Status and Purpose of the Conceptual  Can you settle loans?

Framework  Other users (PEGC) (Please Enter

God Church)
 Also known as the Conceptual
o Employees (stability, and
Framework for Financial Reporting
ability to pay wages)
 Describes the objectives and
o Customers (long-term
concepts of financial reporting
continuance aka suki)
 Specific purposes are (SCIence)
o Government (compliance and
o Assist IASB in standard
regulation)
development
o Public (assessment of local
o Assist FS preparers to
economy on the basis of
develop consistency in
trends)
dealing with unaddressed
 Different decisions (CRI)
accounting issues in
o buying/selling equity or debt
standards
o Assist users and preparers to instruments (invest)
o providing loans (credit)
understand and interpret
standard o exercise rights on entity’s
 Not a standard, and does not resources (rights)
supersede any standard  Financial reports do not show the
 IASB may stray from the standard to entity’s value, instead they allow
meet the purpose of financial primary users to estimate its value
reporting more faithfully for most information are based on
 May be revised estimates and judgments
 Provides standard foundations that  Management relies on internal info,
(TAE): not on financial reports
o Allow for transparency in Economic resources and claims
financial info
o Strengthen accountability  Information on this allows for
o Allow for economic assessment of entity’s financial
strengths and weaknesses.
efficiency
 Assess solvency and liquidity
Chapter 1: Objective of Gen. Purpose o S – short-term
Financial Reporting o L – long-term
 To provide financial information  Allows prediction of how future cash
about the entity that is useful to flows will be distributed to owners
primary users in making economic
decisions.
 Primary users (IC)
o Existing and potential
investors
 Can you pay
dividends?
o Lenders and creditors
Changes in economic resources and and requires professional
claims judgment.
 Faithful representation –
 Result from (PI)
information must faithfully represent
o Financial performance
economic phenomena in words
 Accrual accounting and numbers.
 Past cash flows o Completeness
o Issuance of debt/equity
 Relevant information
securities should be presented
 Assess return produced on understandably and
resources and stewardship of with avoidance of
management erroneous
Information about entity’s resource implications.
usage  Inclusion of all
descriptions and
 Assess management stewardship explanations needed
 Future cash inflow assessment on  Standard of
the basis of how efficient and Adequate
effective management is Disclosure
Chapter 2: Qualitative Characteristics of o Free from error
Useful Financial Information  No errors or
omissions in
 Useful to primary users for making description of
decisions based on financial reports phenomena.
 Cost constraint applies to financial  does not mean
information reporting (benefits must perfect accuracy for
exceed costs) most of accounting is
Fundamental Qualitative Characteristics reliant on
(Relevance and Faithful Representation) estimations.
 Measurement
 Relevance – capable of making a uncertainty is the
difference in decision making inability to directly
o Predictive value – can be observe monetary
used as input to predict amounts in FS.
future outcomes Hence, the need for
o Confirmatory value – estimation.
provides feedback about
previous evaluations.
o Materiality (entity-specific) –
information is material if its
omission or misstatement
influences decisions. Based
on nature and magnitude
 (1) Identify economic phenomenon
capable of being of use to users of
FS;
o Neutrality (2) Identify type of information that
 Non-biased would be of most relevance to such
preparation in phenomenon
preparing and (3) Determine if information will faithfully
selecting financial represent such phenomenon
information.
 Freedom from
alteration to increase Phenomenon
a probability of a(n)
(un)favorable reaction
from its users.
 Linked to prudence, Information
or the exercise of
caution in situations
of uncertainty so as to
avoid misstatement
o Other concepts Will this
 Substance over information
faithfully
form - for faithful
represent the
representation to take phenomenon?
place, transactions
must be accounted
for in accordance with Enhancing Qualitative Characteristics
their substance/reality (VCUT)
and not merely their
legal form.  Enhance the usefulness of
 Conservatism – information and what it represents.
linked to prudence, if  Comparability – ability to bring
alternatives exists, together to compare and contrast.
that which has the o Horizontal Comparability /
least effect on equity Intracomparability – within
is chosen. US>OS for the entity only, compares info
NI and Assets. Loss > from different period
gain if in doubt. In o Dimensional Comparability
case of contingent / Intercomparability –
loss/gain, disclose between and across entities
only if gain, and o Not necessarily uniformity
provide for in loss.  Other concept: Consistency –
usage of the same method from
How does one apply the fundamental
period to period in 1 period, or
qualitative characteristics?
 across entities. This helps us  Objective of financial statements is
achieve comparability. to provide financial information about
 Verifiability – different an entity’s assets, liabilities, equity,
knowledgeable and independent income and expenses for the
observers much reach a purpose of future cash flow
consensus. This helps us assure assessment and management
that the information represents what stewardship assessment.
it needs to represent.  Information is provided for in:
o Direct verification – via o Statement of financial
direct observation (e.g. cash performance (A, L, E)
count) o Statement of financial
o Indirect verification – position (Income and
checking inputs to a model, expense)
subsequent calculation with o Other statements and notes
same method  With information re:
 Timeliness – having information recognized ALE and
available to decision-makers in time other info on risk, etc.
to make decisions. Old age =  ALE not recognized
usefulness. and other info on risk,
 Understandability – clear and etc.
concise presentation information.  Cash flows
Complex transactions are hard to  Statement of changes
present in a simple way, and in equity
therefore warrants knowledge of  Methods and
users on: assumptions used in
o Future economic benefit estimations, etc.
o Accounting process
Reporting Period Assumption
o FS terms
 Financial statements are prepared
An FS is useless, if users cannot
for a specific period of time
understand it.
 May also involve comparative
 No prescribed steps to application, information on previous periods
for it is an iterative process.  Information on possible future
transactions and events may also be
Cost constraint included
 A pervasive constraint, inherent in  Events and transaction that occur at
financial reporting. period-end may be included if such
 Information gathering imposes costs, information is needed to effectively
therefore such costs must not meet the objective of financial
outweigh the benefits of the reporting
information provided. Going concern assumption
Chapter 3: Financial Statements and the  Financial statements are prepared
Reporting Entity on the assumption that the entity is
 continuing in operations, unless oLiability – present obligation
otherwise stated to transfer an economic
 FS are based on the assumption resource as a result of past
above events
 Also known as the continuity o Equity – residual interest of
assumption the entity’s assets after the
 Foundation of cost principle deduction of liabilities
 Opposite of going concern is known  Changes in economic resources
as discontinuing operations and claims, reflecting financial
performance
Consolidated and unconsolidated
o Income – increases in
financial statements
assets or decreases in
 Consolidated FS provide info on liabilities which result in an
ALE and IE of both parent and its increase in equity, other
subsidiaries than contributions from
o 50%+1 ownership owners
 Consolidated do not provide o Expenses – decreases in
separate info of any subsidiary. The assets or increases in
subsidiary’s own FS will provide for liabilities which result in a
such. decrease in equity, other
 Unconsolidated FS provide info on than distributions to owners
ALE and IE of parent only.  Other changes in economic
 Parent-related info may also be resources and claims
provided for in consolidated FS via o Contributions and
notes. distributions to holders of
 When consolidated FS is required, equity claims
unconsolidated FS may not serve o Exchange in assets and
as a substitute. liabilities that do not
Chapter 4: The Elements of Financial increase/decrease equity
Statements Assets
 Assets, liabilities, and equity relating  Present economic resource
to financial position controlled as a result of past events
 Income and expenses relating to where such resource has the
financial performance potential to produce economic
 Economic resource = asset benefits
o Present economic resource  Right
controlled as a result of past o May correspond to an
events obligation of another party
o Economic resource is a  Right to receive cash
right that has potential to  Right to receive G&S
produce economic benefits  Right to exchange
 Claim economic resources
on favorable terms
  Right to benefit from single asset/unit of account (e.g.
an obligation of ownership that gives rise to several
another party to rights)
transfer an economic  Set of rights from ownership of a
resource should a physical object is accounted for as
condition occur. a single asset (most cases)
o May not correspond to an  When there is uncertainty as to the
obligation of another party existence of a right, it is uncertain
 Right over physical whether the entity has an asset, until
objects (e.g. PPE) such existence uncertainty is
 Right to use resolved
intellectual property
Potential to produce economic benefits
 Right established via contract,
legislation, and the like (e.g. rights  Potential to produce economic
arising from lease, equity/debt benefits need not be certain, the
instrument) mere existence of the right and the
 Rights acquired by other means actual production of economic
o Acquiring/creating know-how benefits beyond those available to
that is not in the public the parties shall suffice.
domain  As long as a right meets the
o Obligation that arises from definition of an economic resource, it
the inconsistency of one is an asset regardless of probability
party in its customs and that it will produce economic
practices benefits.
 Some G&S are received and  Economic resources produce
consumed immediately, such economic benefits by allowing:
economic benefits from such G&S o Receipt of contractual cash
still exist until the entity consumes flows or other resource
the G&S (e.g. employee services) o Exchange of resource on
 An entity cannot have a right to favorable terms
obtain economic benefits from o Produce cash inflows/avoid
itself cash outflows by
o Treasury shares (for they are  Using the resource to
mere repurchases of stock) produce G&S
o In the case of a reporting  Using the resource to
entity comprising more than enhance the value of
one legal entity, debt/equity other resources
instruments issued by one  Leasing the resource
legal entity, is not an o Receipt of cash/other
economic resource of resource by selling the
another. resource
 Each right is a separate asset, in o Extinguishment of liability
principle. For accounting purposes, through the transfer of
related rights are often treated as a resource
 o Absence of related o Obligation is a present
expenditure does not obligation due to past
preclude an item from events
meeting the definition of an
Obligation
asset (e.g. govt grant)
o When an entity incurs  Unavoidable duty/responsibility
expenditure, this does not owed to another party.
provide conclusive evidence  If party A has an obligation to
that the entity has sought transfer a resource, party B must
future economic benefits, have a right to receive such
and therefore, an asset. resource. Measurement need not be
a mirror image of the other.
Control
 Obligations are established by
 Links an economic resource to an contract, legislation, or other means.
entity. Assessing whether control Obligations may also arise from an
exists helps to identify the economic entity’s customary practices.
resource the entity is accounting for.  Uncertainty as to the existence of an
 Control over a resource exists obligation also gives rise to the
when it has the ability to use and uncertainty of the existence of a
consume the benefits that flow liability
from such asset.
Transfer of an economic resource
 Control is the ability to prevent
other parties from using the  To satisfy this criterion, the
resource and obtaining the obligation must have to potential to
benefits that arise from it require the entity to transfer a
 Control arises from the ability to resource to another party. Such
enforce legal rights over the asset potential need not be certain (e.g. in
or other means of ensuring that no the case of conditions)
other party may use the asset and  Obligations to transfer an economic
obtain benefits. resource include:
 If person A tasks person B to take o Payment of cash
custody of A’s economic resource, B o Delivery of goods and
cannot consider such resource as services
his asset. o Exchange economic
Liabilities resources on unfavorable
terms
 Present obligation of the entity to o Transfer economic resource
transfer an economic resource due based on a condition
to past events o Issuance of financial
 Criteria for an item to be a liability instrument if such FI obliged
o Entity has an obligation entity to transfer a resource
o The obligation is to transfer  Instead of fulfillment, a party may opt
an economic resource to:
 o Settle via negotiating a them as individual units of
release from obligation account
o Transfer the obligation to a  Unit of account selection also
third party implies weighing in costs and
o Replace the obligation with benefits
another  In the case of inseparable rights and
obligations, a single unit of account
may be used. Note that the use of
single units of account of assets
and liabilities does not imply
Present obligation due to past events offsetting.
 Exists only if: Executory contracts
o The entity has already
obtained the economic  A contract or a portion of which that
benefits or taken an action is equally unperformed (similar to
o By consequence reciprocal obligation)
 Establishes a combined right and
 A present obligation can exist even if
obligation to exchange economic
the transfer of resources cannot be
resources. Such right and
enforced until the future or at a due
obligations are inseparable.
date
 If the reporting entity fulfills his part
 There is no present obligation if the
first in the contract, the performance
entity has not yet obtained economic
is the event that changes the
benefits or taken an action that
obligation to exchange into a right
could/would require a transfer that it
to receive an economic resource
otherwise would not have needed to
and therefore is an asset.
do.
Otherwise, if the other party fulfills
Assets and liabilities their part first, it is a liability.

 Unit of account – right/group of Substance of contractual rights and

rights/obligation/group of obligations contractual obligations
to which recognition and
 All contract terms are to be
measurement concepts are applied.
considered unless they are of no
 If an entity transfers a part of an
substance. Note that implicit terms
asset/liability, the unit of account
are also considered.
may change, so that a part may be
 Terms that have no substance are
transferred into another unit of
also disregarded. A term is of no
account
substance if:
 Provides useful information which
o It binds neither party
implies:
o Relevance of the ALE IE item o It contains rights that are not
o Treating a group of practically exercisable
rights/obligations as one may Equity
provide more useful
information than treating
  Residual interest in assets after statements an item that meets the
deducting liabilities definition of:
 Equity claims are claims against the o Asset
entity that do not meet the definition o Liability
of a liability and are established via o Equity
contract, legislation, etc. o Income
 Different classes of equity claims o Expense
confer different rights on their  Income
holders. Examples of rights are: o Revenue
o Right to receive dividends in
 Ordinary regular
case of declaration
activities
o Right to receive share in
 Sales, fees, interest,
assets after liquidation (note dividends, royalties,
that in case of liquidation, it is and rent
the creditors that are first o Gains
paid, not equity claimants)
 Do not arise from
 Legal and regulatory requirements
ordinary business act.
affect equity components (e.g. the
 Note that the normal point of
ability to declare dividends only if
income recognition is point of
there is a positive retained earnings
sale.
figure)
o Exceptions are:
 Corporate entities have different
 Installment method
legal and regulatory frameworks
 Cost recovery/sunk
from that of sole proprietorships,
cost method
partnerships, etc.
 Cash method
Income and Expenses  Percentage of
completion method
 Income – increase in  Production method
assets/decrease in liabilities that  To recognize revenue from the
result in increase in equity (except rendering of services,
additional investments) o Its must measurable reliably
 Expense – decrease in
o It must be probably that the
assets/increase in liabilities that
benefits associated with the
result to decrease in equity (except
transaction will flow to the
distributions to owners that are not
entity
expenses)
o Stage of completion of
 Relate to financial performance
transaction can be measured
Chapter 5: Recognition and reliably
Derecognition o Transaction costs and costs
to complete can be
The Recognition Process
measured reliably
 Recognition is the process of  Revenue from interest, royalties,
capturing for inclusion in financial and dividends
 oInterest shall be recognized depreciation and
on a time proportion basis amortization)
o Royalties shall be recognized o Immediate recognition
on an accrual basis  Outright expense of
o Dividends shall be cost incurred
recognized at date of (salaries, etc.) not
declaration directly related to
 Other criteria for recognition of specific revenue
income:  Carrying amount is the amount at
o Installation fees are which an ALE is reported in the
recognized as revenue over statement of financial position. Such
the period of installation items may presented individually or
o Subscription revenue shall be aggregated in groups.
recognized on a straight line  Amounts usually found in line items
basis are aggregates (e.g. ‘cash and cash
o Admission fees are equivalents’ is a total of cash, cash
recognized when the actual equivalents, petty cash fund, etc.)
event takes place  Recognition links the elements,
o Tuition fees are recognized SOFP and IS
o SOFP at beginning and
over which the tuition is
provided. period-end, A-L=E; and
 Expenses o Recognized equity changes
o Decrease in economic comprising
benefits  Inc-Exp recognized in
o Recognized when there it is IS
 Additional
probable that there will
contributions minus
indeed be a decrease and if
distributions from
it can be measured reliably
owners
o Losses and regular ordinary
 The link is created due to the
expenses
double-entry system whereby
 Expense recognition is application of
when one item is recognized,
matching principle
another is recognized/derecognized.
o Cause and effect association
 Income recognition the same time as
 Recognition of
o Initial recognition of an asset,
expense when the
or an increase in its carrying
revenue is recognized
amount
already (sales and
o Derecognition of a liability, or
cogs)
a decrease in its carrying
o Systematic and rational
amount
allocation
 Expense recognition occurs the
 Costs are expensed
same time as
by allocation over
periods where it is
benefited (e.g.
 o Initial recognition of a liability, professional judgment for other
or an increase in its carrying factor must be considered.
amount
Existence uncertainty
o Derecognition of an asset, or
a decrease in its carrying  Uncertainty along with low
amount probability of inflow/outflow may
mean that a recognition of an AL
Recognition criteria
would not provide relevant
 Items that meet the definition and information.
criteria of an ALE may be
Low probability of inflow/outflow of
recognized in the SOFP.
economic benefits
 Items that meet the definition of IE
may be recognized in the IS.  Note that an AL may still exist even
 Not all items that satisfy meeting the if an inflow/outflow probability is low
definition are recognized  In case of low inflow/outflow
 Assets, liabilities and their resulting probability, the most relevant
changes in equity are only information about the item may be
recognized if it provides relevant information about in the notes
and faithfully represented are:
information for users. o Possible inflows and
 Recognition also entrails costs. outflows
Obtaining a relevant measure entails o Possible timing
costs therefore one must justify the o Factors affecting
recognition of such item if its occurrence
benefits outweigh the costs.
However, this may not be avoided. Faithful representation
 Even if an item does not meet the  Recognition is appropriate if it
criteria for recognition, if needed, the provides a faithful representation of
reporting entity may provide that AL and resulting IE item.
information re: the item in the  Faithful representation is affected by
notes. the item’s measurement uncertainty
Relevance Measurement uncertainty
 Information on ALEIE is normally  Measures must be estimated in
relevant to users of FS. However, some cases, and are therefore,
recognition may prove irrelevant if: subject to measurement uncertainty.
o There is uncertainty in the  So long as the estimates are
existence of an AL measured reasonably, the
o AL exists, but the probability usefulness of the information is not
of inflow/outflow is low undermined. Even highly uncertain
 Note that presence of one/both measurement does not necessarily
factors above does not automatically equate to useless information.
lead to irrelevant recognition, for  Uncertainty level may be too high in
opting not to recognize is a matter of some cases and therefore it is
 questionable if it would provide o Only recognizing retained
sufficiently faith representation of component of assets
the item. This occurs normally when:  If an entity transfers and asset to an
o Cash-flow based agent, the transferor still controls
measurement technique is the asset
used
Chapter 6: Measurement
o Range is wide and probability
is difficult to estimate  FS elements are quantified in
o There is high sensitivity in monetary terms, and therefore need
changes in estimates a measurement basis.
o There is exceptional difficulty
Measurement bases – Historical cost
and subjectivity in the
allocation of cash flows  Based on transaction price or other
 If the preceding facts are the most event that gave rise to the ALE, IE.
useful type of information possible, a This does not reflect value
description of the estimate with changes except those arising
explanation may be needed. If there from impairment and onerous
is still a lack of faithful liabilities.
representation, one may opt to  HC of asset upon acquisition or
choose a measurement basis that creation is the cost incurred in
is less relevant but is subject to creating and acquiring the asset.
lower measurement uncertainty.  HC of liability is the value of the
 If there is no other way, opting not to consideration received to take on
recognize is appropriate. the liability minus transaction
costs.
Derecognition  HC of ASSET is updated to depict:
o Consumption of part of asset
 The remove of all/part of a once (depn and amort)
recognized asset or liability from the o Payments received which
SOFP. This normally occurs when the extinguish part or all of an
item does no longer meets the asset
definition of an asset or a liability: o Events that updated
o For assets, upon loss of recoverable value of asset
control of part/all of the once (impairment)
recognized asset o Accrual of interest to reflect
o For liabilities, upon financing component of asset
extinguishment of a present (loans receivable)
obligation for all/part of the  HC of LIABILITY is updated to
once recognized liability depict:
 Previous provisions are normally o Fulfilment of part/all of a
achieved by: liability
o Derecognition of expired o Effects that increase the
assets and fulfilled liabilities value of the obligation to
resources needed to fulfill the
 liability to which it reaches an cash-flow measurement giving
extent of it being onerous consideration to:
o Accrual of interest in a o Future cash flow estimates
financial component of a o Variation of future cash flow
liability o Time value of money
 Amortized cost may also be used, o Price for bearing uncertainty
which is updated via interest (risk premium/discount)
accrual, impairment, and o Liquidity and other factors of
receipts/payments. participants
 Cost on initial recognition  Not increased by acquisition
 At subsequent measurement, transaction costs for assets and
o Amortized cost/carrying decreased by TC for liability
amount incurrence except for measurement
o Realizable value bases such as FVTOCI, FVLCOD,
etc.

Measurement bases – current value

Measurement bases – value in use and
 Uses information updated to reflect
fulfilment value
conditions at the measurement
date. Due to updates, current values  Provides information about an
reflect changes from previous asset’s present value of future
measurement date cash flows and disposal. Has
 Measurement bases are predictive value and can be used
o Fair value for future cash inflow assessment
o Value in use (VIU)
o Current cost  Provides information about the
 Current value is not derived from present value of future cash flows
transaction price that gives rise to needed to fulfil a liability. Also has
A/L. predictive value if the liability will be
fulfilled or transferred (fulfilment
Measurement bases – fair value value)
 Price that would be received to sell  Updates yield confirmatory value
an asset or to transfer a liability, in as they provide feedback on
an orderly transaction between previous estimates.
market participants at Measurement bases – current cost
measurement date
 Reflective of market participants’  For assets, is the cost of an
perspective (e.g. a market for PC equivalent asset at measurement
parts normally sells brand X part for date which is the payment + TC
150PHP)  For liabilities, is the consideration
 May be determined directly by received – TC at measurement date
observing prices in an active market,
but may also be determined with
  Based on entry price/entry value o Allowing entities to provide
but reflects market conditions relevant and faithfully
upon measurement. represented information
o Allowing for comparable
Choosing a measurement basis – factors
information
to consider
 Effective communication is also
 It is necessary to consider the supported by the following
nature of the information that the principles:
measurement basis will produce. o Boilerplate or entity-specific
 No single factor will determine which information than
basis is of most use and must be standardized descriptions
based on facts and circumstances. o Discouragement of
 Note that historical cost is the most duplication in financial
commonly adopted, for it is simpler statements
and less costly than using current
value methods. However, Classification
relevance and faithful representation  Sorting of ALE IE based on
must still be considered. Cost shared/similar characteristics.
constraint and other enhancing  Classifying dissimilar assets
qualitative characteristics must reduces understandability and
also be considered. comparability and may not
 Note that equity is not measured provide relevant and faithfully
directly, for it is the difference represented information.
between total assets and total  For assets,
liabilities. o Current asset – expected to
Chapter 7: Presentation and Disclosure be useful within a year or
operating cycle (e.g. cash)
Presentation and disclosure as o Non-current asset –
communication tools expected to be useful for
 Effective communication tool about more than a year (e.g. PPE)
information found in financial  For liabilities,
statements o Current liability – expected
 Allows for more relevant and to be paid within a year (note
faithful representation of ALEIE. that AP is always current)
Also enhances understandability o Noncurrent liability –
and comparability. expected to be paid beyond
 Also subject to cost constraint one year (NP is classified as
NCL or CL depending on
Presentation and disclosure objectives term)
and principles  Offsetting – recognition of both an
 In standards, balance is needed asset and liability of separate units
between: of account and grouping them into
a separate net account. Generally
inappropriate when classifying
 dissimilar items, but is permitted on  Financial performance is determined
some occasions. using
 Based on different characteristics, o Transaction approach
those subject to legal, regulatory and o Capital maintenance
other requirements may be approach
separated.  Transaction approach is the
o Ordinary shares (Without preparation of income statement
preferential rights)  Under financial capital, it is the net
o Preference shares (with assets or equity of the entity
preferential rights)  Under physical capital, it is the
 For income and expenses, operating capability or the productive
o Either in profit or loss capacity of the entity
statement  Financial capital is the monetary
o Other comprehensive income amount of the net assets. It is based
 PL statement is the primary source on historical cost and is adopted
of information on entity’s financial by most entities.
performance for a period.  Net income under financial capital
 Items outside PL are in OCI.
 Income and expenses arising from
change of current value in asset or
liability may be included in OCI if
doing so would result to relevant and
faithfully represented financial o NET ASSETS - END
information. o DIVIDENDS PAID
 Components of OCI may be o TOTAL
o Recycled when appropriate o (NET ASSETS – BEG)
o Reclassified when o ADDITIONAL
appropriate INVESTMENTS
o Transferred to retained o NET INCOME
earnings when appropriate  Physical capital is the quantitative
Aggregation measure of the physical productive
capacity to produce G and S.
 Adding together of ALE IE that have  Measured at current cost.
similar or shared characteristics  Include PPE, Inventory (productive
and are included in the same assets)
classification.  Should be adopted if the main
 Summarizes a large volume of concern of users is the operating
detail, but a more expanded version capability of the entity
may be found in the notes to  Income is when physical productive
financial statements. capital at year end exceeds that of
Chapter 8: Concepts of Capital and the beginning of the period after
Capital Maintenance excluding distributions to owners
and contributions from owners.
 o NET ASSETS – DEC AT
CURRENT COST
o DIVIDENDS PAID
o TOTAL
o (NET ASSETS AT
CURRENT COST JAN1)
o ADDTL INVESTMENTS
o NET INCOME
 Capital maintenance is how an entity
defines the capital it wishes to
maintain
 Principal difference between two
concepts of capital maintenance is
treatment of effects of changes in
prices of assets and liabilities
 Return of capital – erosion or
withering of the capital invested in
the entity
 Return on capital – what
shareholders want from their
investment (amount in excess of
orig. investment)