1. What are assets, liabilities, and equity? Define each. 2. How does the IFRS b
ID: 2481262 • Letter: 1
Question
1. What are assets, liabilities, and equity? Define each.
2. How does the IFRS balance sheet equation differ from the one used in the United States?
3. What are revenues and expenses? Define each.
4. What are recognition, derecognition, and measurement? Define each and explain how they relate to each other.
5. List the two sections that all proposed financial statements should contain
6. Off-Shore Jewelry, Inc. is a relatively small but fast-growing U.S.-based private com-pany. It designs, manufactures, and distributes fine jewelry in the United States. To reduce costs, it has manufacturing facilities in several countries, including Malaysia and Mexico. Off-Shore Jewelry, Inc. also maintains relations with global banks and has considered a merger with a large jewelry company in Europe. A member of the Audit Committee of the company’s Board of Directors has asked you, as CFO of the company, to report to the board on whether the company should adopt IFRS. Develop a recommendation to the board; include reasons to support your recommendation and discuss possible downsides.
Explanation / Answer
1. Assets represents those which yield economic benefits to the entity either in short term or in long term. Liailities represents the financial obligation being faced by the company which needs to be met either in short term or long term Equity represents the amount of funds contributed by Equity share holders and the accumulated profits/losses of the entity as on the reporting date.
2. In IFRS, entities present the current and non current assets and current and non current liabilities as a seperate classification in Balance sheet. In US GAAP, generally the balance sheet is presented as total assets and total liabilties and shareholders' equity
3. Revenues represents the income that is earned by the business during a specific period . Expenses represents the cost that is incurred by the entity during the specifc period.
4. An entity recognises an item in its books if it is likelythat economic benefits would flow to the entity from that item and the item has some cost or value which can be meaured reliably. An entity derecognises an item, if the item no longer expected to bring economic benefits for the entity . In other words, an asset or liability gets derecognised if it no longer meets the recognition criterias. Measurement represents the processs to be adopted to assess the value of the item whicsh is getting recognised.
5 Income statement and statement of financial position
.6. if an entity has operations across several countries and is looking for merging with an europe based entitiy then it is important to adopt IFRS as this gives the global investors the standard way of understanding and interpreting the financial statements.
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