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Conceptual framework (Chapter 7 and 8) - Coggle Diagram
Conceptual framework (Chapter 7 and 8)
A reporting entity communicates info about its A,L,E,I,E by presenting and disclosing information in its financial statements
Offsetting
Classifies dissimilar items together and therefore is generally not appropriate
Aggregation
Adding together A,L,E,I,E that have shared characteristics and included in same classification
Physical capital maintenance
Profit is earned only if physical production capacity of the entity at the end of the period excluding distributions / contributions of equity participants
Classification
Classifying dissimilar A,L,E,I,E together can obscure relevant information, reduce understandability and comparability
Classification of assets and liabilities
Is applied to the unit of account selected for an asset or liability
Classification of income and expenses
Applied from the unit of account selected for an asset or liability, or components of such income and expenses if it has different characteristics and are identified separately
Capital
Financial concept of capital = net assets or net equity of the entity
Physical concept of capital = productive capacity of the entity (e.g. production units per day)
Financial capital maintenance
Profit is earned only if financial / monetary amount of net assets at the end of a period excluding distributions / contributions of equity participants
Capital maintenance adjustments
Meets the definition of income / expense
Not disclosed in the statement of comprehensive income due to the concept of capital maintenance
Revaluation of assets results in increases / decreases in equity
Disclosed instead as revaluation surplus within equity
Increases in prices of assets
Is a profit, but may not be recognised as profit until the assets are disposed of in an exchange transaction - therefore recognised in reserves
Classification of equity
May be necessary to classify equity claims separately if those equity claims have different characteristics / subject to particular legal, regulatory or other requirements