Question

In: Accounting

(i) Explain five (5) qualitative characteristics of IFRS that is used to prepare financial statements to...

(i) Explain five (5) qualitative characteristics of IFRS that is used to prepare financial statements to your colleagues at the meeting.
(ii) Explain the difference between profit and profitability.
(iii) Explain the concept of going concern and the implication of revocation of going concern assumption when financial statements are prepared.

Solutions

Expert Solution

ANSWER ( i ) :- QUALITATIVE CHARACTERISTICS OF IFRS

1 Relevance

2 Comparability

3 Consistancy

4 Timeliness

5 Understandability

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ANSWER ( ii ) :- PROFITS & PROFITABILITY

Profits is the diffrence between sales and cost of sales. It is the final results of the business transactions carried on over the accounting period. It is a absolute term.

Profitability is the reletive term and expressed as a percentage of sales. Profit has no meaning in comparing the financial results over the periods and financial results of different company in the same industry. It is the profitability which do the work of comparision.

ANSWER ( iii ) :- GOING CONCERN CONCEPT

Accounting system assumes that the the business entity will continue to exist indefinetely, it will not be dissolved in near future unless there is a clear evidence to the contrary. The concept of going concern has important implications for accounting procedures as It facilitates to defer costs such as prepaid expenses, undepriciated assets, stock at end to be charged against the revenue of the future period.

In the absense of this concept, the accountant will have to value,everytime he prepare annual financial statements, what business is currently worth to a buyer.

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