FA - Basics New

Which one of the following statements best defines an expense?

• An expense is any outflow of economic benefits in an accounting period.

• An expense is an outflow of economic benefits resulting from the purchase of resources in an accounting period

• An expense is an outflow of economic benefits resulting from a claim by a third party.

• An expense is an outflow of economic benefits in an accounting period as a result of the using up of resources or a fall in the value of an asset.

Which one of the following statements is true in relation to a partnership?

• A partnership is a separate legal entity

• A partnership is jointly owned and managed by the partners

• A partnership can raise capital by issuing shares to members of the public

• A partnership is able to own property and other assets in its own name

Which one of the following statements is true in relation to a sole trader?

• A sole trader cannot have any employees

• A sole trader is able to introduce or withdraw capital from the business at any time

• A sole trader has limited liability for the debts of the business

• A sole trader can operate a business from only one location

Which one of the following statements best defines an asset?

• An asset is a resource owned by the entity with a financial value.

• An asset is a resource controlled by an entity from which future economic benefits are expected to be generated.

• An asset is a resource controlled by an entity as a result of past events.

• An asset is a resource controlled by an entity as a result of past events from which future economic benefits are expected to be generated.

Which one of the following statements best defines the equity or capital of a business?

• Equity or capital of a business is represented by the net assets of the business

• Equity or capital of a business is equivalent to the value of the business

• Equity or capital of a business is equivalent to the value of the business assets

• Equity or capital of a business is represented by the total assets of the business

Which of the following statements is true?

• The directors of a company are liable for any losses of the company

• A sole trader business is owned by shareholders and operated by the proprietor

• Partners are liable for losses in a partnership in proportion to their profit share ratio

• A company is run by directors on behalf of its members

Which one of the following statements best defines a liability?

• A liability is an obligation arising from a past transaction or event.

• A liability is a legally binding amount owed to a third party.

• A liability is an obligation arising from a past transaction or event which is expected to be settled by an outflow of economic benefits.

• A liability is anything which results in an outflow of economic benefits from an entity.

Which of the following are differences between sole traders and limited liability companies?

(1) A sole trader’s financial statements are private and never made available to third parties; a company’s financial statements are sent to shareholders and may be publicly filed.

(2) Only companies have share capital.

(3) A sole trader is fully and personally liable for any losses that the business might make.

(4) Drawings would only appear in the financial statements of a sole trader.

• (1) and (4) only

• (2), (3) and (4)

• (2) and (3) only

• (1), (3) and (4)

Which of the following statements is true in relation to a limited liability company?

• A limited liability company can incur liabilities in its own name

• A limited liability company cannot acquire assets in its own name

• A limited liability company cannot incur liabilities in its own name

• A limited liability company can be formed on an informal basis by simple agreement between the first shareholders

Which one of the following items could be used to encourage executive directors to operate in the best interests of the company?

• They could be awarded a high salary

• They could receive bonuses based on both individual and company performance

• The could be entitled to large payment on resignation

• The could be asked to attend Annual General Meetings of the company