SOFP Flashcards
(36 cards)
What is the statement of financial position?
The financial position of the business at a point in time by examining a firm’s assets and (liabilities&equity).
What is the definition of assets?
a resource controlled (owned) by the enterprise as a result of past events and from which future economic benefits are expected to flow
What is the definition of liabilities?
a present obligation of the entity arising from past events, the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits
What is example of items that could be considered assets and which couldn’t?
Yes: Inventory, receivable(bad debt provisions), cash, property
NO: brand value, intellectual property, people
When can intangible assets be put on the balance sheet and give an example:
When they are bought e.g. football club buys a player
What are receivables?
Money due from customers
What are the two components of equity?
. (share) capital and retained profit
What is share capital?
(Share) capital : amounts input by the owners of the business
Ordinary shares (different classes)
Preference shares
Special shares
What are retained profits?
profit retained and reinvested by the business on behalf of the owners
What is the accounting equation?
Assets=liabilities +equity (share capital+retained profit)
What are the two categories of assets?
Non-current assets
Current assets
What are non-current assets?
Assets held for longer than a year e.g. tangible assets such as a stadium or intangible such as a player
What are current assets and give an example?
Assets held in the short-run(less than a year) e.g. inventories, receivables and cash
What are the categories of liabilities and equity?
Current liabilities
Long-term liabilities
Capital & retained profit
What are current liabilities? and example
Amounts due for settlement in the short term e.g. suppliers costs
What are (non-current) long-term liabilities and example?
Amounts due for settlement over the longer-term e.g. loans
Why does Adidas have more current assets than nopn-current and why is it rare?
2/3rds of current assets are inventory(lots of stock to sell)
. rare because shareholders wan cash spent not sat in the bank
What is depreciation and amortisation?
An attempt to recognise the cost of a tangible asset (depreciation) or intangible asset (amortisation) over its estimated useful economic life
What is depreciation not?
An application of the accruals concept; matching cost to benefit
NOT an attempt to describe how the value of an asset changes over time
To calculate a depreciation expense for a period what needs to be considered?
■ the cost (or fair value) of the asset;
■ the useful life of the asset;
■ the residual value of the asset;
■ the depreciation method.
What is an asset cost?
Asset cost includes all costs incurred by the business to bring the asset to its required location and make it ready for use.
What is the useful economic life?
Determines the useful economic life of an asset for depreciation purposes.
What is the residual (disposal) value?
When a business disposes of a non-current asset that may still be of value to others, some payment may be received.
What happens if the residual value is higher than expected and give an example
The extra amount put in SOPL as profit on loss of asset
e.g. player worth £3.5 and contract of 4 years but sold for £1 after 3 years instead of the carrying amount og 875000. 125000 put in as asset on intangible asset
