Financial Statements

Financial Statements

Question No. 1

Identify four characteristics that an item must have before it is recognized in the financial statements. What are these 4 characteristics? Discuss its classification in the financial statements.

The four fundamental characteristics of financial statement are as follows:

First fundamental element of financial statement is that all the items given in the financial statements in the form of elements must be categorized in equity, liability, or as an asset (Albrecht & James, 2010).

Secondly, all these elements must be classified in quantitative terms that will make them measureable (Albrecht & James, 2010). This quantitative classification is used to quantify the value of these elements in monetary terms that enhance the reliability of components.

Thirdly fundamental element of financial statement is that it is essential to note that elements that are being listed in the financial statements are relevant to the type of financial statements (Kimmel & Jerry, 2010). Additionally, elements listed in the financial statement must have an impact in creating the difference to the credit decision or investment.

Fourth key characteristic is that items of financial statements must be reliable in terms of accuracy, validated characteristic and verifiable properties (Kimmel & Jerry, 2010).

b. What is IFRS argument with these 4 characteristics and classification in the financial statements.

IFRS classify the above mentioned financial statements elements under the below mentioned list:

Cash and cash equivalents

Accounts and trade receivables

Inventories and Stocks

Marketable Securities

Intangible assets

Fixed assets;

Properties and Investments

Investments made using equity-method accounting

Financial assets

Financial liabilities

Short-term payables and other payables;

Provisions;

Assets and liabilities for taxation that are presented under IAS 12 section code

Deferred tax assets management and liabilities

Interest within equity, and

Equity reserves and issued capital (an element to represent ownership of equity holders) (Mitchell, 2010)

IFRSs set out the requirements for recognition, measurement and disclosure requirements for transactions and other events of a specific nature. IFRS 5 method states that total assets including non-current assets that are hold for sale and assets included in discontinued operations must also be classified as assets held for sale (Kimmel & Jerry, 2010). IFRS Article 34 of Decree 2649 highlights that financial statement items are assets, equity, liabilities, expenses, costs, and revenues. This rule weighs up as an element of financial statements to the restatement. However, adjustments for the inflation are eliminated that are not founded in the financial statements under any item that result in reporting monetary (nominal) value of the items. The financial statements must be prepared in accordance with generally accepted accounting principles as defined by the accounting standards, doctrine, and conceptual framework (Albrecht & James, 2010).

The financial statements should release comprehensible and helpful in decision-making. Therefore, financial statements should contain notes for the items listed to the financial statements that present the characteristic explanation for the calculation and reporting structure.

With respect to monetary values appearance, currencies in which financial statements are expressed are retrospectively a presentation of nominal value (Mitchell, 2010). The presentation of rounded figures is accepted as the relative importance is respected. IFRS standard highlights that for the items information to be useful, ...