Chat with AIExam 4: Presentation of Financial Statements
A complete set of financial statements includes the statement of financial position, the statement of comprehensive income, the statement of changes in equity, and the statement of cash flows.
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VerifiedFalse
Explain the difference between a current asset and a non-current asset and the difference between a current liability and a non-current liability. Why is this classification important?
(41) VerifiedNon-current assets are all those that are not classified as current. Current assets are those that meet the following characteristics: (a) the entity expects to realize or use the asset in its normal operating cycle; (b) the entity holds the asset primarily for trading purposes; (c) the entity expects to realize the asset within one year after the reporting period; or (d) the asset is cash or a cash equivalent. The exception is when the cash or cash equivalent has been designated or restricted in such a way that the cash cannot be exchanged or used to pay off debt or settle other liabilities during the subsequent reporting period. Common current assets are cash, receivables, inventory, prepayments, and financial assets that are held for trading purposes. Other non-cash assets that are not part of an entity's normal operating cycle must be realized within 12 months after the reporting period to be classified as current.
Non-current liabilities are those that are not classified as current. Current liabilities meet one or more of the following characteristics: (a) the entity believes the liability will be settled within the normal operating cycle period; (b) the entity holds the liability primarily for the purpose of trading; (c) the obligation to settle the liability must be fulfilled within a year of the end of the reporting period; (d) the entity cannot defer settlement of the liability past the end of the subsequent period. Liabilities often considered current are trade payables and some accruals part of working capital used in an entity's normal operating cycle. Other liabilities such as certain financial liabilities, the current portion of non-current financial liabilities, and bank overdrafts should be settled within 12 months of the reporting period are also classified as current (even though they are not part of working capital). An entity can control use of its current assets, but is limited by its contractual obligations regarding current liabilities.
The usefulness of a statement of financial position when assets and liabilities are classified as current and non-current. For example, investors and creditors rely on the current/non-current classification when assessing the liquidity of an entity.
The accrual method of accounting furthers management's discretion in determining profit for the period.
(40) VerifiedFalse
Which of the following financial statement items are not allowed to be offset in the financial statements?
(41) Equity capital and reserves are disaggregated into paid-in capital, share premium, and reserves.
(44) Changes in equity arising from transactions with owners are presented in the statement and profit and loss.
(45) An entity is not required to disclose in the notes a summary of significant accounting policies so long as the policy choices are consistent with industry practices.
(37) Entity A manufactures inventory. Entity A holds raw materials for 3 months, and it usually takes 4 months to sell the finished goods when completed. If the production process takes 6 months to complete the inventory, and it takes 1 month to collect cash on receivables, what is the normal operating cycle of Entity A?
(30) Which of the following is not true about information presented in the statement of financial position or in the notes?
(34) Which of the following would likely be classified as other comprehensive income (OCI)?
(47) Each of the following is a standard or interpretation issued by the International Accounting Standards Board, except:
(53) The statement of financial position is regarded as the most significant financial statement, which is why it is commonly listed first in a complete set of financial statements.
(38) An entity is required to prepare a complete set of comparative financial statements at least
(36) An entity may choose to present expenses based on either their nature or their function within the entity.
(34) An entity is required to make an explicit and unreserved statement of compliance with IFRS in the notes to the financial statements.
(36) Which of the following items is not required for a complete set of financial statements?
(41) Which of the following is not characteristic of a current asset?
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