Key Accounting Principles: Stocks, Valuation, and Financial Reporting

According to IAS 2, stocks are defined as assets: held for sale in the normal course of operation; in production ahead of a sale; or in the form of materials or supplies to be consumed in the production process or supply of services.

Cost of acquisition is understood as the value of the canceled invoice net of VAT.

IAS 2 defines these valuation methods: FIFO (First-In, First-Out) and PPP (Weighted Average Price).

Determining net realizable value should be based on the most reliable information available.

To consider an item as property, plant, and equipment (PPE), it must meet these criteria: it is acquired for sale, use in production, supply of goods and services, rental to others, or for administrative purposes, and is expected to be used for over a year.

The concept of depreciation, according to IAS 16, is: the distribution of the depreciable amount of an asset over its useful life.

a) False. All accounting values must be updated by the CPI. Response: This is only true in hyperinflationary economies.

b) False. According to IAS 2, the only accepted method of valuation is FIFO. Answer: FIFO and PPP are accepted.

c) True. A financial instrument is any contract that simultaneously creates a financial asset for one entity and a financial liability or equity instrument for another entity.

d) False. A financial asset corresponds to the current debts of a company. Answer: It is a contractual right to receive cash from another entity or exchange financial assets or liabilities with another entity.

e) False. It concerns the underlying asset which is next to another, such as a building adjacent to other buildings. Answer: It refers to the back of another asset.

f) False. For valuing equities, the carrying value must be weighed against the fair value and reflect the greater value. Answer: You must reflect the lower value.

g) False. Double-entry tells us that every time I make an account by crediting the same account. Answer: A debit in one account is payable in another account.

h) True. Fair value is the amount for which an asset could be exchanged or a liability settled between knowledgeable, willing parties in an arm's length transaction.

i) False. Financial assets under IAS 32 are classified as non-current assets. Answer: It depends on their nature: if there is an intent to sell.

j) False. According to IAS 16, to calculate depreciation using the historical cost, fair value amortization is used, and the result is divided by the remaining useful life. Answer: Depreciation is calculated based on historical cost and deterioration.

The Statement of Cash Flows is the basic financial statement showing the cash generated and used in operating, investing, and financing activities.

The purpose of the Statement of Cash Flows is to:

• Provide information to management for measuring accounting policies and making decisions.
• Provide information to administrators to improve operating and financing policies.
• Show where cash has been spent.

The Accrual Principle states that the determination of operating results and financial position should consider all assets and liabilities of the period, whether or not collected or paid.

The main accounting reports are:

• Balance Sheet
• Income Statement
• Cash Flow Statement

Current assets include: cash, bank.

A withholding account is classified as: liabilities.

Part of the equity includes: capital, net income.

The Income Statement complements the Balance Sheet by explaining the details of the profit.

Net Realizable Value is the estimated selling price of an asset in the normal course of business less the estimated costs of completion and sale.

Fair Value is the amount for which an asset could be exchanged or a liability settled between knowledgeable, willing parties in an arm's length transaction.

Entity-Specific Value is the present value of cash flows the entity expects to receive from the continued use of an asset and its eventual disposal. For a liability, it is the present value of cash flows expected to be incurred to cancel it.