Wk4 - Balance sheet

Question 1

What are the four GPFS?

Answer 1

1. Balance sheet (a statement of financial position)
2. A statement of profit or loss (an income statement (an income statement and included as part of a statement of comprehensive income)
3. Statement of changes in equity
4. Statement of cash flows

Question 2

What principles should general purpose financial statements (GPFS) be prepared in accordance with?

Answer 2

Generally accepted accounting principles (GAAP)

Question 3

What is generally accepted accounting principles (GAAP)

Answer 3

It is a set of rules and practices that guide financial reporting

Question 4

What is a balance sheet?

Answer 4

• 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

Question 5

What does the balance sheet show?

Answer 5

• 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)

Question 6

What is the difference between assets and liabilities?

Answer 6

Net assets

Question 7

Accounting choices applied to the recognition and measurement of elements in the financial statements are referred to as…

Answer 7

Accounting policies

Question 8

What are the two main formats for the balance sheet?

Answer 8

1. T-format
   - Assets on LHS and liabilities and equity on RHS
   - Often used for smaller entities
2. Narrative format
   - Assets, liabilities and equity presented down the page

Question 9

What is a group?

Answer 9

It refers to the parent entity and all its subsidiaries

Question 10

What else may the balance sheet report?

Answer 10

• Parent entity’s assets, liabilities and equity (for the parent only)
• Consolidated assets, liabilities and equity (for an entire group)

Question 11

What does it mean when an asset/liability is current?

Answer 11

The economic benefits (of asset) or outflow of resources (for liability) are expected to be realised within the next 12 months.

Question 12

What does it mean when an asset/liability is non-current?

Answer 12

If economic benefits (of asset) or outflow of resources (of liability) are expected beyond next the reporting period (more than 12 months).

Question 13

What are the four equity classes for a company?

Answer 13

– 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.

Question 14

What is a carrying amount/book value?

Answer 14

It is the dollar value assigned to assets and liabilities.

Question 15

What different measurements are there to determine carrying amounts?

Answer 15

• Historical cost
• Current cost
• Fair value
• Value-in-use
• Fulfilment value

Question 16

What is the carrying amount of receivables?

Answer 16

• 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

Question 17

What is gross amount?

Answer 17

It is the amount recorded in the receivables account.

Question 18

How should the carrying amount of inventory be measured?

Answer 18

It must be lower of its cost price or net realisable value.

Question 19

What are the 2 cost assumptions permitted under IFRS?

Answer 19

• First-in, first out (FIFO)
• Weighted average

Question 20

What is the net realisable value of inventory?

Answer 20

» 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

Question 21

What is depreciation?

Answer 21

It is the allocation of the depreciable amount ( i.e. cost or fair
value - residual value) over the life of the asset.