Week 4 Flashcards
(16 cards)
What is Historic Cost?
A term referring to how elements are measure: recording the value of assets at the cost they were purchased and liabliities at the amount they were orginally agreed
What is Fair Value?
A term referring to how elements are measure: Measuring assets and liabilities at their current market value
What is Net Realisable Value?
A term referring to how elements are measure: Asset or liability is valued at price it can be sold OR settled, minus an estimate of the costs of the transaction
What is replacement cost?
A term referring to how elements are measure: The price charged to replace the old asset with the new one having the same value
What is Value in use?
A term referring to how elements are measure: The expected future cash flows that the asset in its current position will produce, discounted with an appropriate rate
What is Amortised cost?
A term referring to how elements are measure: Meaning the loan or asset or liability is recorded with the outstanding future interest / cost included in its value
How is a public company valued?
Based on its market capitalisation
Market cap = N^ of ordinary shares in issue X share price
How is a private company valued?
The price someone is willing to pay for the business, valued by experts
What is the book value of a business?
Net assets
Equity = ASsets - Liabilities
What is the cost method of valuing inventory?
Based on the orginal cost of the inventory
What are some other methods of valuing inventory?
Cost method
‘Periodic Inventory Method’ = Inventory is counted and measure at the end of each accounting period
How is the value of non-current assets assesed?
Cost +
Site preparation
Delivery
Installation
Profesional Fees
How is a depreciation recorded?
Dr -> Expense ‘Depreciation Expense’ on PnL
Cr -> ‘Accumulated appreciation’ -> goes on SFP = gets taken from cost of non-current asset
Non-Current Assets
XX (cost - DEPRECIATION) = XX
What is the straight line method of depreciation?
You are given the economic life of an asset. You then divide the cost of asset by economic life, giving depreciation per period of time
What is the reduced balance method of depreciation?
Year on year you reduce the net book value of the asset by the same %
How do you record the disposal of a non-current asset?
1st) remove cost of asset
Cr -> Non-current asset -> cost of asset
2nd) Make sure the receipt of the sale is accounted for
2nd) Remove accummulated depreciation
3rd) Calculate if you made a profit or loss on sale, comparing sale with NBV -> record on operating expenses
