Accounting

Question 1

The five steps of dispoasal are:

Answer 1

1. new depreciation
2. record cost price
3. accumulated depreciation
4. record selling price
5. determine gain or loss

Question 2

What is the layout of an “account form” SOFP

Answer 2

CA, NCA, sum of assets, on the left side
CL, NCL, OE, liabilities plus equity, on the right side

Question 3

What is the layout of a “narrative form” SOFP

Answer 3

CA, NCA, CL, NCL, Net assets, OE

Question 4

What is the layout of a “working capital” SOFP

Answer 4

CA, CL, Working Capital, NCA, NCL, Net Assets, OE

Question 5

Owner’s Equity is equal to

Answer 5

Assets - Liabilities

Question 6

Do interest payments on a loan include GST

Answer 6

no

Question 7

Do commission payments to sales staff include GST

Answer 7

yes

Question 8

Ratio that gauges the effectiveness of short-term operational efficiency. Operating profit as a percentage of total revenue.

Answer 8

EBITDA margin ratio %
ideally 10% or more

Question 9

Ratio that measures the amount of net income each share earns.

Answer 9

Earnings per share, # cents
ideally a high cent amount

Question 10

Ratio that measures how expensive a company’s shares are based on the earnings per share.

Answer 10

Price to earnings ratio, # times
ideal amount (times) depends on the industry

Question 11

A ratio measuring the amount of a company’s share price that it pays out in dividends each year relative to its stock price.

Answer 11

Dividend yield ratio %
2-4% is considered ideal - too high means less to invest in long term growth

Question 12

A ratio that gives investors an indication of the ability of a company to generate cash from its sales.

Answer 12

Operating cash flow ratio %
higher percentage is always better

Question 13

A ratio that shows the company’s ability to generate cash purely from operations compared to total cash inflows which would include inflows from investing and financing activites.

Answer 13

Cash generating power ratio, #:1
a decrease in the amount (times) over time would be concerning to the business

Question 14

A ratio that indicates whether a company can repay existing long-term liabilities and take on additional debt without jeopardising its survival.

Answer 14

Long-term debt coverage ratio #:1
ideally greater than 1:1

Question 15

A ratio that shows the extent that a company’s assets are financed through debt.

Answer 15

Debt ratio #%
ideally 30-36% as lower suggests the company is too conservative and higher means the company is at risk with too much being funded by liabilities

Question 16

A ratio that shows how much debt is being used to finance a business compared to equity.

Answer 16

Debt to equity ratio #%
generally a lower % is better to show the business does not have heaps of debt however not too low to the point where the business has an overly conservative financial structure

Question 17

A ratio that shows the amount of the assets on which shareholders have a residual claim.

Answer 17

Equity margin ratio #%
higher % indicates less leverage and more conservative, lower % indicates a high proportion of finance is through debt

Question 18

A ratio of all liabilities of a company with respect to the equity investments of the company.

Answer 18

Gearing ratio #:1
if high it suggests a significant amount of the funding comes from debt and puts the company in greater financial risk
if low company has low financial risk but may not be leveraged as optimally as it could be leading to stunted growth
0.25-0.5% is optimal

Question 19

A ratio that measures net income against total assets.

Answer 19

Rate on return on total assets %
High % means the company is effectively using its assets to generate profits

Question 20

A ratio that indicates how much of a company’s assets have been generated by issuing shares rather than by taking on debt.

Answer 20

Shareholder equity ratio %

Question 21

A ratio that shows how many times a company’s operating income can cover its interest expenses.

Answer 21

Times interest earned ratio, # times
A high number of times indicates that the company has a better ability to cover interest costs suggesting low financial risk.

Question 22

New BDD is equal to ____ and is used in the _____

Answer 22

old BDD - old PDD + new PDD
second BDD/PDD GJ entry

Question 23

What figure is used in the first PDD/BDD GJ entry?

Answer 23

Old BDD amount

Question 24

What is the classification of rates?

Answer 24

Adminitsration expense

Question 25

What gets written off to the profit and loss acount at the end of the financial year?

Answer 25

Revenues and expenses

Question 26

The SOFP cash at bank is the same as the ___

Answer 26

final line of the SOCF

Question 27

_____ is the long-term ability to remain in operation and honour long-term financial commitments.

Answer 27

Stability

Question 28

What do brackets mean?

Answer 28

The number inside is negative

Question 29

Stability ratios are _____

Answer 29

debt ratio, debt to equity ratio, equity ratio, times interest earned ratio