim dividend General reserve Trade payables 4 Debentures (redeemable in 2025) NS NS 2 655 000 1 669 000 444 000 514 000 345 000 3000 48 000 840 000 120 000 258 000 126 000 548 000 541 000 32 000 100 000 244 000 753 000 6 000 570 000 434 000 150 000 5 200 000 5200 000 Additional matters to be taken into account for the preparation of the financial statements for the year ended 31 December 2019. i. Inventory at 31 December 2019 amounted to N$ 388 000 at cost ii. On 1 January 2019, Omega Enterprises disposed of some malfunctioning equipment for NS 7000. The equipment had cost NS 15 000 and had accumulated depreciation brought forward at January 2019 of NS 3 000. There were no other additions or disposal to property, plant and equipment in the year. iii. The company treats depreciation on plant and equipment as a cost of sales and on land and buildings as an administrative cost. Depreciation rates as per the company's accounting policy are as follows: Buildings Straight line over 50 years Plant and equipment 20% reducing balance Omega Enterprises 's accounting policy is to charge a full year's depreciation in the year of an asset's purchase and none in the year of disposal. Omega Enterprises 's land and buildings were eight years old on 1 January 2019. iv. On 31 December 2019 the company revalued its land and buildings to NS 750 000 (including NS 100 000 for the land). V. The income tax charge for the year is estimated at NS 29 000. vi. Included in sales is NS 7000 pertaining to sale of equipment vii. Debenture interest is still outstanding. REQUIRED 1. Prepare the Statement of Profit or Loss and other comprehensive incomes for the year ended 31 December 2019 in accordance with International financial reporting standards (IFRS) and Companies Act 28 of 2004 (comparative information NOT required). 2. Prepare the Statement of Financial Position as at 31 December 2019 in accordance with Interational financial reporting standards (IFRS) and Companies Act 28 of 2004 (comparative information NOT required)
1)According to the Conceptual Framework, the two fundamental qualitative characteristics of financial information are:
Relevance and
Faithful representation.
Relevance
Paragraphs QC6 to QC11 of the IASBs Conceptual Framework elaborate on the qualitative characteristic of relevance. Information is relevant if:
It is capable of making a difference in the decisions made by the capital providers as users of financial information
It has predictive value, confirmatory value or both. Predictive value occurs where the information is useful as an input into the users decision models and affects their expectations about the future. Confirmatory value arises where the information provides feedback that confirms or changes past or present expectations based on previous evaluations.
It is capable of making a difference whether the users use it or not. It is not necessary that the information has actually made a difference in the past or will make a difference in the future.
Faithful representation
Paragraphs QC12 to QC16 of the IASBs Conceptual Framework elaborate on the concept of faithful representation.
Faithful representation is attained when the depiction of economic phenomenon is complete, neutral, and free from material error. This results in the depiction of the economic substance of the underlying transaction. Note the following in relation to these characteristics:
A depiction is complete if it includes all information necessary for faithful representation.
Neutrality is the absence of bias intended to attain a predetermined result. Providers of information should not influence the making of a decision or judgement to achieve a predetermined result.
As information is provided under conditions of uncertainty and judgements must be made, there is not necessarily certainty about the information provided. It may be necessary to disclose information about the degree of uncertainty in the information in order that the disclosure attains faithful representation.
The Conceptual Framework (paragraph QC19) identifies four enhancing qualitative characteristics:
Comparability
Verifiability
Timeliness
Understandability.
These characteristics are complementary to the fundamental characteristics. The enhancing characteristics distinguish more useful information from less useful information. In relation to these enhancing qualities, note:
Comparability is the quality of information that enables users to identify similarities in and differences between two sets of economic phenomena. Making decisions about one entity may be enhanced if comparable information is available about similar entities; for example, if profit per share is calculated using the same accounting policies.
Verifiability is a quality of information that helps assure users that information faithfully represents the economic phenomena that it purports to represent. Verifiability is achieved if different independent observers could reach the same general conclusions that the information represents the economic phenomena or that a particular recognition or measurement model has been appropriately applied.
Timeliness means having information available to decision makers before it loses its capacity to influence decisions. If such capacity is lost, then the information loses its relevance. Information may continue to be timely after it has been initially provided, for example, in trend analysis.
Understandability is the quality of information that enables users to comprehend its meaning. Information may be more understandable if it is classified, characterised and presented clearly and concisely. Users of financial statements are assumed to have a reasonable knowledge of business and economic activities and to be able to read a financial report.
The four enhancing qualitative characteristics are comparability, verifiability, timeliness, and understandability. Comparability makes information much more relevant because it allows stakeholders to compare information about an entity from year to year or among entities. Verifiability increases representational faithfulness because if information can be confirmed it’s more likely to reflect the underlying economic activity of the entity (assuming the information is relevant). Timeliness makes information more relevant because current information will be more useful for decision-making (assuming it’s representationally faithful). Understandability makes financial information more relevant because information is useless unless it can be understood. When a stakeholder understands financial information it can influence her decisions.
2)please see the attached file.
3)Statement of profit and loss and other comprehensive income for year ended 31 December, 2019 and statment of financial position as at 31 December, 2019 is prepared along with detailed working and journal entry.
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