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1. Conceptual Framework (Full marks = 10)

a) An entity purchased a piece of land for $1000000 twenty years ago. The land has a current market value of $2500000. The management of the entity is considering which amount to report for land in the current year statement of financial position.

Requirements

i. Refer to paragraphs 4.54 – 4.56 of the Conceptual Framework. Which of the above two bases of measurement is consistent with the measurement bases in the Conceptual Framework?

ii. Refer to paragraphs QC1 – QC39 of the Conceptual Framework. Briefly explain which of the above two bases of measurement is consistent with the qualitative characteristics of useful financial information. (5= 1+4)

b) An airline places a non-cancellable order for a new aeroplane with one of the major commercial aircraft manufacturers at a fixed price, with delivery in 30 months and payment in full to be made on delivery.

Requirement

Refer to paragraphs 4.4(a), 4.4(b), 4.38, and 4.44-4.46 of the Conceptual Framework and briefly explain whether the airline should recognise an asset and a liability at the time it places the order. (5)

Answers:

The airline can be recognise as an asset at the time the order was placed.

- Because that order is a non cancellable contract therefore the company has full power to control the airline.

- The future economic benefit will flow in to the company at the time that order was placed

Refer to 4.38 (a&b), 4.44

- There is an increase in liability as account payable at the same time the order was placed. Because there is an outflow of resources embodying economic benefits which results from the non-cancellable contract....
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