Book Questions

Question 1

What forms might econonomic benefits take?

1.
2.
3.
4.

Answer 1

• cash generated from producing goods or services
• cash received from proceeds on selling the resoruce
• cash received when exchanged for another econlomic resource
• cash generated from renting or leasing it

Question 2

What characteristic must an asset have?

1.
2.
3.

Answer 2

• must be economic resource
  , i.e. must provide potential economic benefits that are not equally available to others
• must be under control of the business, which is usually aquired by business through legal ownership or through contractual agreement (e.g. leasing equipment)
• resource must be capable of measurement in monetary terms

Question 3

Examples for assets

1.
2.
3.
4.
5.
6.
7.
8.

Answer 3

• property
• plants and equipment
• fixture and trademarks
• trade receivables (debtors)
• investments outside the business
• inventories
• cash

Question 4

What are characteristics of current asstes?

1.
2.
3.
4.

Answer 4

• held for sale or consumption during business´ normal operating cycle
• expected to be sold within a year
• held principally for trading
• cash or near cash such as easily marketable, short-term investments

Question 5

Examples for tangible, non-current assets

1.
2.
3.

Answer 5

• property
• plant
• equipment

Question 6

What are characteristics of current liabilities?

1.
2.
3.
4.

Answer 6

• expected to be settled within the business´normal operating cycle
• arise principally as a result of trading
• due to be settled within a year
• no right to defer settlement beyond a year

Question 7

What´s an example for a current liabilit?

What´s an example for a non-current liabilit?

Answer 7

• current: trade payables or bank overdraft
• non-current: long-term borrowings

Question 8

What are non-current assets that have a finite life and are

1. tangible
2. intangible

Answer 8

1. computers, machinery, vehicles
2. patents, licences, leases taken out on assets

Question 10

What´s the materiality convention?

1.
2.
3.

Answer 10

• accruals and prepayments are subject to this
• sates that we only should consider what is expedient
• means: treating item as an expense in the period in which it is first recorded rather than strictly matching it to the revenue to which it relates

Question 11

What does the accruals convention state?

1.
2.
3.

Answer 11

• profit is not equal to total cash received
• total expenses is not equal to toal cash paid
• profit for the period is NOT equal to the net cash generated during that period
• reflects difference between profit and liquidity (profit is measure of achievement or productive effort)
• excess of revenue over expenses for a period NOT excess of cash receipts over cash payments

Question 12

Balance Sheet and Income statement both are prepared on…..

What about the statement of cash flows?

Answer 12

-accruals accounting
- no, it deals only with cash receipts and payments

Question 13

What are the conventions?

1.
2.
3.
4.
5.

Answer 13

• business entity convention
• dual aspect convention
• going concern convention
• prudence convention
• historic cost convention