Wk4 - Balance sheet Flashcards
What are the four GPFS?
- Balance sheet (a statement of financial position)
- A statement of profit or loss (an income statement (an income statement and included as part of a statement of comprehensive income)
- Statement of changes in equity
- Statement of cash flows
What principles should general purpose financial statements (GPFS) be prepared in accordance with?
Generally accepted accounting principles (GAAP)
What is generally accepted accounting principles (GAAP)
It is a set of rules and practices that guide financial reporting
What is a balance sheet?
- It is a financial statement that details the entity’s assets, liabilities and equity as at a particular point in time - normally the end of the reporting period.
- Reports the entities financial position
What does the balance sheet show?
- What the entity owns (or controls) as at a particular date (the assets)
- The external claims on the entity’s assets (the liabilities)
- The internal claim on the entity’s assets (the equity)
What is the difference between assets and liabilities?
Net assets
Accounting choices applied to the recognition and measurement of elements in the financial statements are referred to as…
Accounting policies
What are the two main formats for the balance sheet?
- T-format
- Assets on LHS and liabilities and equity on RHS
- Often used for smaller entities - Narrative format
- Assets, liabilities and equity presented down the page
What is a group?
It refers to the parent entity and all its subsidiaries
What else may the balance sheet report?
- Parent entity’s assets, liabilities and equity (for the parent only)
- Consolidated assets, liabilities and equity (for an entire group)
What does it mean when an asset/liability is current?
The economic benefits (of asset) or outflow of resources (for liability) are expected to be realised within the next 12 months.
What does it mean when an asset/liability is non-current?
If economic benefits (of asset) or outflow of resources (of liability) are expected beyond next the reporting period (more than 12 months).
What are the four equity classes for a company?
– Share capital: paid up share capital, contributed capital.
- Retained earnings: cumulative profits that have not been distributed.
- Reserves: a component of equity that recognises profits that were put aside for various purposes.
– Non controlling interests : presented in the consolidated accounts only if the parent entity does not own 100 per cent of the subsidiary entity.
What is a carrying amount/book value?
It is the dollar value assigned to assets and liabilities.
What different measurements are there to determine carrying amounts?
- Historical cost
- Current cost
- Fair value
- Value-in-use
- Fulfilment value
What is the carrying amount of receivables?
- The expected cash to be received.
- The amount owing must be reduced by the amount expected to be uncollectable using an account called allowance for doubtful debts a contra asset account
- Net amount = gross amount - allowance for doubtful debts
What is gross amount?
It is the amount recorded in the receivables account.
How should the carrying amount of inventory be measured?
It must be lower of its cost price or net realisable value.
What are the 2 cost assumptions permitted under IFRS?
- First-in, first out (FIFO)
- Weighted average
What is the net realisable value of inventory?
» the expected selling price
» less the expected costs associated with getting the inven tory to a saleable state
» less the costs of marketing, selling and distribution
What is depreciation?
It is the allocation of the depreciable amount ( i.e. cost or fair
value - residual value) over the life of the asset.
