FAC Session 2 Conceptual Framework Part 1

BCompt
Financial Accounting, I
Facilitator: Ms Lerato Lechoano

E m a i l : l e r a t o l @ r e g e n e s ys . n e t
February 2024
Conceptual Framework Part 1 Focus Areas
1 Introduction
2 Underlying Assumptions
3 Qualitative Characteristics of Useful Financial Information
4 The Elements of Financial Statements
5 Relationship between the Elements
2
Introduction
“The conceptual framework for financial reporting describes the objective of, and the concepts for general purpose
financial reporting.” The Conceptual Framework 2018
The Framework is not a Standard
3
Introduction
Chapter 2
Chapter 1 Chapter 3
Qualitative Chapter 4
The Objective of Financial Statements
Characteristics of The Elements of
General-Purpose and The Reporting
Useful Financial Financial Statements
Financial Reporting Entity
Information
Chapter 8
Chapter 5 Chapter 7 Concepts of Capital
Chapter 6 and Capital
Recognition and Presentation and
Measurement Maintenance
Derecognition Disclosure
4
Underlying Assumption
Accrual Basis of Accounting = Going Concern Assumption =

Earned and Incurred Continue tor foreseeable future
5
6
Qualitative Characteristics of Useful information
Fundamental Characteristics Enhancing Characteristics
Comparability
Relevance Verifiability
Faithful Representation Timeliness
Understandability
7
Elements of Financial Statements
Element Definition
Assets A present economic resource controlled by the entity as a result of past
events.
An economic resource is a right that has the potential to produce
economic benefits.
Liabilities A present obligation of the entity to transfer an economic resource as a result of
past events.
Equity The residual interest in the assets of the entity after deducting all its liabilities.
Income Increases in assets, or decreases in liabilities, that result in increases in equity,

other than those relating to contributions from holders of equity claims.
Expenses Decreases in assets, or increases in liabilities, that result in decreases in equity,

other than those relating to distributions to holders.
8
Recognition Criteria
Once the definition of as element is met, for the element to be

recognised in the financial statements it should meet the
recognition criteria. Paragraph 4.37 and 4.38 of the conceptual
framework:
It is probable that any future economic benefit associated with

the item will flow to or from the entity; and
The item’s cost or value can be measured with reliability.
9
Class Activity
Roberto Traders, operates in the mobile phone industry.

The entity buys cell phones to resell at a profit.
Required:
1. Analyse the transaction by identifying the element of financial statement ()

2. How would you recognise the
10
Roberto Traders, operates in the mobile phone industry. The entity buys cell phones to resell at a profit.
The cell phones purchased by Roberto Traders meet the recognition criteria of an asset. Here's why:
1.Control: Roberto Traders has control over the cell phones once they are purchased. They can decide how to use them and
when to sell them.
2.Future economic benefits: The cell phones are expected to generate future economic benefits for Roberto Traders through
their resale at a profit. This expectation of earning revenue from the sale of the cell phones fulfills the criteria of an asset.
3.Reliable measurement: The cost of acquiring the cell phones can be reliably measured. It includes the purchase price of the
cell phones along with any other costs incurred to get them ready for resale, such as shipping or handling fees.
4.Probable inflow of economic benefits: There is a high likelihood that Roberto Traders will receive inflows of economic
benefits in the form of revenue from the sale of the cell phones. This satisfies the criterion of probable inflow of economic
benefits associated with an asset.
Therefore, the cell phones purchased by Roberto Traders to resell at a profit meet the recognition criteria of an asset and
should be recognized on their financial statements, typically on the balance sheet under inventory or current assets.
11
Class Discussion
Marrow Pty Ltd has a financial year end of 28 February 20X3 The following transactions took place:
1. On 16 January 20X3 the company purchased inventory on credit worth R 55 000. The payment of these occurred
on 01 March 20X3.
2. On 16 January 20X3 the company directors made a decision to order inventory worth R 55 000 on credit. The
actual order occurred on 01 March 20X3. The payment was made a month later.
3. On 1 April 20X2 the company purchased inventory worth R 55 000 cash.
Required
Explain how these transaction will impact in the financial statements.
12
13
S e s s i o n Ta s k
14
Conceptual Framework Part 2 Focus Areas
1 Basic Accounting Equation
2 Double Entry Concept, Accounts and Their Classifications
3 Fraud and Financial Statements
15
THANK YOU
16

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BCompt

Facilitator: Ms Lerato Lechoano

3 Qualitative Characteristics of Useful Financial Information

4 The Elements of Financial Statements

5 Relationship between the Elements

The Framework is not a Standard

Accrual Basis of Accounting = Going Concern Assumption =

Fundamental Characteristics Enhancing Characteristics

Income Increases in assets, or decreases in liabilities, that result in increases in equity,

Expenses Decreases in assets, or increases in liabilities, that result in decreases in equity,

Once the definition of as element is met, for the element to be

It is probable that any future economic benefit associated with

Roberto Traders, operates in the mobile phone industry.

1. Analyse the transaction by identifying the element of financial statement ()

1 Basic Accounting Equation

2 Double Entry Concept, Accounts and Their Classifications

3 Fraud and Financial Statements

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