Question 1

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

Accepted Answer

Non-current assets are not held for immediate sale or consumption but rather for long-term use in the business.

Question 2

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

Accepted Answer

When a business buys supplies for cash, it increases the asset supplies as they acquire more inventory to sell or use in their operations. At the same time, they decrease the asset bank as they use cash to pay for the supplies. Thus, the effect on the statement of financial position would be an increase in asset supplies and a decrease in asset bank.

Question 3

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.

Accepted Answer

The answer of You are provided with the statement of...

Question 4

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

Accepted Answer

When the business buys inventory on credit, it increases its asset inventory (as it has now acquired more inventory) and also increases its liability creditor (as it owes payment to the supplier, resulting in an increase in the amount owed to creditors). Therefore, option A is correct.

Question 5

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.

Accepted Answer

The profit for the year can be calculated using the formula:

Profit = capital at the end - capital at the beginning - owner's withdrawal

Substituting the given values:

Profit = $40,000 - $45,000 - $15,000 
Profit = -$20,000

A negative profit means that the business incurred a loss, which is not one of the given answer choices. Therefore, the closest answer is the one that represents the smallest absolute value of the profit, which is $10,000 represented by choice C.

Question 6

Identify the current liability.

Accepted Answer

Current liabilities are debts or obligations that are due within one year. Both wages owing and a loan due in 4 months fit this definition, making both A and B correct.

Question 7

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?

Accepted Answer

Cash sales of $15,000 will increase the asset of cash in the statement of financial position by $15,000, and the previous inventory purchased for $10,000 will decrease the asset of inventory by $10,000. Therefore, the statement of financial position will show an increase in bank asset by $15,000 and a decrease in inventory asset by $10,000, leading to a net increase in assets of $5,000. This $5,000 increase in assets will increase equity by the same amount, as the business has not incurred any new liabilities or expenses to generate this cash sale. Thus, the statement of financial position will reflect an increase in asset and equity by $5,000.

Question 8

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?

Accepted Answer

When the business buys a car for $35,000, paying a deposit of $10,000 and promising to pay the balance within 60 days, it results in an increase in an asset account (vehicle) by $35,000 and a decrease in another asset account (bank) by $10,000. Additionally, it creates a liability account of accounts payable, which increases by the value of the balance payment, which is $25,000. Hence, option B is the right choice.

Question 9

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.

Accepted Answer

The total assets must equal the total liabilities plus equity. Here, the only unknown is the cash at bank. The equation is: Cash at Bank + Accounts Receivable + Inventory + Loan to a Business = Accounts Payable + Equity. Plugging in the numbers: Cash at Bank + $890 + $360 + $1,400 = $450 + $5,800. Solving for Cash at Bank gives $3,600.

Question 10

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

Accepted Answer

When the owner withdraws money from the business, it results in a decrease in the business's bank assets (or cash) and a decrease in the owner's equity. This is because the withdrawal represents assets leaving the business and reduces the owner's claim on the remaining assets.

Question 11

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

Accepted Answer

When the owner contributes her private vehicle to the business, the asset of the business is increased as the vehicle is now owned by the business. This increases the asset side of the balance sheet, and as the vehicle has been contributed by the owner, it increases the equity of the business. Therefore, the correct answer is choice A - increase asset vehicle; increase equity.

Question 12

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

Accepted Answer

Current assets are assets that are expected to be turned into cash within 12 months. Goodwill and infrastructure assets are both non-current assets.

Question 13

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

Accepted Answer

Paying a creditor results in a decrease in the bank balance (an asset) and a decrease in the liability to the creditor, accurately reflecting the transaction's impact on the statement of financial position.

Question 14

Identify the current asset.

Accepted Answer

Inventory is a current asset as it is expected to be sold or used up within one year. The other options are either fixed assets (fixtures and fittings, delivery vehicle) or a non-current asset (loan to L Hardie repayable in 2 years).

Question 15

Which of the following is a non-current asset?

Accepted Answer

Non-current assets are long-term investments or assets that are not expected to be converted into cash within a year. This includes long-term loans given (like the 5-year loan to Ti Finance), machinery (as it is used over several years), and long-term investments. All the options listed are examples of non-current assets.

Question 16

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

Accepted Answer

Using the accounting equation, Assets = Liabilities + Equity, we can solve for the unknown variable. 
Assets = Liabilities + Equity
$36,200 = Liabilities + $13,600
Liabilities = $36,200 - $13,600
Liabilities = $22,600
Therefore, the correct answer is C) $22,600.

Question 17

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

Accepted Answer

Equity is calculated as total assets minus total liabilities. Total assets = Cash at bank + Inventory + Accounts receivable = $3,500 + $1,600 + $3,500 = $8,600. Total liabilities = Accounts payable + Loan from ABC bank = $1,700 + $3,500 = $5,200. Equity = Total assets - Total liabilities = $8,600 - $5,200 = $3,400.

Question 18

What do non-current liabilities represent?

Accepted Answer

Non-current liabilities represent amounts due to outsiders which are not payable within 12 months, reflecting long-term financial obligations of a business.

Question 19

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

Accepted Answer

Selling inventory for a profit of $5,000 will increase the business's total assets by $5,000 (due to the cash received from the sale) and increase its total equity by $5,000 (due to the profit from the sale being added to retained earnings). Therefore, there is an increase in both assets and equity.

Question 20

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

Accepted Answer

When a debtor pays the amount that is owed, there is a decrease in the asset "debtor" (as the amount owed is now paid) and an increase in the asset "bank" (since the payment is received). There is no effect on equity, as it is not directly impacted by this transaction. Therefore, option C is the correct choice.

Quiz 2: Measuring and Reporting Financial Position