1. Which of the following items would not fall under the definition of an asset?* a) Land b) Machinery c) Cash d) Owner’s equity e) Debtors 2. Which one of the following items would fall under the definition of a li ability?* a) Cash b) Debtors c) Owner’s equity d) Tax owed e) None of the above 3. Which of the following statements are false?* a) A liability is a debt for your business. b) Debtors are a debt for your business. c) The accounting equation shows how much of your assets belong to the owner, and how much ‘belong’ to people outside the business. d) If you cannot work out a value for an item that will bring you future benefits, then you cannot keep this as an asset in your records. e) None of the above 4. A business has the following items in it: - Land $1,000,000 - Machinery $20,000 - Cash $10,000 - Debt $0 - Owner’s equity ? What is the value of the owner’s equity?*
a) $1,000,000 b) $1,020,000 c) $1,010,000 d) $1,030,000 e) None of the above. 5. A business has the following items in it: - Land $1,000,000 - Machinery $20,000 - Cash $10,000 - Loan $500,000 - Owner’s equity ? What is the value of the owner’s equity?*
a) $500,000
b) $1,000,000 c) $530,000 d) $1,030,000 e) None of the above. 6. A business has the following items in it: - Owners equity $600,000 - Total liabilities $1,400,000 - Assets ? What is the value of the assets in this business?* a) $600,000 b) $800,000 c) $1,400,000 d) $2,000,000 e) None of the above. 7. A business has the following items in it: - Land $1,500,000 - Machinery $80,000 - Cash $20,000 - Owners equity $900,000 - Loan $500,000 - Creditors ? What is the value of the creditors?* a) $200,000 b) $700,000 c) $800,000 d) $1,100,000 e) None of the above. 8. A business has the following items in it: - Land ? - Vehicles $600,000 - Debtors $120,000 - Cash $30,000 - Owners equity $1,000,000 - Loan $500,000 - Creditors $50,000 What is the value of the land?* a) $1,000,000 b) $1,550,000 c) $800,000 d) $750,000
e) None of the above. 9. Which of the following statements are true?* a) A business whose liabilities are greater than its assets has a bad financial position. b) A business whose liabilities are greater than its owner’s equity has a bad fi nancial position. c) A business whose assets are greater than its owner’s equity has a bad financial position. d) a) and b) e) All the above
ANSWER:
1. The answer is d). Owner’s equity is the value of the assets that the owner really owns. However, it is not an asset itself. 2. The answer is d). Cash and debtors are assets, and owner’s equity is owner’s equity. Tax owed is a debt, which would thus fall under liabilities. 3. The answer is b). A liability is a debt –this is the same thing. A debtor, however, is not a liability, but an asset. Debtors are the total value of people who owe your business. 4. The answer is d). In this example there are no debts (liabilities) in the business. There are only assets. Therefore, the value of the assets that belong to the owner (the owner’s equity) is equal to the total value of the assets (R1,030,000). 5. The answer is c). The owner’s equity is calculated by taking the tota l of the assets (R1,030,000) and subtracting the total of the liabilities (500,000). Thus the equity is R530,000. 6. The answer is d). According to the accounting equation, assets equal the owner’s equity plus liabilities. Thus if we add the owner’s equity and liabilities, we get the value of the assets in this business. 7. The answer is a). Creditors and the loan together form the total liabilities. The total of the liabilities will equal the total of the assets minus the owner’s equity. The total assets are R1,600,000, and the owner’s equity is R900,000. The total li abilities are thus R700,000. If the loan is R500,000, then the credit ors must be R200,000. 8. The answer is c). The total assets will equal the total of owner’s equity plus liabilities, which comes to R1,550,000. The rest of the assets (besides land) come to R750,000. Thus land comes to R800,000. 9. The answer is a). A business that owes more than it owns is bankrupt and thus
has a terrible financial position. In this case, the owner would not ‘own’ any assets anymore, as they would all have to be sold to pay the business debts. A business whose liabilities is greater than its equity is not necessarily in a bad financial position, as it may still be able to pay all its debts (it may still own more assets than it owes). A business whose assets exceed its equity simply means that it has debts, which does not necessarily mean a bad financial position. >>>http://training.jhu.edu/html/Financial/fathomelinks/webtutorial/bap /flash.htm
