Question 1

Which of the following would not be classified as 'cash and cash equivalents'?

Accepted Answer

Cash and cash equivalents include assets that can be quickly converted into cash, such as short-term deposits, cash at bank, and petty cash. Accounts receivable, on the other hand, are amounts owed to the company by its customers and are not considered cash or cash equivalents until they are collected. Therefore, the correct answer would be A) Accounts receivable.

Question 2

Which of the following statements is correct regarding the use of the first-in first-out (FIFO)method of valuing inventory?

Accepted Answer

The FIFO (First-In, First-Out) method assumes that the first items purchased are the first ones to be sold, and the most recently purchased items remain in inventory. Therefore, closing inventory consists of the most recently purchased goods.

Question 3

Which of the following statements concerning goodwill is true?

Accepted Answer

Goodwill is indeed an unidentifiable intangible asset that arises when a business is acquired for more than the fair value of its net identifiable assets. Internally generated goodwill cannot be recognized on the balance sheet according to accounting standards such as IFRS and GAAP. Additionally, goodwill must be tested for impairment at least annually, or more frequently if there are indications that it might be impaired.

Question 4

Select the asset that is not an identifiable intangible asset:

Accepted Answer

Goodwill is not considered an identifiable intangible asset because it cannot be separated or divided from the entity and sold, transferred, licensed, rented, or exchanged, either individually or together with a related contract, asset, or liability.

Question 5

A company transfers $10 000 from the retained earnings account to a general reserve account.The effect of this transfer on the company's balance sheet is:

Accepted Answer

A transfer from retained earnings to a general reserve account is a bookkeeping entry that does not affect the assets or liabilities of the company. It only affects the allocation of shareholders' equity. Therefore, the total shareholders' equity remains unchanged.

Question 6

Living animals or plants,such as trees in a plantation,dairy cattle or sheep,are known under the accounting standards as:

Accepted Answer

Living animals or plants are considered agricultural assets under accounting standards, as they are assets that are grown or raised for commercial purposes. Current assets refer to assets that are expected to be converted into cash within one year, while intangible assets are non-physical assets such as patents or copyrights. Natural assets may refer to resources such as minerals or timber, but not necessarily living plants or animals.

Question 7

The amount paid to acquire an asset is known as its:

Accepted Answer

The historical cost is the amount paid to acquire an asset at the time of its purchase. This is also known as the original cost or the acquisition cost.

Question 8

Assets and liabilities are listed in the balance sheet in order of:

Accepted Answer

Assets and liabilities are listed in the balance sheet in order of liquidity, which means how quickly and easily they can be converted into cash or used to pay off debts. This ordering allows investors and analysts to get a sense of the company's ability to meet its financial obligations and cover its short-term expenses. Marketability, tangibility, and profitability are not factors used in determining the order of listing in the balance sheet.

Question 9

Motor Cross Ltd's inventory purchases for the month of January are summarised below.Using the weighted-average method of valuing inventory,the weighted unit cost is:
$ \begin{array}{lcc}\text{Purchase date}&\text{ Number of units}&\text{ Cost per unit}\\\text { 2. January } & 8 & \$ 5000 \ \text { 13 January } & 12 & \$ 8500 \ \text { 17 January } & 35 & \$ 7000 \ \text { 27 January } & 20 & \$ 10500\end{array} $

Accepted Answer

[($5000 x 8) + ($8500 x 12) + ($7000 x 35) + ($10500 x 20)] / 75 = $7960.

Question 10

Which of the following statements concerning asset valuation is incorrect?

Accepted Answer

The statement in B is incorrect because when non-current assets are measured using the cost basis, they can indeed be valued at less than their recoverable amount if impairment losses have occurred. The recoverable amount is the higher of an asset's fair value less costs to sell and its value in use. If the carrying amount of the asset exceeds its recoverable amount, an impairment loss is recognized, reducing the carrying amount to the recoverable amount.

Question 11

Blue Sea Resort Ltd acquired all the shares in Scuba Ltd for $750 000.The fair value of the assets acquired was $1 000 000 and the fair value of the liabilities assumed was $300 000.The amount of goodwill acquired by Blue Sea Resort Ltd is:

Accepted Answer

Goodwill is the difference between the fair value of the assets acquired and the fair value of the liabilities assumed. In this case, the fair value of the assets acquired ($1,000,000) minus the fair value of liabilities assumed ($300,000) is $700,000. However, Blue Sea Resort Ltd only paid $750,000 for the shares in Scuba Ltd, so the goodwill acquired is only $50,000 ($750,000 - $700,000).

Question 12

The amount recognised in the asset class 'investments accounted for using the equity method' represents:

Accepted Answer

The amount recognised in the asset class 'investments accounted for using the equity method' includes the cost of shares acquired plus the investor's share of profits or losses of the investee, less dividends received from the investee. This is in accordance with the accounting standard IAS 28, which requires the equity method to be used to account for investments in associates.

Question 13

Which of the following assets is not required to be depreciated/amortised?

Accepted Answer

Land is a non-depreciable asset as its value does not diminish over time. It is a long-term asset that is expected to appreciate in value, and is therefore not required to be depreciated or amortized.

Question 14

Inventory is categorised in the balance sheet as a:

Accepted Answer

Inventory is considered a current asset as it is expected to be sold or used up within a year or operating cycle, whichever is longer. It is also part of the company's working capital and essential for the day-to-day operations of the business.

Question 15

A revaluation surplus is a reserve account that arises when:

Accepted Answer

A revaluation surplus is created when an entity chooses to measure its long-term assets at fair value instead of cost. If the fair value of the asset exceeds the carrying value, the difference is recorded as a revaluation surplus within equity.

Question 16

Chrystal Gems Ltd was set up with share capital of $500 000.In year 1 a loss of $50 000 was recorded,in year 2 a profit of $175 000 and in year 3 a profit of $350 000.Also in year 3 a dividend of 5% of paid up capital was paid to shareholders and $20 000 was transferred from retained earnings to a general reserve.The retained earnings balance of Chrystal Gems Ltd at the end of year 3 was:

Accepted Answer

The retained earnings at the end of year 3 is calculated as follows: Start with the initial share capital of $500,000. Year 1 loss reduces it by $50,000, leaving $450,000. Year 2 profit adds $175,000, totaling $625,000. Year 3 profit adds $350,000, totaling $975,000. A 5% dividend on $500,000 share capital is $25,000, reducing it to $950,000. Transferring $20,000 to a general reserve leaves $930,000. However, the initial share capital is not part of retained earnings, so the correct retained earnings balance is $430,000.

Question 17

The Accumulated Depreciation account is reported as:

Accepted Answer

The Accumulated Depreciation account is a contra asset account which is reported on the balance sheet, representing the total amount of depreciation that has been charged against an asset since the date of its acquisition.

Question 18

Office furniture was purchased for $15 000.The residual value of the furniture is $1000 and its useful life is estimated to be 7 years.The annual depreciation amount will be:

Accepted Answer

The annual depreciation amount is calculated by subtracting the residual value from the purchase price and then dividing by the useful life. So, ($15,000 - $1,000) / 7 years = $2,000 per year.

Question 19

At the end of the financial period the cost of an entity's inventory on hand is $25 500.The net realisable value of the inventory is deemed to be $28 000.What value for inventory must be shown on the entity's balance sheet for the reporting period?

Accepted Answer

The net realisable value of the inventory is higher than the cost, so the inventory must be shown on the balance sheet at its net realisable value of $28,000.

Question 20

Current and non-current liabilities are categorised based on:

Accepted Answer

Current and non-current liabilities are categorised based on when the liability is due for payment. Current liabilities are due within a year, while non-current liabilities are due in more than a year. The other options (A, C, D) do not determine the categorisation of liabilities.

Quiz 5: Balance Sheet