Week One Review - Financial Statements, Ratios & Structures

Identify the three sections of a Balance Sheet

• Revenue

• Assets

• Equity

• Expenses

• Liabilities

The Income Statement has the following sections

• Assets

• Expenses

• Liabilities

• Revenue

• Equity

True or False

Assets in a balance sheet can be:

Plant and Equipment, Motor Vehicles, Buildings and Land

• False

• True

The AASB 137.10, F.49(b) standards define a liability as:

• A resource:

  (a) controlled by an entity as a result of past events; and

  (b) from which future economic benefits are expected to flow to the entity.

• A present obligation of the entity arising from past events, the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits.

• The residual interest in the assets of the entity after deducting all its liabilities.

The AASB 138.8, F.49(a) defines an asset as:

• Decreases in economic benefits during the accounting period in the form of outflows or depletions of assets or incurrences of liabilities that result in decreases in equity, other than those relating to distributions to equity participants

• Under a financial concept of capital, such as invested money or invested purchasing power, the net assets or equity of the entity. The financial concept of capital is adopted by most entities.

• A resource: (a) controlled by an entity as a result of past events; and (b) from which future economic benefits are expected to flow to the entity.

• A present obligation of the entity arising from past events, the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits.

The AASB F.49(c) defines equity as:

• The availability of cash in the near future after taking account of financial commitments over this period.

• A resource: (a) controlled by an entity as a result of past events; and (b) from which future economic benefits are expected to flow to the entity.

• Increases in economic benefits during the accounting period in the form of inflows or enhancements of assets or decreases of liabilities that result in increases in equity, other than those relating to contributions from equity participants.

• The residual interest in the assets of the entity after deducting all its liabilities.

Ratio analysis is (choose two).

• A method of analysis that could be used when looking at the weather.

• *Ratio analysis is the comparison of line items in the financial statements of a business.

• A Method of analysis that should never be used in the analysis of business results.

• *Ratio analysis is used to evaluate a number of issues with an entity, such as its liquidity, efficiency of operations, and profitability.

Four types of business structures are

• Sole trader

• Partnership

• Company

• Trust

• All the above

Identify the three benefits of a company.

• Cheap and easy to setup

• Limited liability

• Income is added to personal income

• Outside investors are easy to attract in the future

• Separate legal identity

Three profitability ratios are:

• Return on Assets (ROA)

• Quick Ratio

• Return on Equity (ROE)

• Debt to Equity

• Return on Capital Employed