AC2101 – Accounting

Recognition and Measurement

Seminar 1
Introduction

Semester 1, AY2017/2018

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 Seminar 1 Agenda

▪ Introduction to AC2101 Course Syllabus and

Requirements

▪ Introduction to Fundamental Concepts

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 AC2101: Course Instructor

Name: Adj A/Prof Tan Yee Peng

Office: S3-B1A-28 Tel: 8138 8318
Email: tanyp@ntu.edu.sg

Office hrs: By appointment

Groups: Mondays and Wednesdays (8.30 am to 12.30 pm)

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 AC2101 Course Syllabus
Contents Seminar #
1 Fundamental concepts & issues 1, 2 & 3

Assets:
2
a. Leases 4, 5, 6 & 7
b. Financial assets 7, 8, 9 & 10
Liabilities and Equity:
a. Financial liabilities 11, 12
3
b. Equity (e-lecture) 13
c. Deferred tax liabilities 14, 15, 16 & 17

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 AC2101 Course Syllabus
Contents Seminar #

Revenue
a. Revenue recognition principles & criteria 18
4 b. Multiple performance obligations & customer 18
options for additional goods or services
c. Construction contracts 19,20 & 21
Expenses
a. Expense recognition principles 22
5 b. Share-based payments and employee stock 22, 23 & 24
options
c. Employee benefits 24

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 AC2101 – Course Format

▪ Seminars
▪ 24 x 2 hours (twice per week, with some
exceptions)
▪ Includes 1 e-lecture (Seminar 13)

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 AC2101 – Course Matters

A. Course materials
1. Textbook (Picker et al.)
2. Seminar readings (Course Main Site on NTULearn)
3. Effective accounting standards (FRSs)
(http://www.asc.gov.sg/2016Volume)
4. Interpretations of accounting standards (INT FRSs)
(http://www.asc.gov.sg/2016Volume)
5. Issued FRSs and Amendments to FRSs that are effective at a
later date (http://www.asc.gov.sg/CEPafter1Jan2016)
6. Exposure drafts (http://www.asc.gov.sg/CurrentConsultations)
7. Seminar outlines (Course Main Site on NTULearn)
8. Seminar slides (Seminar Group’s Site on NTULearn)

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 AC2101 – Course Matters
Look out for these sections in the Seminar Outlines
1. Learning objectives
2. Required readings
3. Seminar requirements
• Short instructions and important matters
4. Write-ups and illustrations
• Examples and short readings
5. Seminar questions
• Questions to be prepared before class and which will be
discussed in class
6. Team activity forms
• Based on seminar questions and will be discussed in
class as a team
7. Project Presentations
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 AC2101 – Course Matters

B. Pre-Requisites

1. AC1102
2. Use of financial calculator to do present value-related
computations
3. Bring clickers to every class

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 AC2101 – Course Assessment

Components Weights Basis

1 Seminar participation 15 Individual

Team & individual

2 Team project presentation 15
(50% each)

3 Term quiz 20 Individual

4 Final exam 50 Individual

Total 100

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 Seminar Participation: Expectations
(Project Discovery) Pedagogy
• Students take active responsibility for their learning
• Instructor plays a facilitating role

A. Pre-seminar
1. Complete ALL assigned readings in seminar outline
2. Attempt ALL assigned questions in seminar outline
B. During seminar
1. Clicker questions
2. Voluntary participation
3. Cold calls
C. Post-seminar
1. Review seminar slides & discussions
2. Review/complete assigned questions
3. Clarify all outstanding questions & doubts
4. Post updated presentation slides if your team is in charge of the formal
presentation for that week.
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 Project Presentation: Expectations
A. Pre-seminar
1. Project questions available in seminar outline released 2 weeks beforehand
2. Email slides in powerpoint format to your respective instructors, clearly labeling
project number, seminar group number, team number, instructor’s name, and
members’ names in the 1st slide.
3. Upload the slides on the course main NTULearn site (Assignments folder) for the
Turnitin anti-plagiarism check by the stipulated deadline. Name your powerpoint file
as follows AC2101_SemGrpX_TeamY.pptx. X is your seminar group number and Y
is the team number. For example, if you are from team 7 in seminar group 6, the file
must be labelled as AC2101_SemGrp6_Team7.pptx.
4. Penalties are imposed for late submission and a high degree of similarity to other
submissions, and failure to adopt the file name convention for submission to Turnitin.
B. During seminar presentation
1. Based on submitted slides, no changes allowed
2. 20 to 25 minutes of presentation time, followed by Q&A by fellow students &
instructor. Penalties are imposed for poor time management.
3. Presentation skills (individual) and presentation content (team) will be assessed.
C. Post-seminar presentation
1. Amend slides based on class discussion
2. Upload revised slides in PDF format to Discussions folder in your respective
seminar group’s site within a week from presentation
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 Term Quiz & Final Exam
A. Term Quiz
1. Sep 29, 2017 (Fri) 6:30 pm LKC LT
2. Open book; usually true/false, MCQs plus short
structured questions; 100 minutes (1 hour 40 minutes)
3. Seminars 1 to 12

B. Final Exam
1. Nov 30, 2017 (Thurs) 1.00 pm
2. Open book; structured questions with multiple parts;
2.5 hours
3. Seminars 1 to 24 (i.e., everything)

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Seminar 1 Fundamental Concepts
▪ Objective of accounting (Review of AC1102)

▪ Why do we need accounting? (Review of AC1102)

▪ Characteristics of useful accounting information

(Review of AC1102)

▪ What does the generation of accounting information

involve?
▪ Recognition
▪ Measurement
▪ Disclosure
▪ GAP in Statement of Financial Position
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 Use of Clickers
Please set your clicker channel to this SR’s channel
number:
1. Press the “Go” button on your clicker
2. Enter the SR’s channel number (XX)
3. Press the “Go” button on your clicker again. You
should see a flashing green light.

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Per the new FRS Conceptual Framework (2011),
the objective of financial reporting is to
provide…
1. Information about the financial position, performance
and changes in financial position of an enterprise that is
useful to a wide range of users in making economic
decisions
2. Financial information about the reporting entity that is
useful to existing & potential investors, lenders and
other creditors in making decisions about providing
resources to the entity

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 Why do we need accounting?
Information asymmetry between stakeholders

✓ Adverse Selection:
- One party has more information than the other
i.e., information advantage
✓ Moral Hazard:
- One party’s actions cannot be fully observable
by the other e.g., unobservability of manager’s
effort

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 Why do we need accounting?
• To help control Adverse Selection: Valuation
Problem
– Convert insider information into useful information for outside
investors
– Provide full and timely disclosure of useful information
• E.g. Balance Sheet, Income Statements, Cash Flows
Statement, Changes to Equity, Notes to accounts, MD&A

• To help Control Moral Hazard: Agency

Problem
– Provide information useful to control manager shirking and
improve corporate governance
– Provide measures to encourage or restrict certain actions
• E.g., Bonus plans based on target ROA/ROE; debt covenants
restricting dividend payouts based on net worth
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Per the new FRS Conceptual Framework (2011),
the fundamental qualitative characteristics of
useful financial info include…

1. Comparability
2. Faithful representation
3. Relevance
4. Reliability
5. Understandability
6. Timeliness
7. Verifiability

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1 2 3 4 5 6 7
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 Review: Qualitative Characteristics
1. Relevance
• Predictive value; Confirmatory value; Materiality (nature & size; entity-specific)
2. Faithful representation
• Complete (within bounds of materiality & costs); Neutral; Free from error or bias
(≠ accurate in all respects)
3. Comparability
• Over time; Across different entities; achieved via consistency; ≠ uniformity
4. Understandability
• Clear & concise
5. Timeliness
6. Verifiability
• Different knowledgeable & independent observers could reach consensus, not
necessarily complete agreement

Items (1) & (2): Fundamental QC

Items (3) to (6): Enhancing QC
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 Accounting Recognition,
Measurement & Disclosure
Recognition
- Process of incorporating an item in an entity’s statement
of financial position or statement of P or L & OCI
- General recognition criteria (conceptual framework):
1. Meet the definition of a financial statement element
2. Probable inflow/outflow of future economic benefits
3. Cost or value can be reliably measured
- Item-specific recognition criteria
▪ Found in the accounting standards governing the specific item

Probable = More likely than not (in practice, > 50%)

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Specific recognition principles…
• Found in specific FRSs

• Applicable only to the specific accounting items

covered in the FRSs

• May not be fully consistent with the general

recognition principles

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 Accounting Recognition,
Measurement & Disclosure
Measurement
- Process of determining the monetary amount of an
item to be recognized & carried in the F/S
- The focus of this and next seminar
Disclosure
- Accounting standards often require that certain
information be disclosed either in the main body of or
in the notes to the financial statements.
- Is it the same as presentation?

Relationship?
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 Concepts of Measurement

▪ What is measurement?

▪ How to go about measuring?

▪ Problems of measurement in accounting?

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 What is measurement?

▪ Measurement is the assignment of numerals to

represent the magnitude of an attribute of a
phenomenon.

✓ Phenomenon: object or event to be measured

✓ Attribute: characteristic or quality of the

phenomenon that is to be measured

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 How to go about measuring?
▪ Identify relevant phenomenon

▪ Identify relevant attribute of the phenomenon

▪ Find a reliable way to assess the magnitude of

the relevant attribute of the relevant
phenomenon (i.e., measurement scale)

▪ Estimation may often be needed – substitute

with a different phenomenon, a different
attribute, or both.
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 Miller and Mosso (1983)
Relevant Substitute
Phenomenon (P1) Phenomenon (P2)
Direct Observation Estimation
Relevant
Attribute A1P1 A1P2
(A1)
Estimation Estimation
Substitute
Attribute A2P1 A2P2
(A2)

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 Q 1 – FV of a Real Estate Property (L & B)
Relevant Substitute
Phenomenon Phenomenon

Direct Observation Estimation

Relevant CASE 1 CASE 3

Attribute The amount a buyer is willing to The past transacted price or the
pay for the L&B amount a buyer is willing to pay
for a ‘similar’ L&B

Estimation Estimation

Substitute CASE 2 CASE 4

Attribute Use a valuation model – e.g., Look at past transacted prices
discounted PV model? of ‘similar’ L&B, make
adjustments & use a valuation
model?

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Measurement in Accounting: Attribute
Question 2:
For each asset below, provide the attribute commonly measured in
practice.
What attributes are most commonly adopted in accounting?

Phenomenon (Object) Attribute

Property, plant & equipment HC & Revaluation

Inventory Lower of Cost or NRV

Short-term equity investment FV

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 Measurement in Accounting: Unit

Seminar Question 3:

▪ Unit of measure?

▪ Nominal $

▪ Purchasing power

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 Problems of Measurement in
Accounting

Seminar Question 4:
Is aggregation (e.g. total assets) meaningful?

▪ Problems:

▪ Mixed attributes, and

▪ Mixed unit of measure

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Average Price-to-Book Ratio of the S&P 500 Companies,
Dec 1977- Mar 2001 (Source: Lev 2001)

Hence, “GAP” in
the Statement of
Financial Position! Current
P/B price to
Ratio book ratio
is about 7

1980s 2000
Year
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 Problems of Measurement in
Accounting

Seminar Question 5:

Webber (2000) article – key issues or concerns?

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When BBB Ltd uses the historical cost of a car that it
owns, adjusted for the car’s estimated accumulated
depreciation, as a measure of fair market value of the
car, BBB Ltd is using:

A. Relevant attribute of a substitute phenomenon

B. Relevant attribute of a relevant phenomenon
C. Substitute attribute of a relevant phenomenon
D. Substitute attribute of a substitute phenomenon
E. None of the above

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A. B. C. D. E.
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Which one of the following statements below is FALSE?

A. Comparability and understandability are referred to as enhancing

qualitative characteristics in “The Conceptual Framework for Financial
Reporting (2011)”.
B. Based on Miller and Mosso (1983), direct observation of the relevant
attribute of the relevant phenomenon provides the first-order quality of
measurement.
C. Under “The Conceptual Framework for Financial Reporting (2011)”,
the objective of financial reporting is to provide information that is
useful to a wide range of users, including the suppliers, customers
and government, in making economic decisions.
D. The “mixed attributes” problem in accounting is one of the reasons
causing a difference in the net book value of the firm and its market
price.
E. Financial information is capable of making a difference in decisions if
it has predictive value or confirmatory value or both.
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A. B. C. D. E.
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