Chapter 5 Example 1 Answer

I think if you look on pages 150 and 151 of the course notes you’ll find the answer there!

Hope that helps!

You’re welcome 🙂

It’s all explained within the lectures – but I can’t remember which ones!

“Penumbra” is a word that has its root in the same Latin (?) word “umbra” meaning shade – that also gives its root to the word umbrella

The concept of “true and fair” is not a clearly definable concept – it’s not black and white, yes or no, positive or negative.

Within the concept of true and fair lie areas on the boundaries that are grey (or shady) and they are the penumbral areas.

With the issue of each new accounting standard, these grey areas are steadily resolved into definitive lines of yes / no, black / white, positive / negative

The word “divergent” is probably best explained by explaining first the word “converge” which is the opposite of diverge. When two rivers meet and join up to become a bigger river, it can be said that the two have converged – that is, they have joined together to become one

To diverge is the opposite – it means to separate or to go separate ways. Thus in the context of accounting treatments, without a standard that literally standardises the treatment of particular situations, two different accountants could well treat the matter in different ways thus reducing comparability and consistency

Thus we can see that the issue of each successive standard (be it IFRS or the UK equivalent) reduces the penumbral areas of divergent possibilities

OK?

You’re welcome