Week 2- Presentation of financial statements I

Question 1

What are the objectives of financial accounting?

Answer 1

To provide information to users about an entity’s:

1- Financial Performance- wealth gained over a period

2- Financial position- total wealth at any point in time

3- And changes therein- via the set of financial statements

Question 2

Tangible non current assets include:

Answer 2

1- Land and buildings
2- Plant and machinery
3- Motor vehicles

Question 3

What are the two most common methods of depreciation?

Answer 3

1- Straight line
2- Reducing balance

Question 4

What are examples of intangible non current assets?

Answer 4

1- Licenses (e.g, software)
2- Patents
3- Brands

Question 5

What are examples of current assets?

Answer 5

1- Inventory
2- Trade receivables
3- Prepayments
4- Cash

Question 6

What are examples of current liabilities?

Answer 6

1- Trade payables (creditors)- purchases where suppliers have not yet been paid

2- Accruals- amounts owing for services

3- Bank loans/overdraft- bank owed money (short term)

Question 7

What are examples of non current liabilities?

Answer 7

Includes long term debt
Includes provisions

Question 8

What are provisions?

Answer 8

Are estimates of possible liabilities that may arise but where there is uncertainty over the amount owing or the timing.

Example- Legal claims

Question 9

What are the limitations of a statement of financial position/balance sheet?

Answer 9

The statement of financial position is a collection of individual assets and liabilities at a point in time which are not valued at market value

Significant assets are missing

Question 10

What is amortisation and what asset does this apply to?

Answer 10

The action or process of gradually writing off the initial cost of an asset.

These are for intangible assets

Question 11

What is residual value?

Answer 11

Estimated value of an asset at the end of its lease term or useful life.