Chapter 1 Conceptual Framework and Financial Statements

Chapter 1 Conceptual Framework and Financial Statements Conceptual Framework and Financial Statements Short Exercises (10 min.) S 1-1 a.Corporation and Limited-liability partnership (LLP). If any of these businesses fails and cannot pay its liabilities, creditors cannot force the owners to pay the business’s debts from the owners’ personal assets.b.Proprietorship. There is a single owner of the business, so the owner is answerable to no other owner.c.Partnership. If the partnership fails and cannot pay its liabilities, creditors can force the partners to pay the business’s debts from their personal assets. A partnership affords more protection for creditors than a proprietorship because there are two or more owners to share this liability.Financial Accounting IFRS 12e (Global Edition) Walter Harrison, Themin Suwardy, Charles Horngren, Wendy Tietz, William Thomas (Solutions Manual All Chapters, 100% Original Verified, A+ Grade) Chapter 1 1 / 4

Financial Accounting: IFRS 12/e Solutions Manual

(5 min.) S 1-2

• Assets are the economic resources of a business that are

expected to produce a benefit in the future.Owners’ equity represents the insider claims of a business, the owners’ interest in its assets.Assets and owners’ equity differ in that assets are resources and owners’ equity is a claim to assets.Assets must be at least as large as owners’ equity, so equity can be smaller than assets.

• Both liabilities and owners’ equity are claims to assets.

Liabilities are the outsider claims to the assets of a business; they are obligations to pay creditors.Owners’ equity represents the insider claims to the assets of the business; they are the owners’ residual interest in its assets after claims from its creditors.

(5-10 min.) S 1-3

• Cash and cash equivalents A g. Accounts payable L

• Long-Term investment A h. Share capital E
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Chapter 1 Conceptual Framework and Financial Statements

• Income tax payables L i. Short term bank borrowings L

• Notes payable L j. Retained earnings E

• Wages payable L k. Buildings A

• Trademarks A l. Prepaid expenses A

(5 min.) S 1-4

• Assets and liabilities
• Equity

(5 min.) S 1-5

• The entity assumption applies.
• Application of the entity assumption will separate Newman’s

personal assets from the assets of Quality Food Brands. This will help Newman, investors, and lenders know how much in assets the business controls, and this knowledge will help all parties evaluate the business realistically.

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Financial Accounting: IFRS 12/e Solutions Manual

(5-10 min.) S 1-6

• Going concern assumption
• Accrual accounting assumption, relevance characteristic
• Comparability characteristic
• Accrual accounting assumption

(5 min.) S 1-7

Computed amounts in boxes

Total Assets = Total Liabilities + Shareholders’ Equity

• $211,000 = $50,200 + $160,800

• 270,000 = 50,290 + 219,710

• 172,800 = 96,000 + 76,800

(5 min.) S 1-8

• Owners’ Equity = Assets − Liabilities

This way of determining the amount of owners’ equity applies to any company, your household, or a single Burger King outlet.

• Liabilities = Assets − Owners’ Equity

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