Aggc253 Chap2 Revision Quiz

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Chapter 02 Student Revision Quiz
1.
According to Australian Accounting Standards (AAS), assets are carried on the financial statements at the higher of current market value or historical cost.

| True|
| False|

The Australian Accounting Standards state the assets are to be 'carried on the books' (recorded) at what the firm paid for them. 2.
Suppose KLM Inc. just received a patent on a new anti-cholesterol drug. This patent is an intangible fixed asset.

| True|
| False|

Patents are intangible fixed assets.
3. 
A non-cash item is an expense charged against revenues that does not directly affect the cash flow.

| True|
| False|

Accounting income differs from cash flow as it includes non-cash items such as depreciation. 4. 
Operating cash flow is the cash generated from a firm's normal business activities related to production and sales.

| True|
| False|

This is a definition of operating cash flow
5. 
 
A highly liquid asset is an asset that can be converted into cash quickly by greatly reducing the selling price.

| True|
| False|

A highly liquid asset can be converted into cash quickly without significant loss of value, such as cash and money market securities.  6.
Net capital spending is equal to:

| ending net fixed assets minus beginning net fixed assets minus depreciation plus taxes| | ending net fixed assets minus beginning net fixed assets plus depreciation minus taxes| | beginning net fixed assets minus ending net fixed assets plus depreciation| | beginning net fixed assets plus ending net fixed assets minus depreciation| | ending net fixed assets minus beginning net fixed assets plus depreciation|

Net capital spending for a period is the ending fixed asset amount minus the beginning fixed asset value plus depreciation. Taxes have no impact on calculating net capital spending.  7.
hich one of the following statements is true?

| The balance sheet tells investors exactly what the firm is worth.| | Accounting income is generally equal to operating cash flow.| | Assets are usually listed on the balance sheet at current market value.| | The balance sheet equity account represents the market value of the firm to shareholders.| | Accounting statements are usually prepared to match the timing of income and expenses.|

The Australian Accounting Standards specify that revenue and expenses be matched and reported as they are incurred. Accounting income is unlikely to be equal to operating cash flow as a result of non-cash items. Assets on the balance sheet are listed at historical cost. The Balance sheet is a financial snapshot of a company's assets and liabilities. The balance sheet (owner's) equity is the difference between a company's assets and liabilities and reflects only the accounting value of equity. 8.

Which one of the following is generally considered the most liquid?

| tangible assets|
| inventory|
| net fixed assets|
| accounts receivable|
| intangible assets|

Generally accounts receivable is the most liquid asset as it reflects money owing to the company. Inventory is somewhat liquid although it highly dependent on the type of item and whether it can be sold and converted into cash quickly. 9. 

 
Cash flow to creditors is equal to:

| operating cash flow minus net new borrowing|
| interest paid plus changes in short-term debt|
| the interest paid|
| interest paid minus net new borrowing|
| interest paid plus total new debt|

Cash flow to creditors is total money paid (interest and return of capital) to parties for which money is owed. Net new borrowing is subtracted from interest paid to reflect a reduction in cash flow to creditors should new borrowings exceed debt capital returned. 10. 

Intangible assets:

| are generally considered highly liquid|
| are expensed when acquired|
| include such things as patents and trademarks|
| include...
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