Topic Four, Part 9 - Statement of Financial Position

Question 1

What is a statement of financial position?

Answer 1

A statement about business value at any given time

Question 2

What does a statement of financial position show?

Answer 2

• assets

- liabilities

Question 3

What are current liabilities?

Answer 3

less than one year

Question 4

What are non-current liabilities?

Answer 4

money owed for more than one year

Question 5

What is liquidity?

Answer 5

the ability to convert assets into cash

Question 6

What are non-current fixed assets?

Answer 6

Cannot be converted quickly into cash e.g. land, buildings

Question 7

What are tangible assets?

Answer 7

Assets that can be seen-factory and machine

Question 8

What are Intangible assets?

Answer 8

Assets that are not visible e.g. patent

Question 9

What is goodwill?

Answer 9

An intangible asset associated with the company’s reputation

Question 10

What are patents?

Answer 10

A government licence allowing a right for a set period

Question 11

What order are currents assets listed in?

Answer 11

• Inventories
• debtors
• cash

Question 12

What are inventories?

Answer 12

Stock e.g. materials, finished and unfinished goods

Question 13

What is included in the Trade and other receivables category?

Answer 13

Money owed to the business

Question 14

What is bad debt?

Answer 14

When debtors wont pay

Question 15

How is allowance method calculated for estimating bad debt? ///

Answer 15

Taking the figure as a percentage of the receivables.

Question 16

What is the ageing method for estimating bad debt?

Answer 16

Longer a debt isn’t payed, the more likely it wont ever be paid

Question 17

What is credit sales for estimating bad debt?

Answer 17

• Using a businesses historical records to assess the likelihood of bad debts
• Work out the % of bad debt for total sales or credit sales.

Question 18

What are liabilities?

Answer 18

What a business owes

Question 19

What is the formula for net assets?

Answer 19

(Value of current assets + non-current assets) -

non-current liabilities.

Question 20

What is shareholders equity?

Answer 20

The value of funds tied up in the business, as shares and retained profits.

Question 21

What are ordinary shares?

Answer 21

• Show an ownership of the business

- Each share allows a vote at the business AGM

Question 22

What are preference shares?

Answer 22

A share which entitles the holder to a fixed dividend

Question 23

What are retained earnings?

Answer 23

The money retained in the business in order to help it grow