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Financial Accounting for Management
4
Conceptual Framework of Financial Statements
Financial Accounting for Management
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CHAPTER OBJECTIVES
Financial Accounting for Management
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Introduction Purpose of the Framework
Assistance to: Preparers Auditors Users of Financial Statements Accounting Standards Board (ASB)
Scope and Coverage Components of Financial Statements
Balance Sheet Statement of Profit and Loss Cash Flow Statement Notes to Account and Accounting Policies
Financial Accounting for Management
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Researsh in Financial Reporting Case 1: Research in financial reporting Tata Motors
Ltd.
Financial Accounting for Management
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Objective of Financial Statements Financial position
Economic resources Financial structure Liquidity and solvency
Performance Cash flows
Users and Their Information Needs Present and Potential Investors Employees and their Representative Groups Lenders Suppliers and other Trade Creditors Customers Governments and their Agencies Public Management Others
Financial Accounting for Management
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Case 2 Reliance Industries Ltd.Annual Report 2005–06
Financial Accounting for Management
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Assumptions Underlying Preparation of Financial Statements
Accrual basis Going concern Consistency
Qualitative Characteristics of Financial Statements Understandability Relevance Materiality
Financial Accounting for Management
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Illustration 1
Financial Accounting for Management
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Reliability Faithful representation Substance over form Neutrality Prudence Completeness Comparability
Constraints on qualitative characteristics Balance between Timeliness and Reliability Balance between Benefit and Cost Balance between Qualitative Characteristics
True and fair view
Financial Accounting for Management
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Definitions, Characteristics Recognition and Measurement of the Elements of Financial Statements Definitions and Characteristics
Financial position• Assets• Liabilities• Equity
Performance• Income• Expenses
Cash flows Recognition
Process of recognition Specific Issues
Financial Accounting for Management
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Measurement Measurement bases
• Historical cost• Current cost• Realisable value• Present value
Concepts of Capital and Capital Maintenance Capital
Financial concept Physical concept
Capital maintenance and determination of profit Financial capital maintenance
• Illustration 2 Physical capital maintenance
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