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Q1. What is conceptual framework? Why it is necessary in financial accounting? Conceptual Framework Conceptual framework is easily followed system of objectives that leads us to standards. These standards describe the limitation, functions of financial accounting and financial statement. Conceptual framework has three levels. Every level has some points. Level 1st is objective of financial accounting and answer why Level 2nd is qualitative characteristics of accounting information & element of financial statements and work as bridge between level 1 and 3. Levels 3rd are about the measurement, recognition and answer how implement it. Necessity of Conceptual Framework It is necessary because it allow FASB to set the standards for Financial Accounting. It also helps to develop more standards over time. It is useful for better understanding of financial report. Conceptual framework helps to resolve problems more quickly and easily.

Q2. Briefly describe the two primary qualities of useful accounting information? There are two primary qualities of accounting information 1) Relevance 2) Reliability Relevance: Its means providing accounting information must be relevant to user that helps user to take decision. Relevance has three components 1) Predictive value 2) Feedback value 3) Timeliness Predictive value: It helps the users to predict future value about their decision.

Feedback value: Feedback value helps the users to confirm the expectation. When they saw the feedback of people from past performance then it will confirm the expectation of user. Timeliness Information must be available on time because it influences the decision making of user. Information too much early and after is not helpful. Reliability Information must be reliable. Reliable means verifiable, faithful representatives and neutrality. Verifiability Its means when different auditors apply different method of calculations, they get same result every time. Faithful Representativeness Information must be present as they occur. No misrepresent of information. E.g. Honda show sales of year 2010 are 200 billion but actual is 160 billion. So it is not faithful information.

Neutrality Its means company or organization must shows its information neutral, not in the favor of one stakeholder. Q3. Expenses, losses, and distribution to owners are all decrease in net assets, what are the distinctions among them? Expenses: When we run the operations of enterprise its require the raw material for production of goods. For that purpose did expense. When expenses do it will decrease net assets. Losses: Losses decrease the net assets when unexpected event is occurring e.g. earthquake, storm etc. Distributions to owners: Distributions to owner means when company transfers its asset and services to owner. When it distribute to owner it will decrease the owner equity in company. It became the reason decrease in net assets.

Q4. Briefly describe the fair value concept? It is an amount at which asset could bought and sold in a transaction between two willing parties. First it is equal to historical cost but after period of time historical cost and fair value often diverge. Now fair value measure is used because it gives us more relevant and expected cash flow of assets. Q5. What two assumptions are central to IGAA conceptual frame work? Two assumptions are (1) the cost-benefits (2) materiality The cost-benefits Some people think that information free of cost. But accounting information is not free. Companies consider the cost-benefits. Executive first analyze the cost-benefits and then make decision. Materiality Information is material when it influences the decision of a reasonable person. If does not change the mind of user it is immaterial. Q6. Brief exercise no 1, 5, 6?