Accounting for Assets and Liabilities Very Short Answer Type Questions

Accounting for Assets and Liabilities Very Short Answer Type Questions

Question 1.
What is an Current Assets?
Answer:
Current assets are short-term economic resources that are expected to be converted into cash within one year. Current assets include cash and cash equivalents, accounts receivable, inventory, and various prepaid expenses.

Question 2.
What is an Fixed Assets?
Answer:
Fixed assets are long-term resources, such as plants, equipment and buildings. An adjustment for aging of fixed assets is made based on periodic charges called depreciation, which may or may not reflect the loss of earning power of a fixed asset.

Question 3.
What are Financial Assets?
Answer:
Financial assets represent investments in the assets and securities of other institutions. Financial assets include stocks, sovereign and corporate bonds, preferred equity and other hybrid securities. Financial assets are valued depending on how the investment is categorized and the motive behind it.

Question 4.
What are Intangible Assets?
Answer:
Intangible assets are economic resources that have no physical presence. They include patents, trademarks, copyrights and goodwill. Accounting for in¬tangible assets differs depending on the type of asset, and they can be either amortized or tested for impairment each year.

Question 5.
What are Liabilities?
Answer:
A liability is a company’s legal debt or obligation that arises during the course of business operations. Liabilities are settled over time through the transfer of economic benefits including money, goods or services.

Question 6.
What are property plant and equipment?
Answer:
Property, plant and equipment are tangible items that: (a) are held for use in the production or supply of goods or services, for rental to others, or for administrative purposes; and (b) are expected to be used during more than one period.

Question 7.
Give the definition of Investment Properties.
Answer:
Investment property is property i.e. land or a building or part of a building or both held by the owner or by the lessee under a finance lease to earn rentals or for capital appreciation or both, rather than for: (i) Use in the production or supply of goods or services or for administrative purposes or (ii) Sale in the ordinary course of business.

Question 8.
Give the definition of Government Grants.
Answer:
Assistance by government in the form transfer of resources to an entity in return for past or future compliance with certain conditions relating to the operating activities of the entity. They exclude those forms of government assistance which cannot reasonably have a value placed upon them and transactions with government which cannot be distinguished from the normal trading transactions of the entity.

Question 9.
State the various types of Government Grants.
Answer:

• Grants related to Income
• Grants related to Assets

Question 10.
What is Government assistance?
Answer:
Action by government designed to provide an economic benefit specific to an entity or range of entities qualifying under certain criteria.

Question 11.
What is Grants related to assets?
Answer:
Government grants whose primary condition is that an entity qualifying for them should purchase, construct or otherwise acquire non-current assets. Subsidiary conditions may also be attached restricting the type or location of the assets or the periods during which they are to be acquired or held.

Question 12.
What is Grants related to income?
Answer:
Government grants other than those related to assets.

Question 13.
What is Forgivable loans?
Answer:
Loans for which the lender undertakes to waive repayment under certain prescribed conditions.

Question 14.
What is Fair value?
Answer:
The price that would be received to sell assets or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

Question 15.
Give the meaning of Borrowing Costs.
Answer:
Borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset form part of the cost of that asset. Other borrowing costs are recognised as an expense.

Question 16.
What is cost of sales?
Answer:
The cost of sales is the accumulated total of all costs used to create a product or service, which has been sold. The term is most commonly used by retailers. Cost of sales = Sales – Gross Profit.

Question 17.
What do you mean by Provision?
Answer:
A provision is a liability of uncertain timing or amount.

Question 18.
Give the meaning of Contingent Liabilities.
Answer:
Contingent liability is the possible obligations that arise from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the entity.

Question 19.
What do you mean by the term inventories?
Answer:
The term inventories:

• Held for sale in the ordinary course of business
• In the process of production for such sale or
• In the form of materials or supplies to be consumed in the production process or in the rendering of services.

Question 20.
What are the criteria for investment properties?
Answer:
Investment property should be recognized as an asset when it is probable that the future economic benefits that are associated with the property will flow to the entity, and the cost of the property can be reliably measured.

Question 21.
What is a Contingent Asset?
Answer:
Contingent asset is a possible asset that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the entity.

Question 22.
What are Events occurring after the reporting Period?
Answer:
Favourable or unfavourable event, that occurs between the reporting date and the date that the financial statements are authorised for issue.

Question 23.
Give the meaning of Impairment loss.
Answer:
An impairment loss is the amount by which the carrying amount of an asset exceeds its recoverable amount.

Question 24.
What is Recoverable amount?
Answer:
Recoverable amount is the higher of an asset’s fair value less costs to sell and its value in use.

Question 25.
Give the meaning of Residual value.
Answer:
The residual value of an asset is the estimated amount that an entity would currently obtain from disposal of the asset, after deducting the estimated costs of disposal, if the asset were already of the age and in the condition expected at the end of its useful life.

Question 26.
Define intangible assets.
Answer:
Intangible assets are defined by IAS 38 as non-monetary assets without physical substance. An intangible asset is an identifiable non-monetary asset, without physical substance, held for use in the production or supply of goods or services, for rental to others, or for administrative purposes.

Question 27.
What are the objectives of intangible assets?
Answer:

• To establish the criteria for when an intangible asset may or should be recognised.
• To specify how intangible asset should be measured.
• To specify the disclosure requirements for intangible assets.

Question 28.
What is net realizable value?
Answer:
Net realizable value is the estimated selling price in the ordinary course of business less the estimated cost of completion and the estimated cost necessary to make the sale.

Question 29.
Define Inventories as per IAS 2.
Answer:

• Held for sale in the’ordinary course of business.
• In the progress of production for such sale.
• In the form of materials or supplies to be consumed in the production progress or in the rendering of services.

Question 30.
Define lease.
Answer:
An agreement whereby the lessor conveys to the lessee in return for rent the right to use an asset for an agreed period of time.

Question 31.
Define finance lease.
Answer:
A lease that transfers substantially all the risks and rewards incident to ownership of an asset. Title may or may not eventually be transferred.

Question 32.
What are lease payments?
Answer:
The payments over the lease term that the lessee is or can be requiring to make.

Question 33.
Define lease term.
Answer:
The non-cancellabie period for which the lease has contracted to lease the asset together with any future terms for which the lessee has the option to continue to lease the assets, with or without further payment, when at the inception of the lease it is reasonably certain that the lessee will exercise the option.

Question 34.
Define impairment.
Answer:
Impairment is determined by comparing the carrying amount of the asset with its recoverable amount. This is the higher of its fair value less costs of disposal and its.value in use.

Question 35.
List the items included in the shareholder’s fund.
Answer:
The items included in the shareholder’s fund are:

• Share capital
• General reserves
• Dividend equalization reserves
• P&.L balance