Faithful representation is a fundamental characteristic of useful information within the IASB’s Conceptual framework for financial reporting.
Which of the following accounting treatments correctly applies the principle of faithful representation?
A.Reporting a transaction based on its legal status rather than its economic substance
B.Excluding a subsidiary from consolidation because its activities are not compatible with those of the rest of the group
C.Recording the whole of the net proceeds from the issue of a loan note which is potentially convertible to equity shares as debt (liability)
D.Allocating part of the sales proceeds of a motor vehicle to interest received even though it was sold with 0% (interest free) finance
The substance is that there is no ‘free’ finance; its cost, as such, is built into the selling price.