Accounting: Define Representational Faithfulness? (Research Paper Sample)

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Accounting
Define representational faithfulness?
Representational faithfulness means that the information and data represented in the annual statements of accounts should fairly route the events, transactions and balances that happen during a particular period. The justification behind this definition is that the information contained in the annual financial statements should signify the core transactions and balances of the company not solely their lawful aspects for the purpose of presenting a true and fair view of the information (accounting-simplified.com, 2015).
Provide a justification for using representational faithfulness as the salient criterion for evaluating the desirability of a proposed accounting treatment.
Faithful representation serves as one of the leading qualitative feature that adds to the reliability of the financial information as contained in the Annual Accounts. In order to avail the quality of faithful representation in the financial statements, the transactions, events a balances associated with the entity for a particular period should be represented in the proper way as the item is expected to be recorded in the financials. Moreover, those transactions and events should be enlisted and disclosed in the financials that are appropriately meeting the criteria for recognition.

Define a ‘’long-term’’ liability?
Long term liability is a component of  HYPERLINK "/terms/b/balancesheet.asp" balance sheet that represents the obligations and liabilities of the entity that cover a period of more than one future year. Long term  HYPERLINK "/terms/l/liability.asp" liabilities comprise of  HYPERLINK "/terms/d/debenture.asp" debentures issued by company, loans from banks,  HYPERLINK "/terms/d/deferredtaxliability.asp" deferred taxation liabilities and pension funds. Moreover, one portion of the long-term liabilities that are required to be covered in the next 12 calendar months are contained under the head of current liabilities by name of  HYPERLINK "/terms/c/currentportionlongtermdebt.asp" current portion of the long-term debt (Investopedia.com, 2015).
Justification of the definition of ‘’Long-term’’ liability? (100)
In general words, a long-termed liability is termed as noncurrent liability. This head includes the liabilities that are not due in next one year of the  HYPERLINK "/blog/balance-sheet" \o "What is a balance sheet and why is it prepared?" balance sheet date. The long term liabilities of any entity are of very consideration for the users of the financial statements. An entity having a massive long term liabilities is not often preferred by the investors also. Some components of long-term liabilities are usually the noncurrent parts of  HYPERLINK "/blog/what-are-bonds-payable" \o "What are bonds payable?" bonds payable as issued, long-term loans obtained, finance leases, provisional liabilities, deferred compensations payable, deferred payments, deferred taxes and derivative liabilities of the company (accountingcoach.com, 2015).
What other financial statement elements can be expected to be affected when an entity incurs a long term liability? Provide examples of long-term liability generating transactions that effect at least four other financial statement elements?
Carrying a higher margin of long-term liabilities affect the company in many ways. First of all, the long term liabilities restricts the monthly/annual cash flow of the entity as a particular payment is required to make. Secondly, long term liabilities stifles the growth as a company fails to have enough money to be invested in sales promotional activities. Thirdly, fixed assets are also affected as the company obtains the long terms liabilities as collateral to certain property or other assets. Finally, long term liabilities are of cumulative nature and grows in case of delays or failure to payments in terms of fines and penalties (smallbusiness.chron.com, 2015).
Recommend criteria for recognition of a long-term liability?
A long term liability is to be recognize on the basis of more than one year of payback period. The amount obtained in terms of loans or other forms is recognized in the non-current liabilities section.
Justification of recognition criteria? (150)
Long term liabilities cover only those non-current liabilities that are expected to be settle after one financial year from the date of issuance. Means that those outflows that are expected to incurred after the period of one year are to be recognize as long term liability. The amount in this way to use for recognition is the amount excluding the figures of current year i.e. current portion of long term liabilities. Moreover, Some of the long-term liabilities that are due within one financial year of the date of balance sheet could persist to be booked as a long-term liability provided there exist a long-term investing’s that is adequate and prohibited for the repayment of the liability, or committed and a financial arrangement that swaps the liability with a new long-term liability. Both of the specified criteria for recognition of a long term liability are applicable and useable for all type of long term liabilities.
Recommend criteria for initial measurement of a long term liability?
Initially a long term liability so to be measured and reported at the amount originally obtained exclusive of changes and processing fees paid in this respect.
Justification of measurement criteria? (150)
Initially a long term liability is recorded on cost exclusive of the amounts paid to avail the particular type of liability i.e. long term debt, finance lease and bonds etc. During the first year of availing of a long term liability the company records the liability and adds the interest or payable accrued on the liability. Particularly when a company obtains a long term debt, issues bonds or obtains a finance lease asset the company is required to record the inflows at cost. In case of a long term loan, the company should record the value of long-term debt by considering the present value of payments. In case of issuance of debentures,...