Balance Sheet Test

1
Balance Sheet Test

• This test consists of 10 questions designed to
  test your understanding of the structure of and
  ability to simply analyse a Balance sheet.
• The links provide you with a choice of answer,
  along with explanations and solutions.
• You will need a calculator to complete this test.

2
Question 1.

• Which of the following is a Fixed Asset
• a. Factory Premises
• b. Work-in-progress
• c. Cash at Bank

3
Fixed Assets are those things owned by a
business, that do not change in the normal course
of business. Factories are therefore fixed assets.
4
Fixed Assets are those things owned by a
business, that do not change in the normal course
of business. Work-in-progress are part completed
goods for sale. The value of quantity of these is
likely to change on a daily basis Try again.
5
Fixed Assets are those things owned by a
business, that do not change in the normal course
of business. Cash is likely to change on a daily
basis as bills are paid and payments received.
Try again.
6
Question 2.

• Which of the following is a Current Liability?
• A. Debtors
• B. Commercial Mortgage
• C. Creditors

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Debtors are firms or individuals that owe the
company money, for example by buying on credit.
Debtors are Current Assets.
8
A Commercial mortgage will have a term up to 20
years. It is therefore not likely to be due for
payment in the near future ( less than 12 months)
9
Correct, Creditors are businesses or individuals
to whom the business owes money. They are
typically created by buying goods on business
credit
10
Question 3.

• A firms Current Assets are 376,000, and Current
  Liabilities are 293,000. What is the firms Net
  Current assets Figure?
• A. 669,000
• B. 83,000
• C. - 83,000

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You have totaled both types of assets, when you
should deduct, CL from CA
12
Correct. CA-CL Net Current Assets
13
You have reversed the calculation. CA- CL Net
Current Assets
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Question 4.

• A firms Current Assets are 376,000, and Current
  Liabilities are 293,000. What is the firms
  Current Ratio figure?
• A. 0.78 1
• B. 1 1.28
• C. 1.28 1

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You have reversed the calculation . Current ratio
CA CL
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Ratios are always show as something 1. You have
carried out the correct calculation, but then
reversed the figures.
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Well done! Current Ratio CA CL
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Question 5.

• Which of the following defines Retained Profits?
• A. Profits made by the business, but kept by the
  business as cash in the bank.
• B. Profits made by the business, but reinvested
  in the business, as working capital or fixed
  assets.

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Retained profit, can be held as any form of
asset, and is best used for reinvestment within
the business.
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Correct!
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Question 6.

• A firm starts trading with Fixed Assets to the
  value of 45,000. In a three year period it
  purchases no new assets and depreciates the value
  of its assets by 10 of the initial cost each
  year.What will be the value of its assets at the
  end of the period?
• A. 31,500
• B. 45,000
• C. 30,000

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Correct. 3 times 4,500 13,500. 45,000 -
13,500 31,500
23
Wrong. The firm will depreciate its assets by 10
of 45,000 each year. Try again.
24
Wrong. The firm will depreciate its assets by 10
of 45,000 each year. Try again.
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Question 7.

• Which of the following defines current
  liabilities?
• A. Debts owed by the business due to be repaid in
  more than one year.
• B. Debts owed by the business due to be repaid in
  less than one year.

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Wrong current liabilities are Debts owed by the
business due to be repaid in less than one year.
If they are due to be paid in more than one year
they are known as Long Term Liabilities
27
Correct, current liabilities are Debts owed by
the business due to be repaid in less than one
year. If they are due to be paid in more than one
year they are known as Long Term Liabilities
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Question 8.

• Which of the following is a reason why stock is
  ignored when calculating the firms Acid Test
  Ratio?
• A. the value of stock is hard to calculate
• B. stock may not be easily converted into cash
• C. stock is often overvalued on a firms balance
  sheet

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Wrong. Remember the ATR is looking at the
liquidity of the firm.
30
Correct. The ATR is looking at the liquidity of
the firm, and stock may such as raw materials and
work in progress is unlikely to be easily
convertible into cash..
31
Wrong. Remember the ATR is looking at the
liquidity of the firm.
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Question 9.

• Which of the following is a long term liability?
• A. Share Capital
• B. Overdraft
• C. Mortgage

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Wrong. Share capital is a form of permanent
capital - it does not have to be repaid.
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Wrong. An overdraft is a current liability.
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Correct. A commercial mortgage may have a term of
up to 20 years.
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Question 10.

• For which of the following can reserves be used?
• 1. Paying dividends in a loss making year
• 2. Purchasing Fixed assets
• 3. Funding a take-over
• A. 2 only
• B. 2 and 3
• C. All of the above

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Purchase of fixed assets is one of the main
purposes to which reserves are put, but not the
only one
.
38
Firms can and do use reserves to pay dividends,
as well as purchase fixed assets. But there are
other uses to which they can be put.
39
Correct. They can be used for all three purposes.
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You have now completed the test. For further
more detailed revision please use the case
studies available from the ALoA site.
www.aloa.co.uk