Exam Prep

Question 1

What is Payback period?

Answer 1

It is the time it takes for the cash flows from an investment to exceed the initial cost of the investment

Question 2

Payback period,
Advantages and Disadvantages

Answer 2

Adv
- Simple and easy to understand for business managers as they appreciate the importance of cash outlays being recouped.
- Gives manager some appraisal of the risk attached to a project

Dis
- it does not consider the time value of money
- cash received after the payback period is not considered. Some projects require immense time good cash flows.

Question 3

Explain time value of money

Answer 3

money today will has less value in the future due to inflation and interest rates

Question 4

Define comprehensive income

Answer 4

Comprehensive income’ is defined in AASB 101 as the change in equity of the business during a period resulting from transactions or events other than the contribution or withdrawal of capital by the owners.

Question 5

State and explain the 3 elements of equity

Answer 5

The three elements of equity are share capital (the part of the capital of a company that comes from the issue of shares), retained earnings (the amount of profit a company has left over after paying all its costs, income taxes and dividends to shareholders) and other components of equity (the reserve accounts of a company).

Question 6

What is basic structure of the statement of Cash Flows?

Answer 6

Cash flows from
operating expenses
investing expenses
financing expenses