Lecture 3

Question 1

What is the definition of current assets?

Answer 1

Expected to generate economic benefits within the current operating cycle (and not after)

Question 2

True or false: some companies may have an operating cycle over 1 year

Answer 2

True

Question 3

True or false: inventory includes materials for manufacturing

Answer 3

True

Question 4

If expenses are pre-paid beyond the current operating cycle, are they current or non-current assets?

Answer 4

Only the amount over the current cycle is non-current

Question 5

What is ‘share premium’?

Answer 5

The difference between share par value & actual sale price

Question 6

How is share capital calculated?

Answer 6

number of shares x par value

Question 7

What are the main accounting principles?

Answer 7

1. Legal entity convention
2. Dual aspect
3. Going concern convention
4. Historic cost convention
5. Conservatism / prudence

Question 8

What is the legal entity convention?

Answer 8

• Business & owners are distinct
• Accounts prepared for the business

Question 9

What is the dual aspect convention?

Answer 9

Each transaction has two equal & opposite aspects

Question 10

What is the going concern convention?

Answer 10

Companies will continue to operate for the foreseeable future

Question 11

What is the historic cost convention?

Answer 11

List acquisition costs, not current market values

Question 12

What is the conservatism / prudence convention?

Answer 12

• Don’t understate liabilities / losses
• Don’t overstate assets / profits

Question 13

What are types of equity?

Answer 13

1. Contributed capital
2. Share capital
3. Share premium
4. Retained profit