Week 3- Statement of Financial Position

Question 1

What is the accrual basis?

Answer 1

income and expenditure is recognised in the year that it occurs not when cash is received or paid

Question 2

What is an Asset (technical definition)?

Answer 2

A present ECONOMIC RESOURCE controlled by the entity as a result of past events.

Question 3

what is an economic resource?

Answer 3

A right that has the potential to produce economic benefits

Question 4

what is a liability?(technical definition)

Answer 4

A present OBLIGATION of the entity to transfer an economic resource as a result of past events

Question 5

What is Equity (technical def) ?

Answer 5

The residual interest in the assets of the entity after deducting all of its liabilities

Question 6

Are SoFP’s produced in the same format by all companies?

Answer 6

Yes

Question 7

what are non-current assets/Liabilities?

Answer 7

those which the business intends to own/owe at the end of the next financial year.

Question 8

Are non-current assets/liabilities liquid?

Answer 8

No, they cant be turned into cash quickly

Question 9

what are current assets/liabilities?

Answer 9

those items which the business expects to have received/paid over the course of the next financial year

Question 10

are current assets liquid?

Answer 10

More so that non-current assets.

Question 11

Are most liquid or least liquid assets/liabilities listed at the top?

Answer 11

least liquid

Question 12

what does equity consist of?

Answer 12

• capital that the owners have added to the business
• share capital which is sold to shareholders
• Profit which the business has made (held in retained earnings account)
• Reserves

Question 13

how can the ACcounting equation be re-arranged?

Answer 13

A-L= OE

Question 14

what are intangible assets?

Answer 14

assets that have no material substance eg. goodwill, patents

Question 15

what are tangible assets?

Answer 15

assets have a material substance eg. land, building and vehicles

Question 16

what is share capital?

Answer 16

the number of shares issued multiplied by the value of each share

Question 17

what is share premium?

Answer 17

when each share is issued for an amount greater than its value and then the excess is entered into the share premium account

Question 18

what are retained earnings?

Answer 18

these are the profits that the business has earned in that have not yet been distributed to shareholders as dividends or reinvested into the business

Question 19

what is the sum of Net Assets?

Answer 19

Total assets- Total liabilities

Question 20

does the SoFP show all the assets of the business?

Answer 20

NO