Deck 2: Measuring and Reporting Financial Position

Question 1

Which statement concerning the reserves component of equity is not correct?

A)Reserves represent cash.
B)Retained profits and reserves are often classified under the general heading of reserves.
C)The higher the dividend paid by the company, the lower the reserves.
D)Many reserves arise as transfers from retained profits.

Answer 1

A

Question 2

In the accounting equation, claims on the business are of two broad types:

A)bills payable and bills receivable.
B)liabilities and equity.
C)loans to and loans from outsiders.
D)accounts receivable and accounts payable.

Answer 2

B

Question 3

What is the purpose of the statement of financial position?

A)to determine the cash inflows and outflows over a period of time.
B)to determine the profit earned over a period of time.
C)to list the assets of the business and the claims against the assets at a particular point of time.
D)all of the above.

Answer 3

C

Question 4

If liabilities are $55,000 and assets are $123,600, equity is:

A)$178,400.
B)$68,600.
C)$178,600.
D)$68,400.

Question 5

Despite the uncertainty in relation to the exact amount to be paid and the actual timing of the payment, which of the following is still regarded as a liability?

A)Deposit on services received in advance.
B)Provision for employee bonuses.
C)Accounts payable.
D)Money borrowed from an associate company.

Question 6

What is another name for accounts receivable?

A)debtors.
B)receivables.
C)accounts payable.
D)Both A and B.

Question 7

The recognition criteria for liabilities includes:

A)future obligation.
B)probability of occurrence.
C)reliability of measurement.
D)Both B and C.

Question 8

Intangible assets have no physical substance but still provide expected future benefits. Which of the following is not an intangible asset?

A)Newspaper masthead.
B)Goodwill.
C)Patent.
D)None of the above, i.e., all are intangible assets.

Question 9

Identify the asset.

A)Bank overdraft.
B)Plant and equipment.
C)Loan from ABC Ltd.
D)Accrued expenses.

Question 10

Which of the following is a liability?

A)Drawings.
B)Prepaid insurance.
C)Accounts payable.
D)Cash at bank.

Question 11

'A present obligation of an entity arising from past events, the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits,' is the generally acceptable definition of:

A)an asset.
B)equity.
C)a liability.
D)an expense.

Question 12

Which of the following would appear in the equity section of the statement of financial position?

A)Loan from ABC Bank.
B)Loan to family member.
C)Bank overdraft.
D)Drawings by the owner.

Question 13

Which of these does not belong with the others?

A)Bank overdraft.
B)Prepaid wages.
C)Accounts payable.
D)Mortgage loan.

Question 14

Which of these is not an asset?

A)Accounts payable.
B)Loan to J Troja.
C)Accounts receivable.
D)Both A and B.

Question 15

Which of the following is the correct version of the accounting equation?

A)liabilities = assets + equity.
B)equity = assets + liabilities.
C)assets = equity + liabilities.
D)none of the above.

Question 16

Identify the intangible asset.

A)Brand name.
B)Loan.
C)Accounts payable.
D)Inventory.

Question 17

If liabilities are $45,000 and equity is $68,900, assets are:

A)$23,100.
B)$23,900.
C)$113,900.
D)$113,100.

Question 18

Which of these is not always a characteristic of an asset?

A)Ability of the benefit to be measured in money terms.
B)Exclusive control of the economic benefits.
C)Legal ownership by the entity.
D)Probable expected future economic benefits.

Question 19

Which of the following is not necessarily a liability?

A)Provision for holiday pay.
B)Bank overdraft.
C)Loan to employee.
D)None of the above, i.e., all are necessarily liabilities.

Question 20

Which of these assets, which could be listed on a statement of financial position, is likely not to translate into future economic benefits?

A)Large inventories of spare parts.
B)Accounts receivable that have been outstanding for several months.
C)Inventory that has been on the shelves for over a year.
D)All of the above.

Question 21

Which of the following statements in relation to non-current assets is untrue?

A)They are held for sale or consumption.
B)They may be tangible or intangible.
C)May vary in classification according to the nature of the business.
D)They are generally held for generating wealth.

Question 22

What is the effect on the statement of financial position of a business buying supplies for cash?

A)increase asset supplies; increase asset bank.
B)decrease asset supplies; decrease asset bank.
C)decrease asset supplies; increase asset bank.
D)increase asset supplies; decrease asset bank.

Question 23

You are provided with the statement of financial position at the beginning of the period for a firm of accountants. You are also given four of the transactions that have occurred during the period.
REQUIRED:
a)Complete the table to show how each transaction affects the accounts shown.
b)Calculate the figures in the final column of the table from which the statement of financial position at the end of the period can be prepared.
$\begin{array}{|l|r|r|r|r|r|r|}\hline& \text { Beginning } & \text { Transaction } & \text { Transaction } & \text { Transaction }& \text { Transaction } &\text { Ending } \\& \text { Balance } &1 & 2 & 3&4&\text { Balance } \\&\text { Sheet }&&&&&\text { Sheet }\\\hline \text { Assets } & \$ & \$ & \$ & \$ & \$ & \$ \\\hline \text { Cash } & 10,000 \\\hline \begin{array}{l}\text { accounts } \\\text { receivable }\end{array} & 5,500 \\\hline \begin{array}{l}\text { Plant \& } \\\text { Equip }\end{array} & \underline{50,000} \\\hline & \underline{65,000} \\\hline \text { Liabilities } & \\\hline \begin{array}{l}\text { accounts } \\\text { payable }\end{array} & 6,000 \\\hline \text { Equity } & \underline{59,500} \\\hline & \underline{65,500} \\\hline\end{array}$
Transactions for the period:
1. Collected $3,000 from debtors
2. Paid accounts payable $6,000
3. Owner paid in additional capital contribution of $10,000
4. Purchased on credit $2,000 of additional plant.

Question 24

What is the effect on the statement of financial position when the business buys inventory on credit?

A)Increase asset inventory; increase liability creditor.
B)Increase asset inventory; increase equity.
C)Decrease asset inventory; decrease liability creditor.
D)Decrease asset inventory; increase liability creditor.

Question 25

Calculate the profit for the year if capital at the beginning is $45,000, capital at the end is $40,000 and during the year the owner withdrew $15,000.

A)$5,000.
B)$15,000.
C)$10,000.
D)$20,000.

Question 26

Identify the current liability.

A)Wages owing.
B)Loan from B Buy (due in 4 months).
C)Bill payable (due in 2 years).
D)Both A and B.

Question 27

What is the effect on the statement of financial position when the business has cash sales of $15,000 of goods that were originally purchased for $10,000?

A)Increase asset bank $12,000; increase equity $12,000.
B)Increase asset bank $15,000; decrease asset inventory $10,000; increase equity $5,000.
C)Increase asset bank $4,000; increase equity $4,000.
D)None of the above.

Question 28

What is the effect on the statement of financial position when the business buys a car for $35,000, paying a deposit of $10,000 and promising to pay the balance within 60 days?

A)Increase asset vehicle by $5,000; decrease asset bank by $5,000.
B)Increase asset vehicle by $35,000; decrease asset bank by $10,000; increase liability accounts payable by $25,000.
C)Increase asset vehicle by $25,000; decrease asset bank by $5,000; increase liability accounts payable by $20,000.
D)None of the above.

Question 29

Calculate the missing cash at bank account balance from these statement of financial position items. Equity $5,800; accounts receivable $890; accounts payable $450; inventory $360; loan to a business $1,400.

A)$4,900.
B)$5,400.
C)$3,600.
D)$6,300.

Question 30

The effect on the statement of financial position when the owner withdraws money from the business is:

A)decrease asset bank; decrease equity.
B)decrease drawings; decrease equity.
C)increase drawings; increase equity.
D)decrease asset bank; increase equity.

Question 31

The effect on the statement of financial position when the owner contributes her private vehicle for the exclusive use of the business is:

A)increase asset vehicle; increase equity.
B)increase asset vehicle; decrease equity.
C)increase asset vehicle; increase owner's drawings.
D)none of the above.

Question 32

Assets are classified as either current or non-current. Current assets are:

A)goodwill.
B)expected to be turned into cash within 12 months.
C)the infrastructure assets.
D)all of the above.

Question 33

What is the effect on the statement of financial position when the business pays a creditor?

A)decrease asset creditor; decrease liability bank.
B)decrease asset bank; decrease liability creditor.
C)decrease asset bank; decrease equity.
D)none of the above.

Question 34

Identify the current asset.

A)Fixtures and fittings.
B)Inventory.
C)Delivery vehicle.
D)Loan to L Hardie repayable in 2 years.

Question 35

Which of the following is a non-current asset?

A)5-year loan to Ti Finance.
B)Machinery.
C)Long-term investment.
D)All of the above.

Question 36

If assets are $36,200 and equity is $13,600, liabilities are:

A)$47,500.
B)$22,100.
C)$22,600.
D)$22,900.

Question 37

Calculate equity. Cash at bank $3,500; inventory $1,600; accounts receivable $3,500; accounts payable $1,700; loan from ABC bank $3,500.

A)$8,900.
B)$3,400.
C)$1,900.
D)$12,300.

Question 38

What do non-current liabilities represent?

A)amounts due to the owner of the business which are not payable within 12 months.
B)amounts due to outsiders which are not payable within 12 months.
C)amounts due and payable to outsiders within 12 months.
D)Both A and B.

Question 39

What is the overall effect on the statement of financial position when the business sells inventory for a profit of $5,000?

A)Increase total assets $3,000; decrease total equity $3,000.
B)Increase total assets $5,000; increase total equity $5,000.
C)No change in total assets; no change in total equity.
D)None of the above.

Question 40

The effect on the statement of financial position when a debtor pays the amount that is owed is:

A)increase asset bank; decrease asset debtor; increase equity.
B)increase asset bank; increase equity.
C)increase asset bank; decrease asset debtor.
D)none of the above.

Question 41

Which of the following is regarded as a tangible asset?

A)Franchise.
B)Goodwill.
C)Long-term investment.
D)Copyright.

Question 42

What are the possible approaches to presenting a narrative statement of financial position?

A)Entity.
B)Proprietary.
C)Horizontal.
D)Both A and B.

Question 43

An example of where the prudence assumption leads to a reduction in the valuation of an asset is:

A)development expenditure capitalised as an asset rather than written off as an expense.
B)taking an upward revaluation of an asset to a reserve rather than including it in the profit calculation.
C)valuing inventory at the lower of cost and net realisable value.
D)All are examples.

Question 44

The accounting convention which results in the anticipation of losses but not of profits is:

A)matching.
B)prudence (conservatism).
C)going concern.
D)none of the above.

Question 45

Which accounting convention has the effect that the employees will not appear as an asset on the entity's statement of financial position?

A)Money measurement convention.
B)Accounting period convention.
C)Stable monetary unit convention.
D)Entity convention.

Question 46

In recent years, the more common format of layout for the financial statement of position is

A)Horizontal format.
B)Parallel format.
C)'T' format.
D)Vertical or narrative format.

Question 47

If the prudence (conservatism)convention conflicts with another convention, which will normally prevail?

A)Prudence (conservatism).
B)The other convention.
C)50% of the time prudence and 50% of the time the other convention.
D)Conventions never conflict so the issue does not arise.

Question 48

The accounting convention that states that every transaction has at least two effects on the accounting equation, so that after the transaction is processed, the equation remains in balance is the:

A)going concern/continuity convention.
B)objectivity/reliability convention.
C)conservatism/prudence convention.
D)dual aspect convention.

Question 49

If current assets are $15,200, current liabilities are $3,100, non-current liabilities are $45,000 and equity is $70,000, non-current assets are:

A)$108,100
B)$48,100
C)$92,900
D)$102,900

Question 50

The accounting convention that means only those transactions that are capable of being expressed in monetary terms are recorded, is the:

A)money measurement convention.
B)historical cost convention.
C)conservatism convention.
D)reliability convention.

Question 51

The accounting convention that requires items in the statement of financial position to be valued at their acquisition cost is the:

A)matching convention.
B)realisation convention.
C)money measurement convention.
D)historic cost convention.

Question 52

The accounting convention that calls for financial reports to err on the side of caution is the:

A)accounting period convention.
B)stable monetary unit convention.
C)conservatism (prudence)convention.
D)objectivity convention.

Question 53

Without the business entity convention, which item in the statement of financial position would not exist?

A)Assets.
B)Equity.
C)Liabilities.
D)Cash at bank.

Question 54

The accounting convention that requires the activities of the business to be kept separate from the activities of the owner is the:

A)dual aspect convention.
B)business entity convention.
C)conservatism convention.
D)accounting period convention.

Question 55

Under the accounting standards, which alternative measure of value is not permitted to be used for valuing assets?

A)Historical cost.
B)Net realisable value.
C)Fair value.
D)None of the above. i.e., all are permitted methods in some circumstances.

Question 56

Which statement about current value is true?

A)Current value can only be defined one way.
B)An accounting system could be produced based on current value rather than historical cost.
C)The second-hand sale value of an asset is not an example of current value.
D)Current values are based on transactions.

Question 57

Complete the following table concerning the classification of items in the statement of financial position.
ACCOUNT ELEMENTS CLASSIFICATION
(Asset, Liability, Equity)(Current, Non-current)
$\begin{array}{|l|l|l|l|}\hline\text { e.g } & \text { Cash on hand } & \text { Asset } & \text { Current } \\\hline \text { e.g } & \text { Land and buildings } & \text { Asset } & \text { Non-current } \\\hline 1 & \text { Inventory } & & \\\hline 2 & \text { Accounts receivable } & & \\\hline 3 & \text { Bank overdraft } & & \\\hline 4 & \text { Prepaid insurance } & & \\\hline 5 & \text { Share capital } & & \\\hline 6 & \text { Retained profits } & & \\\hline 7 & \text { Accounts payable } & & \\\hline 8 & \text { Goodwill } & & \\\hline 9 & \text { Plant and equipment } & & \\\hline 10 & \text { Franchise } & & \\\hline 11 & \text { Loan from Eagle Finance (5 years) } & &\\\hline\end{array}$

Question 58

There is a growing tendency for many non-current assets to be valued on the basis of market values. The item which is most likely to be valued at market value is:

A)the assets of a life insurer.
B)goodwill.
C)motor vehicles.
D)accounts receivable.

Question 59

If reported profits are reduced by $6,000 in year one because of the operation of conservatism:

A)profits in later years will be unaffected.
B)profits in later years must be $5,000 lower.
C)profits in later years will be $6,000 higher.
D)none of the above.

Question 60

The accounting convention that the objectivity principle provides support for is:

A)historic cost.
B)prudence (conservatism).
C)relevance.
D)accounting period.

Question 61

The assumption that means accountants ignore inflation is:

A)the stable monetary unit assumption.
B)the going concern assumption.
C)the monetary assumption.
D)the prudence assumption.

Question 62

Which of the following is not considered a deficiency of the statement of financial position?

A)The amount of discretion in recording some transactions.
B)The lack of recognition of inflation.
C)The disclosure of assets and the claims against such assets.
D)The conflict between relevant and reliable information.

Question 63

Which of the following conventions dictates that a sole owner's personal transactions should not be included in the records of the business?

A)Accounting period.
B)Business entity.
C)Prudence.
D)Historic cost.

Question 64

The statement of financial position assists users in terms of:

A)Assessing the value of a business.
B)Determining the liquidity of a business.
C)The effectiveness of wealth generation.
D)All of the above.

Question 65

The statement of financial position provides insight into the liquidity of the business. This means that

A)the ability of the business to pay its long-term debts.
B)the ability of the business to pay dividends.
C)the ability of the business to pay its short-term obligations with current assets.
D)the ability of the business to purchase new long-term assets.

Question 66

Application of the (prudence)conservatism assumption can produce:

A)higher profits.
B)higher values for assets.
C)higher amounts for liabilities.
D)lower amounts for expenses.

Question 67

The accounting assumption that a business will continue to operate into the foreseeable future is the:

A)entity assumption.
B)going concern assumption.
C)accounting period assumption.
D)historical cost assumption.

Question 68

Which of the following is not a reason that the relationship between current and non-current assets important?

A)Firms having too much funds tied up in non-current assets can lead to business failure.
B)In case of financial difficulty, non-current assets are often difficult to sell.
C)It shows the ability of the business to pay long-term obligations.
D)Converting non-current assets to cash often results in a loss to the business.

Question 69

Which of the following is not a potential conflict in the statement of financial position?

A)The statement of financial position is generally only determined annually.
B)In reality, a country's money may not be 'a stable monetary unit'.
C)Relevant information is not always entirely reliable.
D)Australian dollars in 2005 may not have the same purchasing power in 2018.

Question 70

A limitation of the statement of financial position in portraying the financial position of an entity is:

A)items which cannot be measured in money are not included.
B)the historical cost approach means that assets are not shown at their estimated market values.
C)there is no adjustment to values for inflation.
D)All of the above are limitations.

Question 71

Which aspect of business performance does the statement of financial position directly provide insight into?

A)Cash flows.
B)Profitability.
C)Share price.
D)The relative proportions of funds contributed by owners and outsiders.

Question 72

Which of the following is an example of an expenditure that could be recognized as either an immediate asset or an expense?

A)Purchase of a new plant (factory)
B)Purchase of a 12 month insurance policy
C)Payment of an account payable
D)Payment of wages