Chapter 10 - Section 2

Question 1

What is a balance sheet the same as

Answer 1

Statement of financial position

Question 2

What does the balance sheet show?

Answer 2

The value and categories of assets controlled by the company and the claims against those assets (or liabilities).

Alternatively is a list of the companies resources and how these have been financed

Question 3

What do non-current assets include?

Answer 3

Include tangible and intangible assets.

and available-for-sale investments unless the company expects them to be sold in the next twelve months

Question 4

What are intangible assets

Answer 4

nonphysical assets such as patents and trademarks

Question 5

What are tangible assets

Answer 5

physical assets that are held fo ruse in the production or supply of goods and services, for rental to others or for administration and that will be used for more than one accounting period

e.g. plant and equipment, property and vehicles

Question 6

list liabilities that a business might have

Answer 6

• Owners or shareholders who take a share in any profits made
• Retained earnings (past profits and gains not paid out to the shareholders but retained to enable to business to expand)
• Loan stock or debenture holders, who are typically paid a fixed rate of interest on their loan
• Long term bank loans
• Current liabilities - trade payables or bank overdrafts

Question 7

What two categories do liabilities fall into?

Answer 7

Claims due to the shareholders and claims due to other lenders

Question 8

What can claims / debts do to other lenders (non shareholder) be further classified into?

Answer 8

Non current and current liabilities

Question 9

What is the shareholders’ funds?

Answer 9

Subscribed capital and any retained earnings - these claims are generally only paid when the company ceases training

Question 10

What are current liabilities

Answer 10

Debts due for repayment within one year

e.g. trade repayable and bank overdrafts

Question 11

What are non-current liabilities

Answer 11

Liabilities not due within the next year

e.g. debentures, loan stock and bank loans

Question 12

What is the equation for the balance sheet?

Answer 12

Shareholders funds + noncurrent liabilities + current liabilities = non-current assets + current assets

Question 13

What two ways can an expense transaction be recorded?

Answer 13

Capital expenditure and revenue expenditure

Question 14

What is capital expenditure?

Answer 14

Money spent to create future benefits

e.g. a business buying non-current assets such as manufacturing equipment, or improving the value of an asset with a useful life that is longer than the current accounting year

Question 15

What is revenue expenditure?

Answer 15

Money spent to cover costs that are not related to the direct production of foods or services.

on items such as office supplies telephone services or costs for keeping assets maintained and in good working condition

Question 16

Under IFRS what are non-current assets referred to as?

Answer 16

plant, property and equipment (tangible assets)

Question 17

Under IFRS and UK accounting standards what is required for non-current assets

Answer 17

Require that such assets are recorded at cost and subsequently carried forward using either the cost model or revaluation model. The model used must be applied to the entire class of assets

Question 18

what is the cost model?

Answer 18

Cost - accumulated depreciation and accumulated impairment losses

Question 19

what is the revaluation model?

Answer 19

fair value as a the date of the latest revaluation - the accumulated depreciation and accumulated impairment losses

Question 20

What is the net carrying value of an asset calculated as?

Answer 20

Net carrying (book) value = original cost of asset - accumulated depreciation to date