Statement of Financial Position Flashcards
Chapter 10 TOA
It is a formal statement showing the 3 elements comprising financial position, namely assets, liabilities and equity
Statement of Financial Position
It is the ability of the entity to meet currently maturing obligations
Liquidity
It is the availability of cash over the longer term to meet maturing obligations
Solvency
It is the residual interest in the net assets of the entity after deducting all of the liabilities
Equity
When there is much variability, the operating cycle is measured at
a. the mean value
b. the median value
c. twelve months
d. three years
c. twelve months
The operating cycle of an entity
a. Is the time between the acquisition of materials entering into a process and their realization in cash
b. Is the period of time normally elapsed in converting trade receivables back into cash
c. Is a period of one year
d. Refers to the seasonal variation experienced by entities
a. Is the time between the acquisition of materials
An entity shall classify an asset as current under all of the following conditions, except
a. The entity expects to realize the assets or intends to sell or consume it within the entity’s normal operating cycle
b. The entity holds the asset for the purpose of trading
c. The entity expects to realize the asset within twelve months after the reporting period
d. The asset is cash or a cash equivalent that is restricted to settle a liability for more than 12 months after the reporting period
d. The asset is cash or a cash equivalent that is restricted to settle a liability for more than 12 months after the reporting period
An entity shall classify a liability as current under all of the following conditions, except
a. the entity expects to settle the liability within the entity’s normal operating cycle
b. The entity holds the liability primarily for the purpose of trading
c. The liability is due to be settled within 12 months after the reporting period
d. The entity has the right to defer settlement of the liability for at least 12 months after the reporting period
d. The entity has the right to defer settlement of the liability for at least 12 months after the reporting period
Which obligations are classified as current even if these are due to be settled after more than 12 months from the end of the reporting period?
a. Trade payables and accruals for employee and other operating cost
b. Current portion of interest-bearing liabilities
c. Bank overdrafts
d. Dividends payable
a. Trade payables and accruals for employee and other operating cost
Current and noncurrent presentation of assets and liabilities provides useful information when the entity
a. Supplies goods or services within a clearly identification operating cycle
b. Is a financial institution
c. Is a public utility
d. Is a nonprofit organization
a. Supplies goods or services within a clearly identification operating cycle
A presentation of assets and liabilities in increasing or decreasing order of liquidity provides information that is reliable and more relevant than a current and noncurrent presentation for
a. Financial institution
b. Public utility
c. Manufacturing entity
d. Service provider
a. Financial institution
In the Philippines, the common practice is to present in the statement of financial position
a. Current assets before noncurrent assets, current liabilities before noncurrent liabilities and equity after liabilities
b. Noncurrent assets before current assets, noncurrent liabilities before current liabilities and equity after liabilties
c. Current assets before noncurrent assets, noncurrent liabilities before current liabilities and equity after liabilities
d. Noncurrent assets before current assets, current liabilities before noncurrent liabilities and equity after liabilities
a. Current assets before noncurrent assets, current liabilities before noncurrent liabilities and equity after liabilities
A financial liability due within 12 months after the reporting period shall be classified as noncurrent
a. When it is refinanced on a long-term basis before the issue of financial statements
b. When the entity has no right to refinance for at least 12 months
c. When it is refinanced on a long-term basis after the end of reporting period
d. When it is refinanced on along-term basis on or before the end of reporting period
d. When it is refinanced on along-term basis on or before the end of reporting period
When an entity breaches under a long-term loan agreement on or before the end of the reporting period with the effect that the liability becomes payable on demand, the liability is classified as
a. Current under all circumstances
b. Noncurrent under all circumstances
c. Current if the leader has agreed after the reporting period and before the issuance of the statements not to demand payment as a consequence of the breach
d. Noncurrent if the lender agreed after the reporting period to provide a grace period for at least 12 months after the reporting period
c. Current if the leader has agreed after the reporting period and before the issuance of the statements not to demand payment as a consequence of the breach
In presenting a statement of financial position, an entity
a. Must make the current and noncurrent presentation
b. Must present assets and liabilities in order of liquidity
c. Must choose either the current and noncurrent or the liquidity presentation
d. Must make the current and noncurrent presentation, except when a presentation based on liquidity provides information that is reliable and more relevant
d. Must make the current and noncurrent presentation, except when a presentation based on liquidity provides information that is reliable and more relevant
Assets to be sold, consumed or realized as part of the normal operating cycle are
a. Current assets
b. Noncurrent assets
c. Classified as current or noncurrent in accordance with other criteria
d. Noncurrent investments
a. Current assets
Liabilities that an entity expects to settle within the normal operating cycle are classified as
a. Noncurrent liabilities
b. Current or noncurrent liabilities in accordance with other criteria
c. Current liabilities
d. Equity
c. Current liabilities
Cash restricted for the settlement of a liability due 18 months after the reporting period should be presented as
a. Current asset
b. Equity
c. Noncurrent liability
d. Noncurrent asset
d. Noncurrent asset
Employment taxes due for settlement in 15 months time should be presented as
a. Current liability
b. Current asset
c. Noncurrent liability
d. Noncurrent asset
a. Current liability
In analyzing financial statements, which financial statement would a potential investor primarily use to assess liquidity and financial flexibility?
a. Statement of financial position
b. Income statement
c. Statement of retained earnings
d. Statement of cash flows
a. Statement of financial position
Which is an essential characteristics of an asset?
a. The claims to the benefits are legally enforceable
b. An asset is tangible
c. An asset is obtained at a cost
d. An asset is a present economic resource
d. An asset is a present economic resource
Conceptually, asset valuation accounts are
a. Assets
b. Neither assets nor liabilities
c. Part of shareholders’ equity
d. Liabilities
b. Neither assets nor liabilities
Working capital is
a. Assets which enable the entity to operate profitably
b. Capital which has been reinvested in the business
c. Unappropriated retained earnings
d. Current assets less current liabilities
d. Current assets less current liabilities
The basis for classifying assets as current or noncurrent is the period of time normally elapsed from the time the entity expends cash to the time it converts
a. Inventory back into cash or 12 months, whichever is shorter
b. Receivables back into cash or 12 months, whichever is longer
c. Tangible fixed assets back into cash or 12 months, whichever is longer
d. Inventory back into cash or 12 months, whichever is longer
d. Inventory back into cash or 12 months, whichever is longer
The operating cycle concept
a. Causes the distinction between current and noncurrent to depend on cash realization within one year
b. Permits some assets to be classified as current even though more than one year removed from becoming cash
c. Has become obsolete
d. Affects the income statement only
b. Permits some assets to be classified as current even though more than one year removed from becoming cash
When classifying assets as current and noncurrent
a. Current assets must reflect realizable cash value
b. Prepayments are included in other assets
c. Current assets are determined by the seasonal nature
d. Assets are classified as current if reasonably expected to be realized in cash or consumed during the normal operating cycle
d. Assets are classified as current if reasonably expected to be realized in cash or consumed during the normal operating cycle
The term net assets represents
a. Retained earnings
b. Current assets less current liabilities
c. Total contributed capital
d. Total assets less total liabilities
d. Total assets less total liabilities
Which should be classified as current asset?
a. Trade accounts receivable normally collectible in 18 months
b. Cash for the redemption of preference shares
c. Cash surrender value
d. A deposit on machinery ordered within six months
a. Trade accounts receivable normally collectible in 18 months
Which should not be considered as a current asset?
a. Installment accounts receivable due over 18 months in accordance with normal trade practice
b. Prepaid taxes
c. Financial asset held for trading
d. Cash surrender value
d. Cash surrender value
Current assets should never include
a. A receivable not collectible within one year
b. Current tax asset
c. Goodwill arising in a business combination
d. Premium paid on a bond investment
c. Goodwill arising in a business combination
Equity investments held to finance construction of additional plant should be classified as
a. Current assets
b. Property, Plant and Equipment
c. Intangible assets
d. Noncurrent investments
d. Noncurrent investments
Which of the following is not a noncurrent investment?
a. Cash surrender value
b. Franchise
c. Land held for speculation
d. A sinking fund
b. Franchise
The statement of financial position is useful for analyzing all of the following, except
a. Liquidity
b. Solvency
c. Profitability
d. Financial flexibility
c. Profitability
The amount of time that is expected to elapse until as asset is realized into cash is referred to as
a. Solvency
b. Financial flexibility
c. Liquidity
d. Exchangeability
c. Liquidity
What is one criticism not normally aimed at a statement of financial position?
a. Failure to reflect current value information
b. The extensive use of separate classifications
c. An extensive use of estimate
d. Failure to include items of financial value that cannot be recorded objectively
b. The extensive use of separate classifications
The statement of financial position
a. Omits many items that are of financial value
b. Makes very limited use of judgement and estimate
c. Uses fair value for most assets and liabilities
d. All of the choices are correct
a. Omits many items that are of financial value
Which is a limitation of a statement of financial position?
a. Many items that are of financial value are omitted
b. Judgement and estimate are used
c. Current fair market value is not reported
d. All of these are a limitation of the statement of financial position
d. All of these are a limitation of the statement of financial position
