Chp3: Balance Sheet

Question 1

What is under Current Assets?

Answer 1

1) Inventories
2) Prepaid Expenses
3) Cash
4) Receivable payment from debtors

Question 2

What is under Fixed Assets?

Answer 2

1) Accumulated Depreciation (-ve Value)
- Copyright, Trademark, Patent, Goodwill

2) Plants, Land, Property, Equipment
- Vehicles, Buildings eg

Question 3

What is under Current Liabilities?

Answer 3

Basically debts payable within <1 year

Question 4

What is under Long-term Liabilities?

Answer 4

1) Debentures

2) Secured Debts (Mortgage bonds)

Question 5

What is under Shareholder’s Equity?

Answer 5

1) Capital
2) Dividends (declared, not yet paid)= -ve Value
3) Retained Earnings

Question 6

What is the Current Ratio

Answer 6

Current Ratio= Current Asset/Current Liability

• Assess financial health and suitability to do investments.
• A value of 2.0 will indicate that it is adequate in general to meet operating needs sufficiently.
• The company is more capable of paying its obligations.
• Higher responsiveness to take advantage of investment opportunities.
• Attractive to Risk-adverse investors

Question 7

What is the Quick Ratio

Answer 7

Quick Ratio= Quick Assets/ Current Liabilities
Quick Assets= Current Assets- Inventory- Prepaid Expenses
Quick Assets= Cash + Accounts Receivable

Refers to the part of the Current Assets that is able to be converted into cash within one month.
Companies ability to meet current liabilities, for liquidity ratio should be >1.