Chapter 4

Question 1

What’s the structure of an annual report?

Answer 1

Corporate information, analysis and comments, statements and disclosures, and financial statements.

Question 2

What does the term “liquidity” mean?

Answer 2

How fast an item can be converted to cash.

Question 3

What should an income statement include?

Answer 3

Revenue, finance costs, share of profits, and tax expenses.

Question 4

What does a company’s current ratio measure?

Answer 4

The company’s ability to pay current liabilities with current assets.

Question 5

True or false: a low current ratio is preferred.

Answer 5

False

Question 6

What does a statement of cash flows measure?

Answer 6

Cash receipts and payments.

Question 7

Explain the three types of activities: operating, investing, and financing.

Answer 7

1. operating: selling goods and services to customers
2. investing: buying and selling long-term assets
3. financing: borrowing and repaying funds and equity transactions

Question 8

What basic information does a financial statement have to contain?

Answer 8

The name of the company, if it’s an individual or consolidated account, a date/reporting period, a currency, and an amount.

Question 9

What does “the going concern” refer to?

Answer 9

A company’s ability to operate in the foreseeable future.

Question 10

Which of the following is not a current asset:
A. cash
B. property, plant, and equipment
C. inventory
D. trade receivables

Answer 10

B. (property, plant, and equipment)

Question 11

Which of the following changes does not require a restatement:
A. a change in accounting estimate
B. changes due to new accounting standards
C. changes in accounting policies
D. prior-period errors

Answer 11

A. (a change in accounting estimate)

Question 12

Materiality depends on:
A. the size of the misstatement
B. the nature of the misstatement
C. both A and B

Answer 12

C. (both A and B)