Please answer the True/False questions below to the best of your knowledge. Under IFRS, a company may classify expenses by function, but must also disclose the classification of expenses by nature. Although the presentation formats for the balance sheet and statement of cash flows are similar under IFRS and U.S. GAAP, IFRS requires far more extensive disclosure. One significant difference between a balance sheet prepared using IFRS rather than U.S. GAAP is that long-term tangible assets may be reported at fair value rather than historical cost.
Reporting Cash Flows
Reporting of cash flows means a statement of cash flow which is a financial statement. A cash flow statement is prepared by gathering all the data regarding inflows and outflows of a company. The cash flow statement includes cash inflows and outflows from various activities such as operating, financing, and investment. Reporting this statement is important because it is the main financial statement of the company.
Balance Sheet
A balance sheet is an integral part of the set of financial statements of an organization that reports the assets, liabilities, equity (shareholding) capital, other short and long-term debts, along with other related items. A balance sheet is one of the most critical measures of the financial performance and position of the company, and as the name suggests, the statement must balance the assets against the liabilities and equity. The assets are what the company owns, and the liabilities represent what the company owes. Equity represents the amount invested in the business, either by the promoters of the company or by external shareholders. The total assets must match total liabilities plus equity.
Financial Statements
Financial statements are written records of an organization which provide a true and real picture of business activities. It shows the financial position and the operating performance of the company. It is prepared at the end of every financial cycle. It includes three main components that are balance sheet, income statement and cash flow statement.
Owner's Capital
Before we begin to understand what Owner’s capital is and what Equity financing is to an organization, it is important to understand some basic accounting terminologies. A double-entry bookkeeping system Normal account balances are those which are expected to have either a debit balance or a credit balance, depending on the nature of the account. An asset account will have a debit balance as normal balance because an asset is a debit account. Similarly, a liability account will have the normal balance as a credit balance because it is amount owed, representing a credit account. Equity is also said to have a credit balance as its normal balance. However, sometimes the normal balances may be reversed, often due to incorrect journal or posting entries or other accounting/ clerical errors.
Please answer the True/False questions below to the best of your knowledge.
- Under IFRS, a company may classify expenses by function, but must also disclose the classification of expenses by nature.
- Although the presentation formats for the
balance sheet and statement ofcash flows are similar under IFRS and U.S. GAAP, IFRS requires far more extensive disclosure. - One significant difference between a balance sheet prepared using IFRS rather than U.S. GAAP is that long-term tangible assets may be reported at fair value rather than historical cost.
- Both IFRS and U.S. GAAP require that specific items be reported on the balance sheet.
- Both IFRS and U.S. GAAP require current assets to be listed first on the balance sheet.
- IFRS does not intend to issue detailed guidance on the selection of a discount rate when the time value of money is required to determine cash flows.
- Under IAS 37 and the establishment of estimate provisions, discounting is required where the time value of money is material.
- Under IFRS, the rate implicit in the lease is generally used to discount minimum lease
- Under IFRS, the discount rate should reflect risks for which future cash flow estimates have been adjusted.
- Under IFRS, if an estimate is being developed for a large number of items with varied outcomes, then the expected value method is used.
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