Deck 3: Measuring and Reporting Financial Position

Question 1

Non-current liabilities represent:

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

Answer 1

A

Question 2

A reserve name that would not appear on a balance sheet is:

A) general reserve.
B) foreign currency translation reserve.
C) asset replacement reserve.
D) bank reserve.

Answer 2

D

Question 3

Identify the item that would appear in the equity section of the balance sheet.

A) loan from ABC Bank
B) bank overdraft
C) drawings by the owner
D) loan to family member

Answer 3

C

Question 4

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

A) expected future economic benefits
B) ability of the benefit to be measured in money terms
C) exclusive control of the economic benefits
D) legal ownership by the entity

Question 5

Identify the non-current asset.

A) long-term investment
B) machinery
C) 5-year loan to Ti Finance
D) all of the above

Question 6

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

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

Question 7

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

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

Question 8

Published balance sheets in New Zealand are mostly presented in which format?

A) horizontal format
B) parallel format
C) 'T' format
D) vertical format

Question 9

The New Zealand Framework's definition of an asset is:

A) a resource controlled by the entity as a result of past events and from which economic benefits are expected to flow to the entity.
B) the claims of outsiders against the entity.
C) a resource owned by the business that will provide future benefits.
D) an item of value held by the entity.

Question 10

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

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

Question 11

Another name for trade receivables is:

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

Question 12

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

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

Question 13

Calculate equity. Cash at bank $3,400; inventory $1,200; accounts receivable $2,500; accounts payable $1,700; loan from ABC Bank $3,500.

A) $8,900
B) $12,300
C) $5,300
D) $1,900

Question 14

If assets are $34,800 and equity is $12,700, liabilities are:

A) $22,900
B) $22,100
C) $47,500
D) $47,000

Question 15

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

Question 16

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

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

Question 17

Identify the current asset.

A) delivery vehicle
B) inventory
C) fixtures and fittings
D) loan to L Hardie repayable in 2 years

Question 18

The correct version of the accounting equation is:

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

Question 19

The statement concerning the Conceptual Framework that is not true is:

A) It is a legal requirement that all entities comply with the New Zealand Framework.
B) It has a significant influence on new accounting standards and on the revision of existing standards.
C) It represents a logical, theoretical structure to support and direct accounting practice.
D) The FRSB is now using the International Framework which it has called the New Zealand Framework.

Question 20

Identify the item which is not necessarily a liability.

A) bank overdraft
B) provision for holiday pay
C) loan
D) None of the above, i.e. all are necessarily liabilities.

Question 21

Which aspect of business performance does the balance sheet directly provide insight into?

A) profitability
B) share price
C) cash flows
D) the relative proportions of funds contributed by owners and outsiders

Question 22

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

A) patent
B) goodwill
C) newspaper masthead
D) none of the above

Question 23

What is the overall effect on the balance sheet when the business sells inventory for a profit of $3,000?

A) no change in total assets; no change in total equity
B) increase total assets by $3,000; increase total equity by $3,000
C) increase total assets by $3,000; decrease total equity by $3,000
D) none of the above

Question 24

What is the effect on the balance sheet when the business buys a car for $25,000, paying a deposit of $5,000 and promising to pay the balance within 60 days?

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

Question 25

Which accounting convention has the effect that the employees will not appear as an asset on the entity's balance sheet?

A) entity convention
B) stable monetary unit convention
C) money measurement convention
D) accounting period convention

Question 26

Identify the intangible asset.

A) accounts payable
B) brand name
C) inventory
D) loan

Question 27

The effect on the balance sheet when the owner contributes her private vehicle for the exclusive use of the business is:

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

Question 28

The recognition criteria for liabilities included in the New Zealand Framework is/are:

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

Question 29

Identify the asset.

A) loan from ABC Ltd.
B) accrued expenses
C) bank overdraft
D) plant and equipment

Question 30

A reason why profits may be retained in a business rather than withdrawn by the owners is:

A) to fund future growth of the business.
B) because the business is able to generate greater returns on the funds than could be obtained if the owner invests them elsewhere.
C) to gain tax advantages.
D) all of the above.

Question 31

Which of these is a liability, not because it is a legal claim but because of past industry or business behaviour?

A) money borrowed from an associate company
B) trade creditors
C) deposit on services received in advance
D) provision for employee bonuses

Question 32

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

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

Question 33

Calculate the profit for the year if capital at the beginning is $35,000, capital at the end is $40,000 and during the year the owner withdrew $15,000.

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

Question 34

'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 New Zealand Framework's definition of:

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

Question 35

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

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

Question 36

What is the effect on the balance sheet when the business has cash sales of $12,000 of goods that were originally purchased for $8,000?

A) increase the asset Bank by $12,000; increase equity by $12,000
B) increase the asset Bank by $4,000; increase equity by $4,000
C) increase the asset Bank by $12,000, decrease the asset Inventory by $8,000; increase equity by $4,000
D) none of the above

Question 37

The effect on the balance sheet when the owner withdraws money from the business is:

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

Question 38

The effect on the balance sheet when a debtor pays the amount that is owed is:

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

Question 39

Without the business entity convention, which item in the balance sheet would not exist?

A) equity
B) liabilities
C) cash at bank
D) assets

Question 40

Identify the current liability.

A) wages owing
B) loan from B Buy (due in 4 months)
C) bill payable (due in 2 years)
D) A and B

Question 41

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

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

Question 42

The effect on the balance sheet when the business pays a creditor is:

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

Question 43

What is the effect on the balance sheet when the business buys inventory on credit?

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

Question 44

Which of these assets that could be listed on a balance sheet is likely not to translate into future economic benefits?

A) large inventories of spare parts
B) inventory that has been on the shelves for over a year
C) debtors that have been outstanding for several months
D) all of the above

Question 45

If reported profits are reduced by $5,000 in year one because of the operation of prudence:

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

Question 46

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

A) fair value
B) historical cost
C) net realisable value
D) None of the above, i.e. all are permitted methods in some circumstances

Question 47

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

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

Question 48

The accounting convention that requires the continuous life of the business to be divided into time periods of the same length for the purpose of measuring profit, is the:

A) accounting period convention.
B) matching convention.
C) going concern convention.
D) business entity convention.

Question 49

Under the revaluation standard, upward valuations of assets are allocated directly to a reserve (equity) account and do not increase profit, while downward revaluations are treated as an expense and reduce profit. The accounting principle underpinning this treatment is:

A) accounting entity.
B) prudence (conservatism).
C) going concern.
D) materialism.

Question 50

Which of these does not belong with the others?

A) prepaid wages
B) mortgage loan
C) trade creditors
D) bank overdraft

Question 51

Which of these is not an asset?

A) accounts payable
B) accounts receivable
C) loan to J. Troja
D) A and B

Question 52

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

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

Question 53

Calculate the missing cash at bank account balance from these balance sheet items: equity $5,700; debtors $890; creditors $450; inventory $360; loan to a friend $1,400.

A) $6,300
B) $3,500
C) $5,400
D) $2,600

Question 54

Identify the liability.

A) creditor
B) drawings
C) cash at bank
D) prepaid insurance

Question 55

The accounting convention that requires items in the balance sheet to be valued at their acquisition cost is the:

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

Question 56

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

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

Question 57

The purpose of the balance sheet is:

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

Question 58

The statement concerning the reserves component of equity that is not correct is:

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

Question 59

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

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

Question 60

The only tangible asset that is not depreciated is:

A) leasehold improvements.
B) land.
C) buildings.
D) B and C

Question 61

The statement about current value that is true is:

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

Question 62

The effect on the balance sheet of a business buying supplies for cash is to:

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