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Terms & faithful presentation

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FR Exams › Terms & faithful presentation

  • This topic has 1 reply, 2 voices, and was last updated 1 year ago by P2-D2.
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  • July 11, 2021 at 11:59 am #627436
    nguyentran78921
    Member
    • Topics: 14
    • Replies: 1
    • ☆

    Q1: Technical terms in IFRS 5 and Kaplan Study Text
    Is “Statement of comprehensive income” completely the same as “Statement of profit or loss”? Why?

    If they are different from each other by any means, why does Kaplan writers decide to paraphrase the former term from original IFRS 5 to the latter term in their books?

    Thanks ./

    Q2: “faithful representation”
    Which of the following is an example of following the principle of faithful representation?
    A. Showing lease payments as a rental expense
    B. Being prudent by recording the entire amount of a convertible loan as a liability
    C. Creating a provision for staff relocation costs as part of a planned restructuring
    D. Recording a sale and repurchase transaction with a bank as a loan rather than a sale

    Ans: D

    The answer explains:
    Faithful representation means presenting transactions according to their economic substance rather than their legal form. Items A to C all represent incorrect accounting treatments, and item D reflects that a sale and repurchase agreement with a bank is likely to represent a secured loan rather than a sale.

    With this questions, I made a guess and luckily it was right. But I do not understand clearly how item A to C is incorrect, while D is correct. I do not know the accounting entries for each of them either.

    Could you explain further? Thanks.

    July 14, 2021 at 8:29 pm #627757
    P2-D2
    Keymaster
    • Topics: 4
    • Replies: 6473
    • ☆☆☆☆☆

    Hi,

    1. The statement of comprehensive income contains the statement of profit or loss and the statement of other comprehensive income (revaluation gains). So, they are not completely the same.

    2. A, leases are shown as right of use assets and lease liabilities to show them faithfully. B, convertibles are shown via split accounting. C, staff relocation costs are not provided for.

    Thanks

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