Deck 2: The Statement of Financial Position

Question 1

Which one of the following statements is the IASB's definition of an asset?

A) A right that has the potential to produce economic benefits.
B) A present obligation of the entity to transfer an economic resource as a result of past events.
C) A present economic resource controlled by the entity as a result of past events.
D) A present economic resource that has the potential to produce economic benefits.

Answer 1

C

Question 2

The International Accounting Standards Board's Conceptual Framework for Financial Reporting defines an asset as:

A) A resource not purchased for resale in the normal course of business, held for long-term use in the business to produce goods or services.
B) A present obligation of the entity to transfer an economic resource as a result of past events.
C) A short term resource that is constantly changing.
D) A present economic resource controlled by the entity as a result of past events.

Answer 2

D

Question 3

Which one of the following statements most accurately describes an asset?

A) Something an entity owes, the value of which can be faithfully represented.
B) Something an entity owes which will result in the transfer of cash.
C) Something an entity controls which it uses to generate cash.
D) Something an entity owns for long term use within its business.

Answer 3

C

Question 4

An asset can be recognised in an entity's statement of financial position when: Please select all that apply.

A) A past event gives rise to an economic resource controlled by the entity.
B) The value of the resource can be measured in such a way that a faithful representation is achieved.
C) The resource will give rise to a transfer of economic resources.
D) Profit will be generated by the resource.

Question 5

The International Accounting Standards Board's Conceptual Framework for Financial Reporting defines an asset as "a present economic resource controlled by the entity as a result of past events. An economic resource is a right that has the potential to produce economic benefits.". In addition, the IASB Cocneptual Framework only allows entities to recognise assets when their value can be measured in such a way that a faithful representation is achieved. In which one of the following situations would a manufacturing company not recognise an asset on its statement of financial position?

A) A new piece of plant and equipment is purchased for use in the production process.
B) Raw materials for use in production are bought by the company.
C) A trade receivable that owes money to the company goes into liquidation with no likelihood that it will be able to pay what is owed.
D) Cash that is not required to finance day to day trading operations is invested in a bank account paying a fixed rate of interest for a fixed term of three years.

Question 6

The International Accounting Standards Board's Conceptual Framework for Financial Reporting defines an asset as "a present obligation of the entity to transfer an economic resource as a result of past events."

Question 7

PhonesForUs has a stock of old smart phones bought three years ago from a supplier. The phones have been counted up and it has been found that there are 100 of them. These phones originally cost £50 each three years ago. However, no one has bought one of these phones in the past 18 months and much newer models with much greater levels of features and connectivity have rendered these phones out of date. The accountant has decided that the phones can no longer be recognised as an asset in the statement of financial position of PhonesForUs. What is the reason for the accountant's decision?

A) The cost of the phones cannot be measured in such a way that a faithful representation is achieved.
B) There is no potential to produce economic benefits for the entity.
C) There is no past event giving rise to the asset.
D) The smart phones are not controlled by PhonesForUs

Question 8

Which one of the following statements is the IASB's definition of a liability?

A) A present economic resource controlled by the entity as a result of past events.
B) A right that has the potential to produce economic benefits.
C) A present obligation of the entity as a result of past events.
D) A present obligation of the entity to transfer an economic resource as a result of past events.

Question 9

Liabilities can only be recognised in the statement of financial position if their value can be measured in such a way that a faithful representation is achieved.

Question 10

A liability can be described as:

A) Something an entity owes, the value of which just needs to be estimated.
B) Something an entity owes which will result in the payment of cash by the entity.
C) Something an entity controls which it uses to generate cash.
D) Something an entity owns for long term use within its business.

Question 11

A liability can be recognised in an entity's statement of financial position when: Please select all that apply.

A) There is a present obligation as a result of past events.
B) There is an expectation that the obligation can be avoided.
C) There is a contractual or legal claim against the entity.
D) There is expected to be a transfer of an economic resource.

Question 12

In which one of the following circumstances would an organization not recognise a liability on its statement of financial position?

A) When the obligation cannot be measured, in such a way that a faithful representation is achieved.
B) When the obligation cannot be avoided.
C) When the entity has an obligation at the statement of financial position date.
D) When a transfer of an economic resource will take place.

Question 13

Which one of the following would be recognized as a non-current asset in the statement of financial position of a mining company?

A) A licence to mine land for minerals.
B) A pile of ore ready for shipment.
C) A loan to the mining company which is due for repayment in 10 years' time.
D) Money owed by the mining company's customers.

Question 14

Which one of the following would not be recognized as a non-current asset in the statement of financial position of a professional football club?

A) The contracts of players purchased from other football clubs.
B) Grass cutting machinery purchased during the year.
C) The stadium owned by the football club.
D) The contracts of players who joined the club after successfully completing their apprenticeship with the club.

Question 15

Which one of the following would not be recognized as inventory on the statement of financial position of a house building company?

A) Roof tiles on a building site.
B) Timber beams for roofing.
C) Equipment hire paid in advance.
D) A finished house sold subject to contract.

Question 16

Which of the following would be classified as intangible non-current assets in the statement of financial position of a publisher? Please select all that apply.

A) Publishing rights.
B) A shareholding in another company.
C) Trademarks.
D) Licences.

Question 17

Why can an entity not recognise its workforce as an asset on its statement of financial position? Please select all that apply.

A) The entity does not control its workforce.
B) There is no past event giving rise to an asset.
C) There is no potential to produce economic from the workforce.
D) The value of the workforce cannot be measured in such a way that a faithful representation is achieved.
Topic: Liability classification

Question 18

Which one of the following would be classified as a current liability in a building company with a financial year end date of 30 September 2019?

A) A loan used to acquire the building firm's head office. This loan is repayable in full on 30 June 2028.
B) A trade receivable from a customer for work completed during the year.
C) An amount owed to a brick manufacturer for bricks supplied during September 2019.
D) The share capital of the company.

Question 19

On 30 September 2019, the last day of the company's financial year, Billdit Limited orders 500 timber roof beams from its supplier at a cost of £50 per beam, the timber roof beams to be delivered on 7 October 2019. Why can Billdit Limited not recognise a trade payable liability for these timber roof beams on its statement of financial position at 30 September 2019? Please select all that apply.

A) The liability is not measureable in such a way that a faithful representation is achieved.
B) There is no past event giving rise to an obligation.
C) The obligation is avoidable.
D) There is no present obligation at the statement of financial position date.

Question 20

Which of the following would be recognised as trade and other payables in the statement of financial position of a book publishing company? Please select all that apply.

A) Amounts due to a paper supplier.
B) Amounts due from a bookseller.
C) Amounts due to authors for royalties on books sold.
D) Amounts due to HM Revenue and Customs for taxes due on profits.
Topic: The accounting equation

Question 21

Farook Limited has current assets of £68,420, current liabilities of £50,328, non-current liabilities of £102,000 and equity of £202,359. Using the accounting equation, calculate the figure for non-current assets.

A) £18,389
B) £118,451
C) £286,267
D) £423,107

Question 22

Gurbinder Limited has non-current assets of £250,000, current assets of £142,000, current liabilities of £125,000 and equity of £150,000. Using the accounting equation, calculate the figure for non-current liabilities.

A) £667,000
B) £383,000
C) £367,000
D) £117,000

Question 23

Harriet Limited has non-current assets of £425,000, current liabilities of £142,000 and equity of £391,000. Harriet Limited has no non-current liabilities. Using the accounting equation, calculate the figure for current assets.

A) £108,000
B) £176,000
C) £674,000
D) £958,000

Question 24

Nishi Limited has non-current assets of £622,481, non-current liabilities of £235,148, current assets of £359,727 and equity of £327,138. Using the accounting equation, calculate the figure for current liabilities.

A) £170,764
B) £419,922
£890,218
D) £1,074,198

Question 25

Roisin runs a small retail business from a shop in the town centre. At the end of her financial year, she has the following assets and liabilities: taxation repayable: £890, inventory: £25,450, cash in the cash register: £1,750, bank balance (overdrawn): £10,250. What is the total of Roisin's current assets?

A) £27,200
B) £28,090
C) £37,450
D) £38,340

Question 26

Patrick runs an engineering business. At the financial year end he has the following account balances: prepayments: £7,500, trade payables: £52,600, inventory: £74,100, long term loan: £250,000, property, plant and equipment: £325,400, trade receivables: £46,300, bank balance (asset): £22,000, taxation payable: £10,700. Patrick's total assets are:

A) £149,900
B) £162,000
C) £467,800
D) £475,300

Question 27

Gina has the following assets at her financial year end: cash at the bank: £15,000, trademarks: £25,000, trade receivables: £52,000, patents: £10,000, inventory: £35,000, property, plant and equipment: £225,000, a long term shareholding in Tina plc: £48,000. Gina's total non-current assets are:

A) £260,000
B) £273,000
C) £308,000
D) £410,000

Question 28

At her financial year end of 31 December 2019, Haylie has trade and other receivables of £78,400, current taxation payable of £22,350 and trade and other payables of £56,250. Haylie also has bank borrowings totalling £500,000. These bank borrowings are repayable by equal annual instalments over the next five years starting with the first repayment of £100,000 on 30 December 2020. What figure will Haylie record in her statement of financial position at 31 December 2019 for current liabilities?

A) £157,000
B) £178,600
C) £257,000
D) £578,600

Question 29

At 31 October 2019, her statement of financial position date, Suad has trade and other payables of £18,475, taxation recoverable of £1,250, cash in hand of £745 and a bank overdraft of £12,225. What are Suad's current liabilities at 31 October 2019?

A) £30,700
B) £31,205
C) £31,950
D) £32,695

Question 30

Shamsa Limited has the following balances at 30 June 2019, the company's year end:
Trade and other payables: £47,450
Taxation payable: £17,275
Bank loan: £360,000
The bank loan is repayable over 5 years by equal monthly instalments. The first loan repayment is due on 28 August 2019 and each subsequent repayment will be on the 28^th of each month until the loan is repaid. What figures will Shamsa Limited show for current and non-current liabilities at 30 June 2019?

A) Current liabilities: £64,725, non-current liabilities: £360,000
B) Current liabilities: £113,450, non-current liabilities: £294,000
C) Current liabilities: £130,725, non-current liabilities: £294,000
D) Current liabilities: £136,725, non-current liabilities: £288,000

Question 31

The International Accounting Standards Board's Conceptual Framework for Financial Reporting defines equity as:

A) The residual interest in the assets of the entity after adding all its liabilities.
B) The residual interest in the liabilities of the entity after adding all its assets.
C) The residual interest in the assets of the entity.
D) The residual interest in the assets of the entity after deducting all its liabilities.

Question 32

The equity of an unincorporated business that makes a profit in the financial year is calculated as:

A) Capital at the start of the year + capital introduced + profit for the year + drawings.
B) Capital at the start of the year + capital introduced + profit for the year - drawings.
C) Capital at the start of the year + capital introduced - profit for the year - drawings.
D) Capital at the start of the year + capital introduced - profit for the year + drawings.

Question 33

Alpaca Limited has the following balances at 31 December 2019: share capital of £25,000, share premium of £50,000, retained earnings at 1 January 2019 of £225,000 and a retained loss for the year to 31 December 2019 of £70,000. What is the total equity of Alpaca Limited at 31 December 2019?

A) £180,000
B) £230,000
C) £300,000
D) £370,000

Question 34

Parminder, a sole trader, makes a profit of £25,600 in the year ended 30 June 2019. Her capital account balance at 1 July 2018 was £76,750 and she withdrew £55,200 from the business during the year for her own expenses. What is the balance on Parminder's capital account at 30 June 2019?

A) £47,150
B) £76,750
C) £102,350
D) £157,550

Question 35

Foromin Limited has share capital of £20,000, share premium of £50,000 and retained earnings at the start of the financial year (1 July 2018) of £150,000. During the year ended 30 June 2019, Foromin Limited makes a profit of £60,000 from which a dividend of £40,000 is paid to shareholders. What is the total equity of Foromin Limited at 30 June 2019?

A) £220,000
B) £240,000
C) £280,000
D) £320,000

Question 36

Bubbles Limited has share capital of £16,000, share premium of £25,000 and retained earnings at 1 May 2018 of £75,000. During the financial year ended 30 April 2019, Bubbles Limited made a loss of £22,000 and paid a dividend of £9,000 to the shareholders. What is the total equity of Bubbles Limited at 30 April 2019?

A) £85,000
B) £94,000
C) £103,000
D) £129,000

Question 37

Which one of the following does the statement of financial position show?

A) All the assets and liabilities of an organization.
B) All the financially measurable resources and obligations of an organization.
C) The market value of an organization.
D) All the assets and liabilities of an organization at their current market values.

Question 38

Which one of the following statements is not correct?

A) The statement of financial position does not show all the assets and all the liabilities of an organization.
B) The statement of financial position shows the market value of an organization
C) The statement of financial position shows the resources and commitments of an organization in money terms at the end of each accounting period.
D) The statement of financial position shows the financial situation of an organization at the end of each accounting period.

Question 39

A business buys a new computer system for £20,000 and agrees to pay the £20,000 to the supplier of the system in 30 days' time. What is the double entry in the statement of financial position to reflect this transaction?

A) Increase current assets by £20,000, increase current liabilities by £20,000.
B) Increase current assets by £20,000, increase non-current liabilities by £20,000.
C) Increase non-current assets by £20,000, increase non-current liabilities by £20,000.
D) Increase non-current assets by £20,000, increase current liabilities by £20,000.

Question 40

Beta Limited buys £30,000 of inventory on credit terms. What is the correct double entry to reflect this transaction?

A) Increase inventory £30,000, decrease trade payables £30,000
B) Increase inventory £30,000, increase trade payables £30,000
C) Decrease inventory £30,000, decrease trade payables £30,000
D) Decrease inventory £30,000, increase trade payables £30,000

Question 41

Jaswant Limited receives a payment of £15,000 from a trade receivable for goods supplied a month ago. The company's accountant pays this £15,000 into the company's bank account. Jaswant Limited currently has an overdraft at the bank of £50,000 before this receipt of £15,000 is paid in. What is the correct double entry to reflect this transaction?

A) Increase trade receivables £15,000, increase bank overdraft £15,000.
B) Increase trade receivables £15,000, decrease bank overdraft £15,000.
C) Decrease trade receivables £15,000, decrease bank overdraft £15,000.
D) Decrease trade receivables £15,000, increase bank overdraft £15,000.

Question 42

Maria makes a payment of £25,000 to a trade payable from her bank account. Prior to this payment, Maria's bank account showed a positive balance of £45,000. Which one of the following options represents the correct entries to reflect this payment?

A) Increase trade payables £25,000, decrease bank account £25,000.
B) Decrease trade payables £25,000, increase bank account £25,000.
C) Increase trade payables £25,000, increase bank account £25,000.
D) Decrease trade payables £25,000, decrease bank account £25,000.

Question 43

Josh's trade receivables stand at £322,000 and he has a bank overdraft of £17,000 (a liability). A trade receivable pays the £22,000 owed and Josh pays this £22,000 into his bank account. What are the balances on trade receivables and the bank account after this receipt of cash?

A) Trade payables £300,000, Bank account £5,000 asset.
B) Trade payables £344,000, Bank account £5,000 asset.
C) Trade payables £300,000, Bank account £39,000 overdraft.
D) Trade payables £344,000, Bank account £39,000 overdraft.

Question 44

Which one of the following statements is not true?

A) Intangible assets have no material substance.
B) Current assets are short term assets which are constantly changing in a constantly repeating trading cycle.
C) Control over economic resources is gained solely through ownership of those economic resources.
D) Liabilities are contractual or legal claims against an entity.

Question 45

Which one of the following statements is not true?

A) If an entity can avoid transferring cash or other economic resources then there is no obligation and no liability exists.
B) Total assets = equity - total liabilities.
C) Borrowings can appear as both a current and a non-current liability in an entity's statement of financial position.
D) The International Accounting Standards Board defines equity as "the residual interest in the assets of the entity after deducting all its liabilities".

Question 46

Which one of the following statements is not true?

A) The statement of financial position shows the financial situation of an entity on the last day of its accounting year.
B) Current liabilities + non-current liabilities = total liabilities.
C) The statement of financial position does not show all the assets of the organization.
D) The International Accounting Standards Board defines equity as "the residual interest in the assets of the entity after adding all its liabilities."

Question 47

Which one of the following statements is true?

A) A resource is controlled by an entity when anyone can use that resource.
B) Valuing assets and liabilities in the statement of financial position at their original cost is referred to as the historic cost convention.
C) The event giving rise to an obligation does not need to have taken place by the statement of financial position date for an entity to recognize a liability.
D) The statement of financial position shows the market value of an entity.

Question 48

Which of the following statements are true? Please select all that apply.

A) The statement of financial position shows the financially measurable resources (assets) and financially measurable obligations (liabilities) of a business in money terms.
B) Called up share capital is the number of shares issued multiplied by the par value of each share.
C) The IASB defines a liability as "a present obligation of the entity to receive an economic resource as a result of past events."
D) The distinction between non-current and current assets comes down to one of time.

Question 49

Which one of the following statements about assets is not true?

A) Non-current assets are those assets that are purchased for resale in the normal course of business and are acquired with the intention of reselling them immediately or in the near future.
B) Non-current assets are made up of intangible assets, property, plant and equipment and investments.
C) Entities are now allowed to value different classes of assets either at cost or at fair value.
D) The IASB has laid down the rule that an asset can only be recognized in the statement of financial position when the value of that asset can be measured in such a way that a faithful representation is achieved.

Question 50

Which of the following statements are true? Please select all that apply.

A) An asset represents a store of future economic benefits, the ability to use the asset to generate cash and profit for a business.
B) Non-current assets are held for short-term use within a business to produce goods or services.
C) The IASB defines an asset as "a present economic resource controlled by the entity as a result of past events."
D) Total assets = total liabilities + equity.