FSA- Balance Sheet- Reading 25

Question 1

Balance Sheet Components

Answer 1

Asset= Liability + Owners Equity

Question 2

Formats of B/S Presentation

Answer 2

i) Current & Non-Current Classification: Classifying the items into subcategories based on usage & liquidity
ii) Liquidity based Classification: No separate subclassifications, instead items are put in order of decreasing liquidity.

Question 3

Current Assets

Answer 3

i) Cash & Cash Equivalents
ii) Marketable Securities
iii) Trade Receivables
iv) Inventories
v) Other Current Assets

Question 4

Cash & Cash Equivalents

Answer 4

Cash equivalents are highly liquid securities that usually mature in less than 90 days
Measurement:
i) Amortised cost or Fair value
Amortised cost- Historical cost adjusted for impairment or amortisation.
Fair value- amount at which asset is exchanged b/w knowledgable & willing parties.

Question 5

Marketable Securities

Answer 5

Investments in debt and equity securities that are traded on public markets. Their balance sheet values are based on market price.

Question 6

Trade Receivables

Answer 6

Measured at Net Realisable value (approx fair value based on collectability)

Question 7

Inventories

Answer 7

i) Under IFRS, inventory is reported at the lower of cost and net realizable value (NRV).
ii) Under U.S. GAAP, inventory is reported at the lower of cost and market.

Question 8

Other Current Assets

Answer 8

i) Prepaid Expenses
ii) Deferred Tax Asset- when a company’s taxes payable exceed its income tax expense, kind of prepayment of Income Tax, hence counted as Assets.

Question 9

Current Liabilities

Answer 9

i) Accounts Payable
ii) Notes Payable
iii) Current portion of long-term liabilities
iv) Income Tax Payable
v) Accrued Liabilities
vi) Unearned/ Deferred Revenue

Question 10

Non Current Assets

Answer 10

i) Property Plant & Equipment (PPE)
ii) Investment Property
iii) Intangible Assets

Question 11

Property Plant & Equipment (PPE)

Answer 11

IFRS- Valued using Cost or Revaluation model

GAAP- Only Cost model for reporting.

Question 12

Investment Property

Answer 12

IFRS- Valued using Cost or Revaluation model.

GAAP- No specific definition for Investment Property.

Question 13

Intangible Assets

Answer 13

IFRS- Valued using Cost or Revaluation model

GAAP- Only Cost model for reporting.

Question 14

Identifiable Intangibles

Answer 14

E.g- Patent, Copyrights, Trademarks, Franchises, Licences etc.
Identifiable Intangibles may be internally created or acquired.
If internally created, research phase & development phase needs to be identified.
Research Phase- Expense all the cost incurred
Development Phase- cost can be capitalised, provided, there is enough assurance about technological feasibility, project completion.

Question 15

Goodwill

Answer 15

Accounting Goodwill- Based on a/c standards, and reported at time of acquisition.
Economic Goodwill- Based on Co’s performance and future prospects.

Question 16

Accounting Goodwill

Answer 16

under both IFRS & GAAP, accounting goodwill resulting from acquisitions is capitalised.
Further, under both sets of standards, goodwill is not amortized, but is tested for impairment annually.
An impairment charge reduces net income and decreases the carrying value of goodwill to its actual value.

Question 17

Financial Assets

Answer 17

Available for Sale Securities
Held to Maturity Securities
Trading Securities

Question 18

Available for Sale Securities

Answer 18

These are debt or equity securities that are neither expected to be traded in the near term, nor held till maturity.
These securities are reported at fair market value on the balance sheet.

Question 19

Held to Maturity Securities

Answer 19

Debt securities that are purchased with the intent of holding them till maturity.
Held-to-maturity securities are carried at amortized cost.

Question 20

Trading Securities

Answer 20

These are debt and equity securities (e.g., stocks and bonds) that are acquired with the intent of earning trading profits over the near term.
These securities are measured at fair market value on the balance sheet.

Question 21

Non Current Liabilities

Answer 21

Long Term financial Liabilities

Deferred Tax Liabilities

Question 22

Long Term financial Liabilities

Answer 22

Measured at Fair value or Amortized Cost

Question 23

Deferred Tax Liabilities

Answer 23

These usually arise when a company’s income tax expense exceeds taxes payable