Balance Sheet TestBalance Sheet TestThis test consists of 10 This test consists of 10 questions designed to test your questions designed to test your understanding of the structure understanding of the structure of and ability to simply of and ability to simply analyse a Balance sheet.analyse a Balance sheet.

The links provide you with a The links provide you with a choice of answer, along with choice of answer, along with explanations and solutions.explanations and solutions.

You will need a calculator to You will need a calculator to complete this test.complete this test.

Question 1.Question 1.

Which of the following is a Fixed AssetWhich of the following is a Fixed Asset

a. Factory Premisesa. Factory Premises

b. Work-in-progressb. Work-in-progress

c. Cash at Bankc. Cash at Bank

Fixed Assets are those things owned by a business, that do not change in the normal course of business. Factories are therefore fixed assets.

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.

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.

Question 2.Question 2.

Which of the following is a Current Liability?Which of the following is a Current Liability?

A. DebtorsA. Debtors

B. Commercial Mortgage B. Commercial Mortgage

C. CreditorsC. Creditors

Debtors are firms or individuals that owe the company money, for example by buying on credit. Debtors are Current Assets.

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)

Correct, Creditors are businesses or individuals to whom the business owes money. They are typically created by buying goods on business credit

Question 3.Question 3.

A firms Current Assets are £376,000, and A firms Current Assets are £376,000, and Current Liabilities are £293,000. What is Current Liabilities are £293,000. What is the firms Net Current assets Figure?the firms Net Current assets Figure?

A. £669,000A. £669,000

B. £83,000B. £83,000

C. - £83,000C. - £83,000

You have totaled both types of assets, when you should deduct, CL from CA

Correct. CA-CL = Net Current Assets

You have reversed the calculation. CA- CL = Net Current Assets

Question 4.Question 4.

A firms Current Assets are £376,000, and A firms Current Assets are £376,000, and Current Liabilities are £293,000. What is Current Liabilities are £293,000. What is the firms Current Ratio figure?the firms Current Ratio figure?

A. 0.78 : 1A. 0.78 : 1

B. 1 : 1.28B. 1 : 1.28

C. 1.28 : 1C. 1.28 : 1

You have reversed the calculation . Current ratio = CA : CL

Ratios are always show as something : 1. You have carried out the correct calculation, but then reversed the figures.

Well done! Current Ratio = CA : CL

Question 5.Question 5.

Which of the following defines Retained Which of the following defines Retained Profits?Profits?

A. Profits made by the business, but kept by A. Profits made by the business, but kept by the business as cash in the bank.the business as cash in the bank.

B. Profits made by the business, but B. Profits made by the business, but reinvested in the business, as working reinvested in the business, as working capital or fixed assets.capital or fixed assets.

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

Correct!

Question 6.Question 6.

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

A. £31,500A. £31,500

B. £45,000B. £45,000

C. £30,000C. £30,000

Correct. 3 times £4,500 = £13,500. £45,000 - £13,500 = £31,500

Wrong. The firm will depreciate its assets by 10% of £45,000 each year. Try again.

Wrong. The firm will depreciate its assets by 10% of £45,000 each year. Try again.

Question 7.Question 7.

Which of the following defines current Which of the following defines current liabilities?liabilities?

A. Debts owed by the business due to be A. Debts owed by the business due to be repaid in more than one year.repaid in more than one year.

B. Debts owed by the business due to be B. Debts owed by the business due to be repaid in less than one year.repaid in less than one year.

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

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

Question 8.Question 8.

Which of the following is a reason why stock is Which of the following is a reason why stock is ignored when calculating the firms Acid Test ignored when calculating the firms Acid Test Ratio?Ratio?

A. the value of stock is hard to calculateA. the value of stock is hard to calculate

B. stock may not be easily converted into cashB. stock may not be easily converted into cash

C. stock is often overvalued on a firms balance C. stock is often overvalued on a firms balance sheetsheet

Wrong. Remember the ATR is looking at the liquidity of the firm.

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..

Wrong. Remember the ATR is looking at the liquidity of the firm.

Question 9.Question 9.

Which of the following is a long term Which of the following is a long term liability?liability?

A. Share CapitalA. Share Capital

B. OverdraftB. Overdraft

C. MortgageC. Mortgage

Wrong. Share capital is a form of permanent capital - it does not have to be repaid.

Wrong. An overdraft is a current liability.

Correct. A commercial mortgage may have a term of up to 20 years.

Question 10.Question 10.For which of the following can reserves be For which of the following can reserves be

used?used?

1. Paying dividends in a loss making year1. Paying dividends in a loss making year

2. Purchasing Fixed assets2. Purchasing Fixed assets

3. Funding a take-over3. Funding a take-over

A. 2 onlyA. 2 only

B. 2 and 3B. 2 and 3

C. All of the aboveC. All of the above

. Purchase of fixed assets is one of the main purposes to which reserves are put, but not the only one

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.

Correct. They can be used for all three purposes.

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