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Chapter 2: Q.2-11FRS (page 76)
Question: What two assumptions are central to the IASB conceptual framework?
Answer
Accrual basis and going concern are the two assumptions.
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Briefly describe the fair value hierarchy.
Question: Wal-Mart Stores, Inc.
Wal-Mart Stores, Inc. provided the following disclosure in a recent annual report.
New accounting pronouncement (partial) . . . the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101—“Revenue Recognition in Financial Statements” (SAB 101). This SAB deals with various revenue recognition issues, several of which are common within the retail industry. As a result of the issuance of this SAB . . . the Company is currently evaluating the effects of the SAB on its method of recognizing revenues related to layaway sales and will make any accounting method changes necessary during the first quarter of [next year].
In response to SAB 101, Wal-Mart changed its revenue recognition policy for layaway transactions, in which Wal-Mart sets aside merchandise for customers who make partial payment. Before the change, Wal-Mart recognized all revenue on the sale at the time of the layaway. After the change, Wal-Mart does not recognize revenue until customers satisfy all payment obligations and take possession of the merchandise.
Instructions
(a) Discuss the expected effect on income (1) in the year that Wal-Mart makes the changes in its revenue recognition policy, and (2) in the years following the change.
(b) Evaluate the extent to which Wal-Mart’s previous revenue policy was consistent with the revenue recognition principle.
(c) If all retailers had used a revenue recognition policy similar to Wal-Mart’s before the change, are there any concerns with respect to the qualitative characteristic of comparability? Explain.
Question: What are some of the costs of providing accounting information? What are some of the benefits of accounting information? Describe the cost-benefit factors that should be considered when new accounting standards are being proposed.
Identify which basic principle of accounting is best described in each item below.(a) Norfolk Southern Corporation reports revenue in its income statement when the performance obligation is satisfied instead of when the cash is collected.(b) Yahoo! recognizes depreciation expense for a machine over the 2-year period during which that machine helps the company earn revenue.(c) Oracle Corporation reports information about pending lawsuits in the notes to its financial statements.(d) Gap, Inc. reports land on its balance sheet at the amount paid to acquire it, even though the estimated fair value is greater.
Identify which basic assumption of accounting is best described in each item below.
a)The economic activities of FedEx Corporation are divided into 12-month periods for the purpose of issuing annual reports.
b)Solectron Corporation, Inc. does not adjust amounts in its financial statements for the effects of inflation.
c)Walgreen Co. reports current and non-current classifications in its balance sheet.
d)The economic activities of General Electric and its subsidiaries are merged for accounting and reporting purposes.
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