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Intermediate Accounting Vol 1 Canadian 3rd Edition Lo Fisher 0134145054 9780134145051 Solution Manual
Intermediate Accounting Vol 1 Canadian 3rd Edition Lo Fisher 0134145054 9780134145051 Solution Manual
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Chapter 2
Conceptual Frameworks for Financial Reporting
K. Problems
Three reasons for having a conceptual framework for accounting standards include
the following:
1. The framework helps to organize the numerous concepts that financial
statement preparers and users have found to be important.
2. The framework provides general guidance for standard setters when they deliberate
new standards or changes to existing standards.
3. The framework helps financial statement preparers to choose among
accounting alternatives when such alternatives exist.
Qualitative
Concept characteristics Assumption Constraint
a. Understandability
b. Going concern
c. Relevance
d. Benefits vs. costs
e. Verifiability
f. Representational faithfulness
g. Comparability
h. Financial capital maintenance
Representational
Concept faithfulness Recognition Measurement
a. Current cost
b. Completeness
c. Historical cost
d. Revenue recognition
e. Probable and measurable future
flows of resources
f. Neutrality
g. Present value
h. Realizable value
An asset is:
– a resource controlled by an entity
– as a result of past events, and
– from which future economic benefits are expected to flow to the entity.
A liability is:
– a present obligation of the entity,
– arising from past events,
– the settlement of which is expected to result in an outflow from the entity of economic
resources embodying economic benefits.
* Equity is defined as assets net of liabilities. It is not independently defined because the
balance sheet and double-entry bookkeeping requires A = L + E.
* Income involves increases in equity (other than from capital transactions with owners).
Since equity is defined in terms of assets and liabilities, income ultimately involves
increases in assets or decreases in liabilities.
* Expenses involve decreases in equity (other than from capital transactions with owners).
Since equity is defined in terms of assets and liabilities, expenses ultimately involve
decreases in assets or increases in liabilities.
Reasons for the lack of general acceptance of the current cost accounting model include:
Cost and benefits constraint: The cost to collect current cost information and to prepare current
cost financial statements outweighs the likely benefits. Developing a system to produce current
cost information for firms’ assets and liabilities on an ongoing basis is an expensive
undertaking. Auditors will also need to develop methods to independently verify the current cost
data, which also entails substantial costs.
Understandability: Current cost arguably provides better information to users for decision
making, in particular regarding the maintenance of physical capital. However, the complexity
of the calculations and even the principle of current cost are difficult to understand, such that
only the very sophisticated reader will be able to understand the financial statements. This lack
of understanding could be so significant as to render the information useless, or at least
significantly impair the benefits of having such information.
Predictive value: Virtually all prediction models involve extrapolation from past patterns.
Historical cost accounting reflects the past and is verifiable, providing a solid base for
trend analysis.
Articulation: Historical cost accounting produces internally consistent data that are
articulated among the financial statements. Current cost accounting information is not
necessarily articulated.
THE MAKONDÉ.
When this work was published, the celebrated explorer, Dr. David
Livingstone, who had done so much in opening to the civilized world the
great continent of Africa, had disappeared in its interior. In the beginning
of 1866 he started from Zanzibar, on the East Coast, on that journey
which at length terminated with his life in the village of Ilala, in April,
1873. By the providential preservation of his journal we are favored with
the results of his explorations, and learn of the tribes and peoples whom
he visited, and has described with so truthful and fascinating a pen.
No inconsiderable portion of this work is derived from the travels of
Dr. Livingstone. It seems important, therefore, that his contribution to a
knowledge of the uncivilized races, made since this work was issued,
should, so far as our space will permit, be appended to it.
In March, 1866, Dr. Livingstone, having left Zanzibar, arrived in
Mikindany Bay, which is about twenty-five miles north of the Rovuma
River. Starting from Pemba, on the north side of the bay, April 4th, he
entered the country of the Makondé.
The path lay in a valley with well-wooded heights on each side; and
with the tall grass towering over the head, and now and then a jungle to
be cleared, and no air stirring, the entrance upon his seven years’
journeying was difficult and oppressive.
In passing through the jungles, though they offered no obstruction to
foot-passengers, it was necessary to heighten and widen the paths for the
tall camels. The Makondé of the village were very willing to aid
Livingstone in this work, as wood-cutters or carriers. He organized a
party of about ten jolly young men, paying each a yard of calico per day.
Being accustomed to make clearing-places for their gardens, they
worked with a will. They were perfectly satisfied with their small
compensation. Using tomahawks, climbing and young trees disappeared
before their steady and vigorous blows like clouds before the sun. This
work, however, told upon them in two or three days. The tallest men
became exhausted soonest. Not being a meat-eating people, except one is
fortunate enough to kill a wild hog or antelope, their physical strength
was not equal to any prolonged demand for hard work. They will not eat
the flesh of beasts like that of the leopard and lion, which is readily eaten
by other tribes, and the reason they give is, that these animals devour
men. Such a fact refutes the allegation that this tribe are guilty of
cannibalism.
In the open spaces were cleared gardens for maize, cassava, and
sorghum. The soil being very fertile and with no rocks, very heavy crops
of these products are obtained. The cassava bushes grow to the height of
six or seven feet. Food is very plenty and cheap. Just before
Livingstone’s visit, they had been ravaged by the Mazitu, who had
carried away many of their people as slaves. The Mehambwé, a branch
of the Makondé tribe, had also three months before been invaded, and
robbed of all their food, so that they were obliged to send in every
direction for provisions.
The Makondé have been very greatly diminished in numbers since the
slave trade was introduced, one village making war upon another,
kidnapping as many as possible to sell them to the Arab slave-dealers.
They ascribe diseases and death to witches, and when one of a village
dies, the whole population move off, saying “That is a bad spot.” They
pray to their mothers when dying or overtaken by any disaster.
Livingstone’s Somalie guide, Ben Ali, represented that they had no idea
of a deity or a future state, and believe in nothing but medicine. All the
head men of the villages pretend to be or are really doctors. Livingstone,
however, discovered some consciousness of the existence of a God. They
get large quantities of the gum-copal, which attracts the coast Arabs as
an article of commerce. The people have the belief that in the vicinity of
the kumbé, or gum-copal trees, the more ancient trees stood and must
have dropped their gum upon the ground. They therefore dig for it, and
will give as a reason for want of success at any time, “In digging, none
may be found one day, but Mulungu (God) may give it to us on the
next.”
Bhang, which is a species of hemp, is not smoked, but only tobacco.
They raise no sheep or goats, but only fowls, pigeons, and ducks. Honey
is so abundant that a gallon-pot and four fowls were given for two yards
of calico. One of their modes of salutation is to catch each others’ hands
and say, “Ai! ai!” but the more common custom is to take hold of the
right hand and say, “Marhaba” (welcome).
The Makondé are all independent of each other, and have no
paramount chief. Their physical characteristics are well-formed limbs
and body, small hands and feet, medium height, and manly bearing.
Their lips are full but not excessively thick; their foreheads are compact,
narrow, and low; the alæ nasi are expanded laterally.
THE WAIYAU.