Week 2 - Definitions of Assets, Liabilities and Equity, and Classification

Question 1

What are some controlled assets?

Answer 1

• property, plant and equipment
• inventory
• cash
• trade receivables
• prepayments

Question 2

What are some non-controlled assets?

Answer 2

• customers
• employees
• market share

Question 3

What can control mean?

Answer 3

Physical possession, legal title (e.g PPE), legal right (e.g trade receivable)

Question 4

What are some ‘future economic benefits’?

Answer 4

• cash inflows (e.g trade receivables)
• use in the business (e.g plant and equipment)
• future services (e.g prepayments)

Question 5

What are some liability obligations?

Answer 5

• pay cash (e.g trade payable)
• re-pay cash (e.g bank loan)
• provide goods/services (e.g customer payment in advance)

Question 6

What are the four definitions of a current asset?

Answer 6

• The entity expects to realise (turn into cash), sell or consume the asset within 12 months
  -The entity expects to realise (turn into cash), sell or consume the asset within its normal operating cycle
• The asset is cash
• The asset is to be used for trading

Question 7

What are the four definitions of a current liability?

Answer 7

• The liability is due to be settled within the next 12 months
• The entity expects to settle the liability within its normal operating cycle
• The entity does not have an unconditional right to defer payment beyond 12 months
• The liability is to be used for trading

Question 8

What are the components of equity?

Answer 8

• share capital
• share premium
  ^^ invested by the owners of the company
• retained earnings
• other reserves
  ^^ value generated by the company, belonging to the owners