Attributes that make financial information useful to the various users of financial statements. In measuring the performance of an identified business entity, a user noticed the following: (i) the entity entered into a finance lease to rent an asset for substantially the whole of its useful economic life. (i) a decision was made by the Board to change the company's accounting policy from one of expensing the finance costs on building new retail outlets to one of capitalising such costs. (in) the entity's income statement prepared using historical costs showed a loss from operating its hotels, but the company is aware that the increase in the value of its properties during the period far outweighed the operating loss. You are required to: a) Explain what is meant by relevance, reliability and comparability and how they make financial information useful. b) Explain how you would expect the user to consider the items in (i) to (ili) above in the entity's financial statements and indicate on which of the Framework's qualitative characteristics the items' treatment is based.
Attributes that make financial information useful to the various users of financial statements. In
measuring the performance of an identified business entity, a user noticed the following:
(i) the entity entered into a finance lease to rent an asset for substantially the whole of its useful
economic life.
(i) a decision was made by the Board to change the company's accounting policy from one of
expensing the finance costs on building new retail outlets to one of capitalising such costs.
(in) the entity's income statement prepared using historical costs showed a loss from operating its
hotels, but the company is aware that the increase in the value of its properties during the period
far outweighed the operating loss.
You are required to:
a) Explain what is meant by relevance, reliability and comparability and how they make financial
information useful.
b) Explain how you would expect the user to consider the items in (i) to (ili) above in the entity's
financial statements and indicate on which of the Framework's qualitative characteristics the
items' treatment is based.
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