Question Tag: Liabilities
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- 10 Marks
FR – Nov 2014 – L2 – Q4a – Presentation of Financial Statements
Explain the essential characteristics of assets and features of liabilities per IAS 1.
Question
The International Financial Reporting Standards (IFRS) through the International Accounting Standards Board (IASB) set out the definition and essential characteristics of assets and liabilities in the presentation of financial statements, which users of the statements are likely to rely on when making major economic decisions.
Required:
Identify the essential characteristics of assets and comment on the features of liabilities in accordance with provisions of IAS 1 on the presentation of financial statements. (10 Marks)
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- Tags: Assets, Financial Statements, IAS 1, IFRS, Liabilities
- Level: Level 2
- Topic: Presentation of Financial Statements (IAS 1)
- Series: NOV 2014
- 1 Marks
FA – Nov 2012 – L1 – SA – Q3 – Financial Statements Preparation
Determining which item is not part of the statement of financial position.
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- Tags: Assets, Finance Charge, Financial Position, Liabilities
- Level: Level 1
- Topic: Financial Statements Preparation
- Series: NOV 2012
- 6 Marks
CR – May 2020 – Q4a – Capital Reduction Account
This question requires the preparation of a Capital Reduction Account for Sasasila Ltd following a reorganization.
Question
Sasasila Ltd has been operating profitably for a number of years. However, in recent times, the company has been making losses. Below is the statement of financial position as at 30 June 2019:
| Assets | GH¢000 |
|---|---|
| Non-Current Assets | |
| Patents and copyrights | 75,000 |
| Land and buildings (net) | 200,000 |
| Plant and machinery (net) | 150,000 |
| Current Assets | |
| Inventories | 125,000 |
| Trade receivables | 125,000 |
| Bank | 37,500 |
| Investments (cost) | 100,000 |
| Total Assets | 812,500 |
| Equity and liabilities: | |
| Equity | |
| Ordinary share capital (issued at GH¢10 each) | 375,000 |
| 20% cumulative preference shares (issued at GH¢10 each) | 175,000 |
| Retained earnings | (75,000) |
| Non-current Liabilities | |
| 15% Debentures | 125,000 |
| Current Liabilities | |
| Interest on debentures | 18,750 |
| Trade payables | 93,750 |
| Provision for business restructuring | 50,000 |
| Provision for legal damages & claims | 12,500 |
| Provision for warranties | 37,500 |
| Total Equity and Liabilities | 812,500 |
Additional relevant information: The following scheme of reconstruction was approved by all parties as well as the High Court with the exception of only one ordinary shareholder:
- The ordinary shares were to be reduced to GH¢5 per share.
- The preference shares were to be reduced to GH¢7.5 per share and arrears in dividends for three years were to be canceled from the company’s books.
- The fair values of the assets were agreed at the following values:
- Patents and copyrights: Nil
- Land and buildings: GH¢225,000
- Plant and machinery: GH¢75,000
- Investments: GH¢75,000
- Inventories: GH¢105,000
- Trade receivables: GH¢70,000
- The balance on retained earnings is to be eliminated in full.
- The liability for legal damages and claims was to be settled for GH¢10 million, and the provision for warranties reduced to GH¢27.5 million.
- The accrued debenture interest was to be paid in cash.
- Investments with a carrying amount of GH¢52.5 million were to be sold for cash at that value to strengthen the working capital position.
- The amount set aside for business restructuring was to be eliminated as well.
- The High Court directed a payment of GH¢0.2 million to a member who opposed the scheme for 50 ordinary shares held by him.
Prepare the Capital Reduction Account as at 30 June 2019.
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- Tags: Capital Reduction, Corporate reorganization, Equity, Liabilities
- Level: Level 3
- Topic: Corporate reconstruction and reorganisation
- Series: MAY 2020
- 1 Marks
FA – Nov 2015 – L1 – SA – Q4 – Elements of Financial Statements
Determines the percentage of liabilities against assets.
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- Tags: Balance Sheet, Financial Ratios, Liabilities
- Level: Level 1
- Topic: Elements of Financial Statements
- Series: NOV 2015
- 1 Marks
FA – Nov 2015 – L1 – SA – Q1 – Elements of Financial Statements
Defines the residual interest in the assets of an entity after deducting liabilities.
Question
In accordance with Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS), the residual interest in the assets of the entity after deducting all its liabilities is termed:
A. Liability
B. Provision
C. Equity
D. Assets
E. Reserves
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- Tags: Assets, Equity, Liabilities
- Level: Level 1
- Topic: Elements of Financial Statements
- Series: NOV 2015
- 1 Marks
FA – May 2018 – L1 – SA – Q5 – Elements of Financial Statements
Identifies elements related to the measurement of an entity's financial position.
Question
Which of the following elements is directly related to the measurement of an entity’s financial position?
A. Performance, income, and expenses
B. Income, expenses, and equity
C. Performance, income, and equity
D. Assets, liabilities, and equity
E. Assets, liabilities, and performance
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- Tags: Assets, Equity, Financial Position, Liabilities
- Level: Level 1
- Topic: Elements of Financial Statements
- Series: MAY 2018
- 1 Marks
FA – May 2018 – L1 – SA – Q2 – Recording Financial Transactions
Analyzes the impact of a purchase on the assets and liabilities of a business.
Question
Adeyemi Boat Shop bought a N70,000 electric hoist to lift engines out of boats. The Boat Shop paid N20,000 in cash for the hoist and signed a note to pay the balance in 90 days. This transaction will cause:
A. The Boat Shop’s assets to increase by N70,000 and liabilities to increase by N50,000.
B. No change in owners’ equity but a N50,000 increase in both assets and liabilities.
C. Assets to increase by N50,000 and owners’ equity to decrease by the same amount.
D. No change in total assets, but a N50,000 increase in liabilities.
E. Both assets and liabilities decrease by N50,000.
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- Tags: Assets, Liabilities, Transaction Analysis
- Level: Level 1
- 1 Marks
FA – Nov 2021 – L1 – SA – Q19 – Financial Statements
This question tests the ability to identify which of the listed items is not a liability.
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- Tags: Financial Statements, Liabilities, Multiple Choice
- Level: Level 1
- 1 Marks
FA – Nov 2022 – L1 – SA – Q19 – Financial Analysis
Identify the item that is not considered a liability.
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- Tags: Accounting, Financial Statements, Liabilities
- Level: Level 1
- Topic: Financial Analysis
- Series: NOV 2022
- 12 Marks
FA – May 2021 – L1 – SB – Q6a – Elements of Financial Statements
Explain five elements of financial statements and state four models of measurement of elements of financial statements.
Question
The International Accounting Standards Board (IASB) Conceptual Framework describes the elements of financial statements as broad classes of financial effects of transactions and other events.
i. Explain five elements of financial statements.
ii. State four models of measurement of the elements of financial statements.
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- Tags: Assets, Equity, Expenses, Financial Statements, Income, Liabilities
- Level: Level 1
- Topic: Elements of Financial Statements
- Series: MAY 2021
- 1 Marks
FA – Nov 2014 – L1 – SA – Q5 – Elements of Financial Statements
Identifying the correct term for a present obligation of an entity arising from past events.
Question
A present obligation of an entity arising from past events, the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits, is known as:
A. An asset
B. A provision
C. A liability
D. A payable
E. A receivable
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- Tags: Accounting Definitions, Liabilities, Obligations
- Level: Level 1
- Topic: Elements of Financial Statements
- Series: NOV 2015
- 1 Marks
FA – May 2016 – L1 – SA – Q5 – Financial Statements Preparation
A question about the effect of taking a loan on an entity's financial statements.
Question
Which of the following will be the effect of taking a loan from the bank by an entity?
A. Increase in both liabilities and equity
B. Decrease in assets and increase in liabilities
C. Decrease in both liabilities and equity
D. Increase in both assets and liabilities
E. Increase in assets and decrease in liabilities
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- Tags: Assets, Liabilities, Loan
- Level: Level 1
- Topic: Financial Statements Preparation
- Series: MAY 2016
- 10 Marks
AA – Nov 2023 – L2 – Q3b – Audit and Assurance Evidence
This question asks for the verification procedures to be followed for assets, liabilities, and equity in an audit.
Question
Automech Ltd is a manufacturer of automotive parts based in Ghana. The company’s accountant has been manipulating the accounts payable balance by teeming and lading to misrepresent the financial position of the company. The accountant has been recording fictitious invoices and payments to suppliers to increase the accounts payable balance and misrepresent the company’s expenses.
The external auditor, who was engaged to audit the financial statements of the company, performed substantive testing for transaction cycles and verification procedures for assets, liabilities, and equity items. However, the auditor failed to identify the risk of teeming and lading in the accounts payable balance.
During the audit, the auditor reviewed the accounts payable balance and performed confirmation procedures to verify the balance with the suppliers. However, the accountant had provided the auditor with fake confirmation responses, and the auditor failed to detect the fraud.
Although the financial statements of Automech Ltd were misstated, the Auditor issued an unqualified opinion, stating that the financial statements were presented fairly, in all material respects, in accordance with the applicable financial reporting framework. After the audit, the fraud was discovered by a whistle-blower, and the accountant was fired. The company’s reputation was damaged, and the external auditor faced legal action for failing to detect the fraud.
Required:
State and explain the procedures that should be followed for verification of assets, liabilities, and equity items in Automech Ltd.
(10 marks)
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- Tags: Assets, Audit evidence, Equity, Liabilities, Verification procedures
- Level: Level 2
- Topic: Audit and Assurance Evidence
- Series: NOV 2023
- 8 Marks
BCL – Mar 2024 – L1 – Q4b – Alternative Forms and Constitutions of Business Organisations
Discuss the existence of a partnership in the provided scenario and the liabilities associated with partnership actions.
Question
Three persons, Booker, Weah, and Makafui agreed to set up a restaurant. The finance was provided almost entirely by one of them, Booker. Before the restaurant opened, furniture and equipment were purchased and a laundry contract was entered into. Advertisements were placed in the newspapers and on television, apart from the fact that premises were acquired by the person who supplied the money. The parties then fell out and the business did not proceed as planned.
Required:
i) Explain whether in the circumstances of the facts, there is a Partnership in terms of the provisions of the Incorporated Private Partnership Act, 1962 (Act 152). (5 marks)
ii) State TWO (2) liabilities of Partnership for action or transaction done in the course of a Partnership business.
(3 marks)
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