Topic 8- Closing Balance Sheet

Question 1

Identify the components of the financial analysis ‘system’ (dealt with in earlier topics) which provide information necessary for the derivation of the closing balance sheet.

Answer 1

• Opening balance sheet
• Cash flow statement
• Inventory Schedules/Trading Accounts
• Depreciation Schedule
• Income Statement

Question 2

Identify the specific information provided by the opening balance sheet

Answer 2

• Opening balance sheet

• owner’s equity as the beginning of the year and
• any asset or liability not affected by year’s activities.

Question 3

Identify the specific information provided by the cash flow statement

Answer 3

• Cash flow statement

• End of year bank balance
• Value of cash additions or withdrawals made by owners
• Capital receipts and payments which alter the value of any asset and liability already on the balance sheet or to be placed on the closing balance sheet.

Question 4

Identify the specific information provided by inventory schedules/ trading account

Answer 4

• Inventory Schedules/Trading Accounts

- Value of associated stock on hand at the end of the year

Question 5

Identify the specific information provided by the depreciation schedule

Answer 5

• Depreciation Schedule

- Value of depreciable assets on hand at the end of the year - Value of any revaluation increments

Question 6

Identify the specific information provided by the income statement

Answer 6

• Income Statement

- Net profit or loss figure

Question 7

For any asset and liability item on a closing balance sheet, indicate how you would determine its value to be placed on the closing balance sheet.

Answer 7

Assets
- Beginning of year value + purchases (additions) - sales (reductions)

Liabilities
- Beginning of year value + additions - repayments

Question 8

What are the various factors which will determine the value of the owner’s equity at the end of the financial period?

Answer 8

• Owner’s equity at the beginning of the year
• Net profit (+) or loss (-)
• Capital contributions (+) and withdrawals (-)
• Asset revaluation increments (+)

Question 9

Explain what an asset revaluation is.

Answer 9

The revaluation of an asset occurs when there is a desire to update the asset’s depreciated value to ensure it corresponds with current market values. This situation could arise when the expected life of say a tractor or piece of machinery is underestimated at the time of purchase, or when market changes over a number of years make the management values unrealistic.