Assets & Liabilities (18.2)

Question 1

What is can be assessed about a firm by looking at the balance sheet

Answer 1

The balance sheet can be used to assess a firm’s liquidity, solvency, and ability to make distributions to shareholders.

Question 2

Describe a classified balance sheet. What’s it useful for evaluating?

Answer 2

Both IFRS and U.S. GAAP require firms to separately report their current assets and noncurrent assets and current and noncurrent liabilities. The current/noncurrent format is known as a classified balance sheet and is useful in evaluating liquidity.

Question 3

Describe a liquidity based balance sheet format

Answer 3

Under IFRS, firms can choose to use a liquidity-based format if the presentation is more relevant and reliable. Liquidity-based presentations, which are often used in the banking industry, present assets and liabilities in the order of liquidity.