HKICPA QP Module 1 Accounting flashcards

33 cards. Read the term and the definition here. The deck at the top of this page is optional.

Conceptual framework asset

A present economic resource controlled by the entity as a result of past events. The resource is a right that has the potential to produce economic benefits.

Conceptual framework liability

A present obligation of the entity to transfer an economic resource as a result of past events. The obligation is a duty the entity has no practical ability to avoid.

Five-step revenue model

Identify the contract, identify performance obligations, determine the transaction price, allocate the price to the obligations, and recognise revenue when each obligation is satisfied.

Variable consideration constraint

Variable consideration is included in the transaction price only to the extent it is highly probable that a significant reversal will not occur when uncertainty is resolved.

Over-time revenue recognition

Revenue is recognised over time when the customer simultaneously receives and consumes benefits, controls an asset being created, or the asset has no alternative use with an enforceable right to payment.

Lease liability initial measurement

Present value of lease payments over the lease term, discounted at the interest rate implicit in the lease or the lessee's incremental borrowing rate.

Right-of-use asset

The lease liability plus initial direct costs, prepaid lease payments and estimated restoration costs, less lease incentives received. Subsequently depreciated and tested for impairment.

Finance lease lessor test

A lease transferring substantially all risks and rewards of ownership is a finance lease; indicators include term being the major part of economic life and present value of payments being substantially all fair value.

Expected credit loss staging

A 12-month loss allowance applies unless credit risk has increased significantly since initial recognition, when lifetime expected credit losses are recognised.

Impairment recoverable amount

The higher of fair value less costs of disposal and value in use. An impairment loss is recognised when carrying amount exceeds this recoverable amount.

Value in use

The present value of estimated future cash flows expected from an asset or cash-generating unit, discounted at a pre-tax rate reflecting current market time value of money and risk.

Provision recognition criteria

Recognise a provision when a present legal or constructive obligation arises from a past event, an outflow of resources is probable, and the amount can be reliably estimated.

Contingent liability treatment

A possible obligation or a present obligation that fails the probable or reliable-measurement criteria is not recognised; it is disclosed unless the outflow is remote.

Deferred tax measurement

Deferred tax is measured at the tax rates expected to apply when the temporary difference reverses, based on enacted or substantively enacted rates at the reporting date.

Deferred tax asset recognition

A deferred tax asset for deductible temporary differences and tax losses is recognised only to the extent that future taxable profit is probable against which it can be used.

Cash flow classification

Cash flows are classified as operating, investing or financing. Interest and dividends paid may be operating or financing; interest and dividends received may be operating or investing.

Control under HKFRS 10

An investor controls an investee when it has power over the investee, exposure or rights to variable returns, and the ability to use its power to affect those returns.

Goodwill measurement

Consideration transferred plus non-controlling interest plus fair value of previously held interests, less the fair value of identifiable net assets acquired. Not amortised; tested annually for impairment.

Fair value definition

The price received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

Fair value hierarchy

Level 1 uses quoted prices in active markets; Level 2 uses observable inputs other than quoted prices; Level 3 uses unobservable inputs supported by best available information.

SPPI test

Contractual cash flows must be solely payments of principal and interest on the principal amount outstanding for a debt instrument to be measured at amortised cost or fair value through OCI.

Amortised cost measurement

The amount initially recognised less principal repayments, adjusted for cumulative effective-interest amortisation of the difference between initial and maturity amounts, less any loss allowance.

Effective interest method

A method of calculating amortised cost that allocates interest income or expense over the relevant period at the rate exactly discounting estimated future cash flows to the gross carrying amount.

Basic earnings per share

Profit attributable to ordinary shareholders divided by the weighted average number of ordinary shares outstanding during the period, adjusted for bonus issues and share splits.

Diluted earnings per share

Adjusted profit attributable to ordinary shareholders divided by the weighted average ordinary shares plus dilutive potential ordinary shares, assuming conversion or exercise at the start of the period.

Return on equity

Net profit attributable to ordinary shareholders divided by average ordinary shareholders' equity, expressed as a percentage measuring returns generated on owners' capital.

Quick ratio

Current assets less inventories, divided by current liabilities. It tests short-term liquidity using only the most liquid current assets.

Contract acquisition costs

Incremental costs of obtaining a contract that the entity expects to recover, such as sales commissions, are capitalised and amortised consistent with the transfer of related goods or services.

Constructive obligation

An obligation arising from the entity's own actions, such as a published policy or established past practice, that creates a valid expectation in other parties that it will discharge a responsibility.

Reimbursement recognition

A reimbursement expected from a third party is recognised as a separate asset only when it is virtually certain to be received; it is not netted against the provision.

Fundamental ethical principles

Integrity, objectivity, professional competence and due care, confidentiality, and professional behaviour, which members must comply with under the HKICPA Code of Ethics.

Threat types under ethics code

Self-interest, self-review, advocacy, familiarity and intimidation threats must be identified and addressed with safeguards or by declining the engagement.

Prior period error correction

Material prior period errors are corrected retrospectively by restating comparatives and adjusting opening retained earnings, with disclosure of the nature and amount of the correction.