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DipIFRS ACCA course - IAS1 The objective of financial reporting No.5

DipIFRS ACCA course - IAS1 The objective of financial reporting No.5


Economic resources and claims:

Information about the nature and amounts of economic resources and the claims of the reporting entity helps users assess:
1. An entity's financial strengths.
2. An entity's financial weaknesses


To assess both:

1. Liquidity.
2. Solvency.
3. its needs to get financing.
4. Its ability to get financing.


Help information regarding:


1. Claims.
2. Payment requirements.

Users to predict how future cash flows will be distributed among those who have a claim in the reporting facility
In other words (predict how future cash flows will be distributed among those with a claim on the reporting entity).

Both are reported:


1. Economic resources.
2. Economic claims.

The entity submitting the reports on the statement of financial position.


Changes in economic resources and claims:


Changes in the economic resources of the entity that submits reports and claims result from the performance of that entity and from other events or transactions such as:
1. Issuance of Debt instruments, such as bonds.
2. Issuance of Equity issues, such as stocks.
Users need to be able to distinguish between these two changes


Financial performance reflected by accrual accounting:


Information related to the entity's financial performance during a period that represents changes in economic resources and claims other than those obtained directly from:
1. Investors.
2. creditors
Useful in assessing an entity's ability in the past and future to generate net cash inflows
This information may also indicate the extent to which general economic events have changed the entity's ability to generate future cash flows.
Changes to the entity's economic resources and claims are shown on the statement of comprehensive income.
The statement of comprehensive income refers to the list that contains details of the income, gain, expenses, or loss of the company that have not been realized when the company prepares the financial statements for the accounting period and it is presented after the net income in the company's income statement.




Financial performance reflected by past cash flows:


Information regarding the entity's cash flows during the reporting period also helps users to:
1. Evaluating the facility's ability to generate net cash inflows in the future
2. The assessment of management's supervision of the establishment's economic resources.
This information refers to how the entity obtains and spends the cash, including information related to:
1. Borrowing.
2. A repayment of debt.
3. Cash dividends to shareholders.
And so on.

Changes in the entity’s cash flows are shown in the statement of cash flows.


Changes in economic resources and claims not resulting from financial performance:
Information related to the changes in the entity's economic resources and the claims resulting from
Events and transactions other than financial performance
 
such as:
1. Issue of equity instruments.
2. Distributions of cash or other assets to shareholders.
Resources and claims are necessary to complete the picture of the total change in the enterprise's economic activity.
Changes in the entity's economic resources and claims that are not resulting from financial performance are presented In a statement of changes in equity.


Information about use of the entity’s economic resources:


Information regarding the use of the entity's economic resources also indicates the extent to which:
1. Efficiently.
2. Effectively.
Managing the facility that reports on the use of these resources and supervising them.
This information is also useful for predicting the efficiency and effectiveness of management in using the entity’s economic resources in future periods. Hence what are the probabilities of future net cash flows.



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