BUSS1030 ) (Solved Questions 100% VERIFIED QUESTIONS AND ANSWERS)
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Course
BUSS1030
Institution
BUSS1030
>>> (do MYOB and end of chapter questions week 6,7, 8)
>>> Explain how the statement of cash flows can be useful for identifying cash flow management strengths, weaknesses and opportunities
>>> Wh
* A bank reconciliation identifies missing transactions and it is...
BUSS1030
>>> (do MYOB and end of chapter questions week 6,7, 8)
>>> Explain how the statement of cash flows can be useful for identifying cash flow management
strengths, weaknesses and opportunities
>>> Wh
* A bank reconciliation identifies missing transactions and it is crucial especially for small medium
businesses
* The missing transactions can identify fraud, error in accounting/bank records and or a host of other
reasons and unless it is rectified the error may go unnoticed and create disastrous consequences for the
business
* The bank rec is a way for the business to control the assets and to ensure the financial statements are
free from material misstatements >>> Are bank reconciliations just an account procedure or do you
think there are other good reasons for preparing a regular bank reconciliation?
* Accrual:
* Revenue is recognised on the basis that it has been earned irrespective of whether the cash receipt is
in arrears or advance
* Revenue is deemed to be earned when it is realised; realisation being closely linked to the probability
of occurrence and reliability of measurement
* N.B. recall that manual adjustments are sometimes required for accrued revenues and unearned
revenues
* Cash accounting means recognising transactions at the time when cash flows take place >>> Cash vs
Accrual recognition on the income sheet
* Different businesses use different depreciation methods
* Methods should be selected to be appropriate to the particular assets and to their use in the business
* Reducing balance method — if assets lose efficiency over time and benefits decline then reducing
balance method
* Units of production — for when depreciation relates to use more than time or to
technological/commercial factors
,* Straight line — where patterns of economic benefits provided by the asset is uncertain
* Accounting standard AASB 116 — 'Property, Plant and Equipment' reinforces this view
* Depreciation does not provide funds for asst replacement, it is used to calculate net profit
* Depreciation is an example of an accounting process that requires judgement >>> How do you select
a depreciation method
* Enron created offshore entities to avoid taxes and hide operating losses
* They also provided company's principles and mangers with full anonymity that would shield the
massive losses
* This made them look more profitable than they actually was
* The scheme created a maelstrom where corporate officers went deeper and deeper into deception
every quarter to foster the illusion of billions in profits while the company was bleeding loss >>>
Provide an example of how financial statements can be manipulated
* In electronic bank reconciliation there is no possibilities for the cash at bank balance and the bank
balance stamens to not be the same i.e. the closing balances of both cash at bank and bank statements
must always balance
* In a manual setting the bank reconciliation process identifies where the differences are and address
the nature of the differences >>> Can you see any advantage of electronic bank reconciliation versus a
manual bank reconciliation? Discuss
* Non current assets have lives that are either finite or indefinite. Initially they are recorded at their
historic costs
* Non current assets with finite lives — used up over time and their cost is recognised as an expense in
each period (depreciation or amortisation)
* Non current assets with indefinite lives — may or may not be used up over time and are not subject to
routine annual depreciation over time e.g. land
FAIR VALUE
Definition -- current market value i.e. the exchange values in an arms length transaction
* Fair values can be used for recording on current and non current assets provided these values can be
measured reliable (alternative to historic)
,* Revalutions can be used only where there is an active market, thereby permitting fair values to be
properly determined
* Intangible assets are seldom revalued to fear values because active markets for them do not exist
* Once assets are revalued the frequency of revaluation is important as assets recorded at out of date
revaluations can mislead users
* Example: (look at revaluation reserve in OE)
IMPAIRMENT
Definition -- the amount of loss that must be written off for an asset in the situation where the carrying
amount of the assets exceeds its recoverable amount. Can also apply for current assets e.g. inventories
Why it occurs
* when a non current asset suffers a significant fall in value this fall may lead to the carrying amount of
the asset being higher than could be recvered from the asset through its continued use or through its
sale
* this fall coudl be caused by changes in market conditions, technological obsolescence etc
* therefore the asset is impaired >>> How are assets valued and what is fair value and impairment
* Tells us how the business has generated cash during the period and where it has gone
* Tracks the sources and uses of cash over time which is indicative of trends and useful for predicting
future opportunities and patterns of cash
* provides an insight to working capital management
* is a good indicator of debt management practices
* identifies non operational cash flows
BENEFITS
* The comparative balance sheet reveals opening and closing balances of cash and other asset, liability
and equity items
, * The cash flow statement explains what caused the movement in cash balance and other items
impacted by cash flows
* It helps to measure cash sufficiency and business solvency e.g. the ability to meet obligations and/or to
pay dividends
* It helps users to evaluate:
* Investing and financing transactions during the period (not just operating activities)
* The entity's ability to generate future cash flows
* Differences between net profit and net cash provided from/used by operating activites >>> What
does the statement of cash flows tell us and benefits of using the statement
A = L + OE is the basic accounting equation and this will always hold true becasue the claims are always
same as the total assets, ensuring that the balance sheet always 'balances'
THE EFFECT OF TRADING
Trading is an asset that is sold at a price that is different to the cost of acquiring or manufacturing the
asset
It introduces an additional transaction to the statement of financial position
To cover the effects of trading the equation is extended to:
Assets = OE beginning + Profit (or - Loss) +/- OE changes + liabilities >>> What is the effect of trading
operations on the balance sheet
Accounting time period concept >>> Unit of time for which accounting data is collected and the
financial statements are prepared
* In Australia many companies prepare their statement for the financial year from July 1 to June 30 the
following year
Adv and dis of double entry >>> It provides a means of tracking transactions through to the final
accounts. It is systematic. It is logical and relatively easy to follow.
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