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Financial Management > Mid Term 1 > Flashcards

Mid Term 1 Flashcards

1
Q

What is depreciation

A

The annual loss in value due to use, wear, age, and technical obsolescence

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2
Q

What does an asset need to be depreciated

A
  1. Useful life of more than a year
  2. A determinable useful life, but not an unlimited life
  3. Used in a business in order for the depreciation to be a business expense
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3
Q

What is market value

A

The value for which an asset would be sold in an open-market transaction. Eg selling a car on Kijiji

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4
Q

What is book value

A

The original cost of an asset minus the total depreciation that has been taken to date

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5
Q

What is useful life

A

The number of years an asset is expected to be used

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6
Q

What is salvage value

A

The expected market value of a depreciable asset at the end of its assigned useful life

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7
Q

What are 3 methods for calculating depreciation

A

Straight line

Declining balance

Sum-of-the-years digits (SOYD)

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8
Q

How do u calculate straight line depression

A

Annual depreciation =
Cost - salvage value
Divided by
Useful life

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9
Q

How do you calculate declining balance depreciation

A

Annual depreciation =
(Book value at beginning of year) x Rate x time

Only can do it for one year for more years do it again but subtract answer form first one to book value

Rates
Machinery 10%
Buildings 5%
Land and quota 0%

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10
Q

What are the rates for declining balance depreciation

A

10% for machinery
5% buildings
0% for land and quota

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11
Q

What is economic depreciation

A

Is the decline in value due to an assets reduced ability to produce revenue now and in the future

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12
Q

What is tax depreciation

A

Is used as a deductible expense in calculating taxable income for a business (also called capital allowance or CCA)

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13
Q

What is capital

A

A collection of physical and financial assets that have market value

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14
Q

What is a capital asset

A

An asset that is expected to last through more than one production cycle and can be used to produce other saleable assets or services
Ex machinery, buildings, land

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15
Q

What is capital purchase or capital expenditure

A

The purchase of a capital asset used in production

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16
Q

What is a capital sale

A

The sale of a capital asset used in production

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17
Q

What is purchase price

A

The full cost initially paid in exchange for the asset. Dollar value or trade and other forms of payment

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18
Q

What is a loan

A

The act of giving money, property or other material goods to another party in exchange for future payment

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19
Q

What makes up a loan

A

Principal
Interest
Possible administration fees

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20
Q

What is principal

A

The amount that was originally borrowed

Or amount still owed in loan separate from interest

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21
Q

What is the total principal left to pay on a loan at any given time called

A

Outstanding balance

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22
Q

What is interest

A

The charge for the privilege of borrowing money typically expressed as an annual percentage rate

Separate from actual loan amount

23
Q

What are 4 types of loans

A

Open ended loans

Closed ended loans

Secured loans

Unsecured loans

24
Q

What is an open ended loan

A

Are loans you can borrow over and over
Do not have a specific time that they have to be paid off
Ex. Credit cards, lines of credit, operating loans

25
Q

What is a closed ended loan

A

Are loans that cannot be borrowed once they’ve been paid
Also called term loans
Eg. Mortgages, car loans, student loans

26
Q

What is a secured loan

A

Loans that require an asset as collateral for the loan

27
Q

What is an unsecured loan

A

Loans that don’t have an asset as collateral

28
Q

What is a lien

A

A legal right of a lender to sell the collateral of a debtor who fails the obligations of the loan
Repossession

29
Q

What is the simple interest calculation

A 
I=Prt
Interest
Principal 
Rate
Time
30
Q

What is a fixed rate

A

A rate locked in for a specific time and tend to be higher the longer they are locked in

31
Q

What is a variable rate

A

Float with the interest of the day, week or month. Can be risky. Usually Lower than fixed rates

32
Q

What is prime rate

A

The rate of interest the banks charge the most credit worthy of low risk customer
Is a base rate that the bank uses as a reference for lending
Current rate is 3.95%

33
Q

Types of repaying loans

A

CTP (constant total payments)
CPP (constant principal payments)

CTP is more common
CPP lower interest rate

34
Q

What is current portion

A

The principal due in this current year or payment

35
Q

What is non current portion

A

Principal that is due in the future not thus year or payment

36
Q

What is a balance sheet

A

A systematic organization of everything owned and owed by a business of individual at any given time
A financial condition of a business at one point in time

37
Q

What is an asset

A

Things that are owned

38
Q

What is a liability

A

Things that are owed

39
Q

What are the 2 equations important to balance sheets

A

Assets - liabilities = equity

Assets = liabilities + equity

40
Q

What is equity

A

The amount you own outright or how much of your asset you have “paid off”

41
Q

Balance sheet vs net worth statement

A

Balance sheet values assets at book value

Net worth statement values assets at market value

42
Q

Balance sheet components

A 
Title
Date
Assets
Liabilities 
Total assets
Total liabilities 
Equity 
Total liabilities and equity
43
Q

What is a current asset

A

Used up or sold within the year

Are more liquid assets

44
Q

What are intermediate assets

A

Are less liquid than current assets and have a greater life but less than 10 years (1-10 years)
Ex machinery, equipment, breeding livestock

45
Q

What are fixed assets

A

Are least liquid and have a life greater than 10 years

Ex. Land, buildings

46
Q

What are current liabilities

A

Financial obligations due within 1 year firm the date of balance sheet
Ex. Accounts payable, current portion of loan

47
Q

What are intermediate liabilities

A

Financial obligations where repayment of principal occurs over a period of more than a year but less than 10 years

48
Q

What are long term liabilities

A

Are debt obligations where the original repayment period is for a length of time exceeding 10 years

49
Q

What is liquidity

A

The ability of a business to meet its short term financial obligations

50
Q

What is solvency

A

The ability of a business to meet its total financial obligations

51
Q

How to analyze liquidity

A

Current ratio

Working capital

52
Q

What is current ratio

A

A ratio that compares current assets to current liabilities and puts it into a ratio

53
Q

What is working capital

A

Not a ratio it is a dollar value

What’s left over from subtracting your current liabilities from your current assets

54
Q

Analyzing solvency

A

Equity ratio - equity over total assets

Leverage ratio - total liabilities over equity

Financial Management (2 decks)

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