Instant Download with all chapters and Answers
*you will get solution manuals in PDF in best viewable format after buy*
The IASB conceptual framework
(a) £1 invested at 7% per annum will become £1 × 1.07 × 1.07 × 1.07 after three years. So the present
value on 1 January 2018 of an amount to be received on 1 January 2021 (assuming a discount rate
of 7%) is equal to that amount divided by (1.07)3
. This is the same as multiplying the amount by a
discounting factor (to three decimal places) of 0.816 (1/1.073
So the present value of £50,000 to be received on 1 January 2021 is £40,800 (£50,000 × 0.816).
(b) Similarly, the discounting factor over a five-year period is 0.713 (1/1.075
) and so the present value
of £100,000 to be received on 1 January 2023 is £71,300 (£100,000 × 0.713).
(c) With a discount rate of 7%, discounting factors for one, two, three and four years are 0.935, 0.873,
0.816 and 0.763 respectively (the calculation of these factors is left to the reader). So the present
value of £10,000 to be received on 1 January each year from 2019 to 2022 inclusive is £33,870
(£9,350 + £8,730 + £8,160 + £7,630).
Melville: International Financial Reporting, Instructor’s Manual, 6th edition
© Pearson Education Limited 2017
(a) The Conceptual Framework sets out the concepts that underlie the preparation and presentation of
general purpose financial statements prepared for the benefit of external users. The main purposes
of the Conceptual Framework are:
– to assist in the development of future international standards and review of existing standards
– to provide a basis for reducing the number of alternative accounting treatments permitted by
– to assist national standard-setters in developing national standards
– to assist preparers of financial statements in applying international standards and in dealing with
topics which are not yet covered by international standards
– to assist auditors in forming an opinion as to whether financial statements conform with
– to assist the users of financial statements in interpreting the information contained in financial
statements prepared in accordance with international standards
– to provide information about the IASB approach to the formulation of international standards.
(b) The Conceptual Framework states that the objective of general purpose financial reporting is to
provide financial information about the reporting entity that is useful to existing and potential
investors, lenders and other creditors in making decisions about providing resources to the entity.
(c) The primary users of general purpose financial reports are existing and potential investors, lenders
and other creditors. Further user groups include employees, customers, governments (and their
agencies) and the public. Examples of the types of information that each user group would be
seeking from financial reports are given in Chapter 2 of the textbook.
(d) Financial statements are normally prepared on the “going concern” basis. It is assumed that the
reporting entity will continue to operate for the foreseeable future and has neither the intention nor
the need either to close down or materially reduce the scale of its operations. But if an entity is not a
going concern, the financial statements will have to be prepared on a different basis and that basis
should be disclosed.
(e) The fundamental qualitative characteristics are relevance and faithful representation. The enhancing
characteristics are comparability, verifiability, timeliness and understandability. A full explanation
of each characteristic is given in Chapter 2 of the textbook.
(f) Reporting financial information imposes costs and these costs should be justified by the benefits
which users obtain from the information. This means that there is a cost constraint on the extent to
which financial statements can attain all of the qualitative characteristics that are listed in the