Vol. 3 LM2 Components of the Balance Sheets Flashcards
Describe the elements of the balance sheet: assets, liabilities, and equity; alternative formats of balance sheet presentation
equation
basic equation underlying the balance sheet
COMPONENTS OF THE 1 BALANCE SHEET
Assets = Liabilities + Equity
COMPONENTS OF THE 1 BALANCE SHEET
Define
Assets (A)
Components and Format of the Balance Sheet
are what the company owns (or controls). More formally, assets are resources controlled by the company as a result of past events and from which future economic benefits are expected to flow to the entity.
Components and Format of the Balance Sheet
Define
Liabilities (L)
Components and Format of the Balance Sheet
are what the company owes. More formally, liabilities represent obligations of a company arising from past events, the settlement of which is expected to result in a future outflow of economic benefits from the entity.
Components and Format of the Balance Sheet
Define
“fair value” (IFRS and US GAAP)
Components of the Balance Sheet
An exit price, i.e., the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date
Components of the Balance Sheet
Fill in the blank:
___ uses the term “statement of financial position”, whereas ____ uses the terms “balance sheet” and “statement of financial position”.
Components of the Balance Sheet
IFRS; US GAAP
Components of the Balance Sheet
For all financial statement items, an item should only be recognized in the financial statements if:
Components of the Balance Sheet
(1) it is probable that any future economic benefit associated with the item will flow to or from the entity; and,
(2) the item has a cost or value that can be measured with reliability
Components of the Balance Sheet
Yes/No
The balance sheet amounts of equity (assets, net of liabilities) (should / should not) be viewed as a measure of either the market or intrinsic value of a company’s equity.
Components of the Balance Sheet
should not
Components of the Balance Sheet
Fill in the blank
The balance sheet under current accounting standards is a mixed model with respect to ___
Components of the Balance Sheet
Measurement
Components of the Balance Sheet
Fill in the blank
Certain assets and liabilities are measured based on _____ , sometimes with adjustments, whereas other assets and liabilities are measured based on a _______.
Components of the Balance Sheet
Historical cost; fair value
Components of the Balance Sheet
Fill in the blank
A company’s ability to pay for its short term operating needs relates to the concept of ____.
Components of the Balance Sheet
Liquidity
Components of the Balance Sheet
Define
(with respect to a particular asset or liability) liquidity
Components of the Balance Sheet
Refers to its “nearness to cash”. A liquid asset is one that:
1. can be converted into cash in a short period of time; and,
2. at a price close to fair market value
Components of the Balance Sheet
Choose
Which is more liquid:
(A) holding in an actively traded stock
(B) holding of commercial real estate
Components of the Balance Sheet
A. holding in an actively traded stock
Components of the Balance Sheet
Finish the sentence
The separate presentation of current and non-current assets and liabilities facilitates analysis of:
Components of the Balance Sheet
A company’s liquidity position (at least as of the end of the fiscal period)
Components of the Balance Sheet
Regulatory Exceptions
Current and non-current classifications are not required in a company’s balance sheet if:
Components of the Balance Sheet
A liquidity-based representation provides reliable and more relevant information
Components of the Balance Sheet
Regulatory Exceptions
Exceptions to current and non-current classifications in the balance sheet exists under:
(A) IFRS
(B) US GAAP
(C) Both IFRS and US GAAP
(D) Neither
Components of the Balance Sheet
(A) IFRS only
Components of the Balance Sheet
