6 - Statement of Financial Position

Question 1

What is the purpose of the statement of financial position?

Answer 1

To set out the financial position of a business at a particular point in time.

Assets, liabilities and equity position of the entity at a particular point in time.

Question 2

What is a Statement of Financial Position also called?

Answer 2

Balance Sheet

Question 3

Main identifying characteristics of an balance sheet asset are:

Answer 3

Expected future economic benefit; the business has exclusive right to control the benefit; the benefit must arise from some past transactions or event; the asset must be capable of reliable measurement in monetary terms.

Question 4

What are the two types of claims against the assets of a entity

Answer 4

External claims - known as liabilities

Internal claims - labelled owner’s equity, equity or capital

Question 5

Limitations to the Balance Sheet

Answer 5

Limitations related to the element definitions

Limitations related to transaction recognition

The range of alternative asset and liability financial measures.

Question 6

Which is used by small and big businesses: vertical or horizontal balance sheet format?

Answer 6

Vertical format - big businesses

Horizontal format - small businesses