Question Tag: Historical Cost

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  • 15 Marks

CR – May 2015 – L3 – Q6 – Ethical Issues in Corporate Reporting

Analyze the financial reporting needs and efficiency challenges of not-for-profit organizations, including asset valuation at cost vs. fair value.

NICE & DICE

NICE & DICE is a large charity located in Abuja and set up to provide support and assistance to disadvantaged people in major cities. Most of the charity’s income comes from members of the public through direct cash collections and regular monthly payments from donors. The other source of funding comes from government bodies who give grants to support specific projects that are recognized as being beneficial to the public good.

The charity publishes a detailed annual report. Performance is described largely in terms of an analysis of income received and the manner in which it has been spent. The trustees are concerned that this type of analysis does not really reflect the performance of the charity. They would like to report performance in terms of the work done rather than in terms of cash inflows and outflows. They want donors to appreciate how efficient the charity is.

The statement of financial position of the charity is a typical one for a large organization. NICE & DICE owns numerous properties in Abuja, some of which have been owned for many years. These are shown at historical cost less depreciation. The trustees do not wish to revalue the properties because this will create the impression that the charity is wealthy and that it does not require further financial support.

Required:
(a) Prepare a report to the trustees of Nice & Dice advising them on the reasons why specialized entities are required to publish detailed information about their activities. (5 Marks)
(b) Analyze the problems of quantifying and reporting the efficiency of not-for-profit organizations such as Nice & Dice. (5 Marks)
(c) Discuss the decision of the trustees to value its properties at cost less depreciation rather than at fair value. (5 Marks)

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  • 8 Marks

CR – May 2021 – L3 – Q4 – Fair Value Measurement (IFRS 13)

Evaluate fair value relevance versus historical cost and explain valuation techniques under IFRS 13.

a. Fair value is a market-based measurement, not an entity-specific measurement. It focuses on assets and liabilities and on the exit (selling) price. It also takes into account market conditions at the measurement date. In other words, fair value measurement looks at the amount for which the holders of an asset could sell it and the amount which the holder of a liability would have to pay to transfer it.

Required:

i. Discuss the view that fair value is a more relevant measure to use in corporate reporting than historical cost. (4 Marks)

ii. Discuss the valuation techniques in fair value measurement in accordance with IFRS 13. (4 Marks)

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  • 1 Marks

AAA – Nov 2012 – L3 – SA – Q4 – Regulatory Framework and Professional Standards

Identifying non-deficiencies of historical cost accounting in inflation periods.

The deficiencies of historical cost accounting during inflation EXCLUDE which of the following?
A. The Net Book Value of Fixed Assets is often substantially below their current value
B. The statement of financial position figure of stock reflects prices ruling at the date of purchase or manufacture rather than those current at the year end
C. Charges made in arriving at the profit do not reflect the current value of assets, which result in overstated profit in real terms
D. If the historical cost accounting profit were distributed in full, the level of operations would have to be curtailed
E. The understatement of profit and the overstatement of assets prevent meaningful calculations of profitability

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  • 14 Marks

FR – May 2021 – L2 – Q6b – Conceptual Framework for Financial Reporting

Analysis of qualitative characteristics application in specific financial reporting scenarios.

The following transactions and events took place in Jaye Investment Nigeria Limited during the year ended March 31, 2019.

(i) The company entered into a lease to rent an asset paying N150,000 a year for 5 years out of its useful economic life of 15 years. Assume a rate of interest implicit in the lease to be 10%. (6 Marks)

(ii) The company’s statement of profit or loss prepared using the historical cost method showed a loss from operating its hotels, but the company is aware that the increase in value of its properties during the year far outweigh the operating loss. (4 Marks)

(iii) A decision was made by Jaye Investment Nigeria Limited’s board of directors to change the company’s accounting policy from one of expensing the finance cost on building new retail outlets to one of capitalising such costs. (4 Marks)

Required:
Explain how you would treat the items in (i) to (iii) above in Jaye Investment Nigeria Limited’s financial statements and indicate on which of the qualitative characteristic framework your treatment is based.

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  • 1 Marks

FA – MAY 2015 – L1 – SA – Q14 – Accounting Concepts

Identify which option is not an accounting concept.

Which of the following is NOT an accounting concept?
A. Information
B. Historical cost
C. Consistency
D. Accrual
E. Going concern

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  • 4 Marks

FR – May 2017 – L2 – Q5d – Conceptual Framework for Financial Reporting

Explain the four bases of measurement used in financial statements.

The conceptual framework includes the measurement bases of the elements of the financial statements together with recognition criteria for them.

Required:
Explain the FOUR bases of measurement used in the financial statements.

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  • 9 Marks

PSAF – Nov 2020 – L2 – Q1c – General purpose financial reporting framework

This question discusses various measurement bases used in public sector financial reporting and their impact on reflecting the cost of service, operational capacity, and financial capacity.

According to the Conceptual Framework for General Purpose Financial Reports (GPFR), the objective of measurement in financial reporting in public sector entities is to select those measurement bases that most fairly reflect the cost of services, operational capacity, and financial capacity of the entity in a manner that is useful for accountability and decision-making purposes.

Required: Explain the under listed bases and discuss the extent to which each measurement reflects the cost of service, operational capacity, and financial capacity of an entity.

i) Historical cost

ii) Market Value

iii) Replacement cost

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  • 20 Marks

FA – Nov 2020 – L1 – Q1 – Accruals and prepayments | Bad and doubtful debt | The IASB’s Conceptual Framework

Question on various accounting principles and preparation of specific accounts related to rent, rates, bad debts, and doubtful debts.

a) Accounting principles and concepts are of fundamental importance in the preparation of financial statements.
Required:
With the aid of relevant examples, outline your understanding on any FOUR (4) of the following concepts/principles: i) Accruals
ii) Going Concern
iii) Historical Cost
iv) Materiality
v) Break up basis
(10 marks)

b) Patricia Ltd prepares accounts to 31 December each year. The following transactions relate to Rent and Rates: i) 31 December 2018 three months’ rent owing amounted to GH¢6,000.
ii) 31 December 2018 two months rates prepaid amounted to GH¢5,250.
iii) During the year 2019, cash paid for rent and rates amounted to GH¢90,000
iv) Rent owing as at 31 December 2019 amounts to GH¢9,000
v) Rates prepaid as at 31 December 2019 amounts to GH¢2,250
Required:
Prepare a combined rent and rates account to disclose the amount that is chargeable to the profit or loss account for the year ended 31 December, 2019.
(4 marks)

c) The following information was extracted from the books of Maanaa and Co.:

Year Bad debts written off (GH¢) Trade Receivables (GH¢) Allowance for doubtful debt (%)
1 200,000 1,200,000 10
2 300,000 1,800,000 5
3 100,000 3,000,000 5

Required:
Prepare the following accounts for the 3 years to determine the amount chargeable to the Profit or Loss account:
i) Bad debts written off account (2 marks)
ii) Allowance for doubtful debt account (4 marks)

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  • 15 Marks

CR – May 2015 – L3 – Q6 – Ethical Issues in Corporate Reporting

Analyze the financial reporting needs and efficiency challenges of not-for-profit organizations, including asset valuation at cost vs. fair value.

NICE & DICE

NICE & DICE is a large charity located in Abuja and set up to provide support and assistance to disadvantaged people in major cities. Most of the charity’s income comes from members of the public through direct cash collections and regular monthly payments from donors. The other source of funding comes from government bodies who give grants to support specific projects that are recognized as being beneficial to the public good.

The charity publishes a detailed annual report. Performance is described largely in terms of an analysis of income received and the manner in which it has been spent. The trustees are concerned that this type of analysis does not really reflect the performance of the charity. They would like to report performance in terms of the work done rather than in terms of cash inflows and outflows. They want donors to appreciate how efficient the charity is.

The statement of financial position of the charity is a typical one for a large organization. NICE & DICE owns numerous properties in Abuja, some of which have been owned for many years. These are shown at historical cost less depreciation. The trustees do not wish to revalue the properties because this will create the impression that the charity is wealthy and that it does not require further financial support.

Required:
(a) Prepare a report to the trustees of Nice & Dice advising them on the reasons why specialized entities are required to publish detailed information about their activities. (5 Marks)
(b) Analyze the problems of quantifying and reporting the efficiency of not-for-profit organizations such as Nice & Dice. (5 Marks)
(c) Discuss the decision of the trustees to value its properties at cost less depreciation rather than at fair value. (5 Marks)

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  • 8 Marks

CR – May 2021 – L3 – Q4 – Fair Value Measurement (IFRS 13)

Evaluate fair value relevance versus historical cost and explain valuation techniques under IFRS 13.

a. Fair value is a market-based measurement, not an entity-specific measurement. It focuses on assets and liabilities and on the exit (selling) price. It also takes into account market conditions at the measurement date. In other words, fair value measurement looks at the amount for which the holders of an asset could sell it and the amount which the holder of a liability would have to pay to transfer it.

Required:

i. Discuss the view that fair value is a more relevant measure to use in corporate reporting than historical cost. (4 Marks)

ii. Discuss the valuation techniques in fair value measurement in accordance with IFRS 13. (4 Marks)

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  • 1 Marks

AAA – Nov 2012 – L3 – SA – Q4 – Regulatory Framework and Professional Standards

Identifying non-deficiencies of historical cost accounting in inflation periods.

The deficiencies of historical cost accounting during inflation EXCLUDE which of the following?
A. The Net Book Value of Fixed Assets is often substantially below their current value
B. The statement of financial position figure of stock reflects prices ruling at the date of purchase or manufacture rather than those current at the year end
C. Charges made in arriving at the profit do not reflect the current value of assets, which result in overstated profit in real terms
D. If the historical cost accounting profit were distributed in full, the level of operations would have to be curtailed
E. The understatement of profit and the overstatement of assets prevent meaningful calculations of profitability

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  • 14 Marks

FR – May 2021 – L2 – Q6b – Conceptual Framework for Financial Reporting

Analysis of qualitative characteristics application in specific financial reporting scenarios.

The following transactions and events took place in Jaye Investment Nigeria Limited during the year ended March 31, 2019.

(i) The company entered into a lease to rent an asset paying N150,000 a year for 5 years out of its useful economic life of 15 years. Assume a rate of interest implicit in the lease to be 10%. (6 Marks)

(ii) The company’s statement of profit or loss prepared using the historical cost method showed a loss from operating its hotels, but the company is aware that the increase in value of its properties during the year far outweigh the operating loss. (4 Marks)

(iii) A decision was made by Jaye Investment Nigeria Limited’s board of directors to change the company’s accounting policy from one of expensing the finance cost on building new retail outlets to one of capitalising such costs. (4 Marks)

Required:
Explain how you would treat the items in (i) to (iii) above in Jaye Investment Nigeria Limited’s financial statements and indicate on which of the qualitative characteristic framework your treatment is based.

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  • 1 Marks

FA – MAY 2015 – L1 – SA – Q14 – Accounting Concepts

Identify which option is not an accounting concept.

Which of the following is NOT an accounting concept?
A. Information
B. Historical cost
C. Consistency
D. Accrual
E. Going concern

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  • 4 Marks

FR – May 2017 – L2 – Q5d – Conceptual Framework for Financial Reporting

Explain the four bases of measurement used in financial statements.

The conceptual framework includes the measurement bases of the elements of the financial statements together with recognition criteria for them.

Required:
Explain the FOUR bases of measurement used in the financial statements.

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  • 9 Marks

PSAF – Nov 2020 – L2 – Q1c – General purpose financial reporting framework

This question discusses various measurement bases used in public sector financial reporting and their impact on reflecting the cost of service, operational capacity, and financial capacity.

According to the Conceptual Framework for General Purpose Financial Reports (GPFR), the objective of measurement in financial reporting in public sector entities is to select those measurement bases that most fairly reflect the cost of services, operational capacity, and financial capacity of the entity in a manner that is useful for accountability and decision-making purposes.

Required: Explain the under listed bases and discuss the extent to which each measurement reflects the cost of service, operational capacity, and financial capacity of an entity.

i) Historical cost

ii) Market Value

iii) Replacement cost

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  • 20 Marks

FA – Nov 2020 – L1 – Q1 – Accruals and prepayments | Bad and doubtful debt | The IASB’s Conceptual Framework

Question on various accounting principles and preparation of specific accounts related to rent, rates, bad debts, and doubtful debts.

a) Accounting principles and concepts are of fundamental importance in the preparation of financial statements.
Required:
With the aid of relevant examples, outline your understanding on any FOUR (4) of the following concepts/principles: i) Accruals
ii) Going Concern
iii) Historical Cost
iv) Materiality
v) Break up basis
(10 marks)

b) Patricia Ltd prepares accounts to 31 December each year. The following transactions relate to Rent and Rates: i) 31 December 2018 three months’ rent owing amounted to GH¢6,000.
ii) 31 December 2018 two months rates prepaid amounted to GH¢5,250.
iii) During the year 2019, cash paid for rent and rates amounted to GH¢90,000
iv) Rent owing as at 31 December 2019 amounts to GH¢9,000
v) Rates prepaid as at 31 December 2019 amounts to GH¢2,250
Required:
Prepare a combined rent and rates account to disclose the amount that is chargeable to the profit or loss account for the year ended 31 December, 2019.
(4 marks)

c) The following information was extracted from the books of Maanaa and Co.:

Year Bad debts written off (GH¢) Trade Receivables (GH¢) Allowance for doubtful debt (%)
1 200,000 1,200,000 10
2 300,000 1,800,000 5
3 100,000 3,000,000 5

Required:
Prepare the following accounts for the 3 years to determine the amount chargeable to the Profit or Loss account:
i) Bad debts written off account (2 marks)
ii) Allowance for doubtful debt account (4 marks)

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