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

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1
Q

equation

basic equation underlying the balance sheet

COMPONENTS OF THE 1 BALANCE SHEET

A

Assets = Liabilities + Equity

COMPONENTS OF THE 1 BALANCE SHEET

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2
Q

Define

Assets (A)

Components and Format of the Balance Sheet

A

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

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3
Q

Define

Liabilities (L)

Components and Format of the Balance Sheet

A

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

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4
Q

Define

“fair value” (IFRS and US GAAP)

Components of the Balance Sheet

A

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

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5
Q

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

A

IFRS; US GAAP

Components of the Balance Sheet

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6
Q

For all financial statement items, an item should only be recognized in the financial statements if:

Components of the Balance Sheet

A

(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

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7
Q

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

A

should not

Components of the Balance Sheet

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8
Q

Fill in the blank

The balance sheet under current accounting standards is a mixed model with respect to ___

Components of the Balance Sheet

A

Measurement

Components of the Balance Sheet

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9
Q

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

A

Historical cost; fair value

Components of the Balance Sheet

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10
Q

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

A

Liquidity

Components of the Balance Sheet

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11
Q

Define

(with respect to a particular asset or liability) liquidity

Components of the Balance Sheet

A

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

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12
Q

Choose

Which is more liquid:
(A) holding in an actively traded stock
(B) holding of commercial real estate

Components of the Balance Sheet

A

A. holding in an actively traded stock

Components of the Balance Sheet

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13
Q

Finish the sentence

The separate presentation of current and non-current assets and liabilities facilitates analysis of:

Components of the Balance Sheet

A

A company’s liquidity position (at least as of the end of the fiscal period)

Components of the Balance Sheet

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14
Q

Regulatory Exceptions

Current and non-current classifications are not required in a company’s balance sheet if:

Components of the Balance Sheet

A

A liquidity-based representation provides reliable and more relevant information

Components of the Balance Sheet

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15
Q

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

(A) IFRS only

Components of the Balance Sheet

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16
Q

Enumerate

The separate representation of these facilitates the analysis of a company’s liquidity position (at the end of the period)

Components of the Balance Sheet

A

current assets
non-current assets
current liabilties
non-current liabilities

Components of the Balance Sheet