Mid Term 1

Question 1

What is depreciation

Answer 1

The annual loss in value due to use, wear, age, and technical obsolescence

Question 2

What does an asset need to be depreciated

Answer 2

1. Useful life of more than a year
2. A determinable useful life, but not an unlimited life
3. Used in a business in order for the depreciation to be a business expense

Question 3

What is market value

Answer 3

The value for which an asset would be sold in an open-market transaction. Eg selling a car on Kijiji

Question 4

What is book value

Answer 4

The original cost of an asset minus the total depreciation that has been taken to date

Question 5

What is useful life

Answer 5

The number of years an asset is expected to be used

Question 6

What is salvage value

Answer 6

The expected market value of a depreciable asset at the end of its assigned useful life

Question 7

What are 3 methods for calculating depreciation

Answer 7

Straight line

Declining balance

Sum-of-the-years digits (SOYD)

Question 8

How do u calculate straight line depression

Answer 8

Annual depreciation =
Cost - salvage value
Divided by
Useful life

Question 9

How do you calculate declining balance depreciation

Answer 9

Annual depreciation =
(Book value at beginning of year) x Rate x time

Only can do it for one year for more years do it again but subtract answer form first one to book value

Rates
Machinery 10%
Buildings 5%
Land and quota 0%

Question 10

What are the rates for declining balance depreciation

Answer 10

10% for machinery
5% buildings
0% for land and quota

Question 11

What is economic depreciation

Answer 11

Is the decline in value due to an assets reduced ability to produce revenue now and in the future

Question 12

What is tax depreciation

Answer 12

Is used as a deductible expense in calculating taxable income for a business (also called capital allowance or CCA)

Question 13

What is capital

Answer 13

A collection of physical and financial assets that have market value

Question 14

What is a capital asset

Answer 14

An asset that is expected to last through more than one production cycle and can be used to produce other saleable assets or services
Ex machinery, buildings, land

Question 15

What is capital purchase or capital expenditure

Answer 15

The purchase of a capital asset used in production

Question 16

What is a capital sale

Answer 16

The sale of a capital asset used in production

Question 17

What is purchase price

Answer 17

The full cost initially paid in exchange for the asset. Dollar value or trade and other forms of payment

Question 18

What is a loan

Answer 18

The act of giving money, property or other material goods to another party in exchange for future payment

Question 19

What makes up a loan

Answer 19

Principal
Interest
Possible administration fees

Question 20

What is principal

Answer 20

The amount that was originally borrowed

Or amount still owed in loan separate from interest

Question 21

What is the total principal left to pay on a loan at any given time called

Answer 21

Outstanding balance

Question 22

What is interest

Answer 22

The charge for the privilege of borrowing money typically expressed as an annual percentage rate

Separate from actual loan amount

Question 23

What are 4 types of loans

Answer 23

Open ended loans

Closed ended loans

Secured loans

Unsecured loans

Question 24

What is an open ended loan

Answer 24

Are loans you can borrow over and over
Do not have a specific time that they have to be paid off
Ex. Credit cards, lines of credit, operating loans

Question 25

What is a closed ended loan

Answer 25

Are loans that cannot be borrowed once they’ve been paid Also called term loans Eg. Mortgages, car loans, student loans

Question 26

What is a secured loan

Answer 26

Loans that require an asset as collateral for the loan

Question 27

What is an unsecured loan

Answer 27

Loans that don’t have an asset as collateral

Question 28

What is a lien

Answer 28

A legal right of a lender to sell the collateral of a debtor who fails the obligations of the loan Repossession

Question 29

What is the simple interest calculation

Answer 29

``` I=Prt Interest Principal Rate Time ```

Question 30

What is a fixed rate

Answer 30

A rate locked in for a specific time and tend to be higher the longer they are locked in

Question 31

What is a variable rate

Answer 31

Float with the interest of the day, week or month. Can be risky. Usually Lower than fixed rates

Question 32

What is prime rate

Answer 32

The rate of interest the banks charge the most credit worthy of low risk customer Is a base rate that the bank uses as a reference for lending Current rate is 3.95%

Question 33

Types of repaying loans

Answer 33

CTP (constant total payments) CPP (constant principal payments) CTP is more common CPP lower interest rate

Question 34

What is current portion

Answer 34

The principal due in this current year or payment

Question 35

What is non current portion

Answer 35

Principal that is due in the future not thus year or payment

Question 36

What is a balance sheet

Answer 36

A systematic organization of everything owned and owed by a business of individual at any given time A financial condition of a business at one point in time

Question 37

What is an asset

Answer 37

Things that are owned

Question 38

What is a liability

Answer 38

Things that are owed

Question 39

What are the 2 equations important to balance sheets

Answer 39

Assets - liabilities = equity | Assets = liabilities + equity

Question 40

What is equity

Answer 40

The amount you own outright or how much of your asset you have “paid off”

Question 41

Balance sheet vs net worth statement

Answer 41

Balance sheet values assets at book value Net worth statement values assets at market value

Question 42

Balance sheet components

Answer 42

``` Title Date Assets Liabilities Total assets Total liabilities Equity Total liabilities and equity ```

Question 43

What is a current asset

Answer 43

Used up or sold within the year | Are more liquid assets

Question 44

What are intermediate assets

Answer 44

Are less liquid than current assets and have a greater life but less than 10 years (1-10 years) Ex machinery, equipment, breeding livestock

Question 45

What are fixed assets

Answer 45

Are least liquid and have a life greater than 10 years | Ex. Land, buildings

Question 46

What are current liabilities

Answer 46

Financial obligations due within 1 year firm the date of balance sheet Ex. Accounts payable, current portion of loan

Question 47

What are intermediate liabilities

Answer 47

Financial obligations where repayment of principal occurs over a period of more than a year but less than 10 years

Question 48

What are long term liabilities

Answer 48

Are debt obligations where the original repayment period is for a length of time exceeding 10 years

Question 49

What is liquidity

Answer 49

The ability of a business to meet its short term financial obligations

Question 50

What is solvency

Answer 50

The ability of a business to meet its total financial obligations

Question 51

How to analyze liquidity

Answer 51

Current ratio Working capital

Question 52

What is current ratio

Answer 52

A ratio that compares current assets to current liabilities and puts it into a ratio

Question 53

What is working capital

Answer 53

Not a ratio it is a dollar value | What’s left over from subtracting your current liabilities from your current assets

Question 54

Analyzing solvency

Answer 54

Equity ratio - equity over total assets Leverage ratio - total liabilities over equity