Essays on The Conceptual Framework Assignment

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The paper 'The Conceptual Framework' is a perfect example of a financial and accounting assignment. The conceptual framework defines an expense as possible decreases in the underlying economic benefits that occur in the course of a given accounting period in relation to both outflows or even depletions of a given set of assets. or thereby incurrence of liabilities, which might arise as a result of a decrease in equity; but not ones that are linked to the distributions of equity participants (IAS, 2010). In this regard, the additional factory by ABC Company is perceived as an expense since the decision to actualize it will likely result in the incurrence of liability- the provision for future expansion.

It has also met the definition threshold since it is expected to decrease the future, precisely five years, underlying economic benefits of ABC Company. Recognition of an ExpenseThe conceptual framework ascertains that the recognition of any given item within the balance sheet or income statement should be effected in the case that there is a probability that any possible future economics attributed to it will either flow in or out of a company (IAS, 2010).

It should also be recognized in the event that the underlying item's immediate cost or value can be subjected to reliable measurements (IAS, 2010). In essence, it notes that expenses will be recognized in the event that resultant decrease in the future economic benefits that are associated with a decrease in the asset, which for this case is represented by cash and cash equivalents amounting to $500,000, or whenever the resultant increase in the level of liability, which for the case at hand is manifested by the provision for future expansion, is measured reliably.

Both of the situations can be measured reliably by the proposed $500,000- which is represented by $100,000 being incurred on an annual basis. The conceptual framework indicates that in recognizing a preference share; a company should specify the exact amount or even the rate of change in the underlying amounts that it is mandated to use in settling claims (IAS, 2010). These claims are not mandatorily required to be liquidated prior to the entire liquidation process has been triggered. For the case at hand, these preferences are more like a liability as they have immense features only perceived with most debt instruments.

For instance, the issuer, who for this case is ABC Company, has the sole right to call these shares within the specified period; three years through a buy-back plan. It is important to note that this ability to buy-back the preference shares after the lapse of the three years fairly represents the repayment of principal amounts (Kieso, Weygandt & Warfield, 2006). Subsequently, the guaranteed dividends of 3 percent that can be back-paid in future periods in case the entity failed to make a profit in the existing year of operations are fairly similar to it paying interest rates (Kieso, Weygandt & Warfield, 2006). The exposure provides that measurement portrays a significant process related to the quantification, on a monetary basis, possible amounts of information that relates to a company’ s immediate assets, liabilities, equity, income, and expenses (IASB, 2015).

It ascertains that a measurement basis portrays a fairly identified feature of a given item that is under measurement process can be focused on such bases as historical cost, fair, or even possible fulfillment values.

The consideration for the goals related to financial reporting; qualitative attributes of useful financial information as well as the cost constraint will likely result in the adoption of a distinctive set of measurement platforms for different categories of assets; liabilities as well as items related to income and expenses.

References

IASB. 2015. Exposure Draft: Conceptual Framework for Financial Reporting. Retrieved on May 3, 2016 from http://www.ifrs.org/Current-Projects/IASB-Projects/Conceptual-Framework/Documents/May%202015/ED_CF_MAY%202015.pdf

IAS. 2010. Conceptual Framework for Financial Reporting 2010. Retrived on May 3, 2016 from http://www.iasplus.com/en/standards/other/framework

Kieso, D, E, Weygandt, J, J & Warfield T, D. 2006. Intermediate Accounting: IFRS Edition, John Wiley & Sons Publishers, vol.1, pg.666

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