FINAL

FINAL
Financial AUDIT
DT
Reporting

PRACTICE
100 IMPORTANT
QUESTIONS
Conceptual Notes
QUESTIONS
CHAPTER 2
 Chapter 1: Framework for Preparation and Presentation of Financial
Statements

1. Framework: - Framework provides a road map and approach which will be considered
as a broad line within which all IND AS will be applied.
Note: - IND AS will prevail over this framework.
2. Users of financial statements –
 Investors:
 Employees:
 Lenders:
 Suppliers and other trade creditors:
 Customers:
 Governments and their agencies:
 Public:
3. Fundamental accounting assumption
 Going concern
 Consistency
 Accrual
4. Qualitative characteristics of FS
 Understand ability
 Relevance
 Materiality
 Reliability
 Faithful representation of all the information
 Substance over form
 Neutral – Free from over from personal bias
 Prudence
 Completeness

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  Comparability
5. Elements of FS
 Assets: An asset is a resource
 controlled by the entity as a result of past events and
 From which future economic benefits are expected to flow to the entity.
 Liability: A liability is
 present obligation of the entity arising from past events,
 The settlement of which is expected to result in an outflow from the entity of
resources embodying economic benefits.
 Equity: Equity is the residual interest in the assets of the entity after deducting all its
liabilities.
 Income: Income is
 increase in economic benefits during the accounting period
 in the form of
 inflows or enhancement of assets or
 decreases of liabilities
 that result in increases in equity
 Other than those relating to contributions from equity participants.
 Expense: Expense is defined as
 decrease in economic benefits during the accounting period
 in the form of
 outflows or depletions of assets or
 incurrence of liabilities
 that result in decrease in equity
 Other than those relating to distributions to equity participants.
6. Measurement of elements
 Historical cost
 Current Cost (Replacement Cost)
 Realisable value (Settlement)

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  Present value
7. Concept of capital: There are two ways of maintaining Capital:
 Financial capital maintenance
 Physical capital maintenance
Financial capital maintenance: - Financial profit will be calculated as under-
Closing capital Including Reserves & Surplus XXX
(Net asset as on the closing date)
Less: - Initial capital Contribution (Including Premium) XXX
Less: - Additional capital Contribution (Including Premium) XXX
Financial profit XXX
Physical capital maintenance –Physical profit will be calculated as under-
Closing capital Including Reserves & Surplus XXX
Less: Indexed Capital
(Initial + Additional Capital including premium) XXX
Physical profit XXX

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