Section A: Theory of Financial Accounting
Question 4:
List and Explain the items of balance sheet
Observation
Majority of the candidates that attempted Question 4 on items of balance sheet averagely well. However, the significant weakness of candidates to this question was their mix-up of current asset with current liabilities.
Some of the suggested responses were:
4(a)
- Fixed Assets:
- These are long term resources owned by a business;
- They are capable of yielding economic benefits now and in the future;
- These are resources that may be used by a business for more than one year;
- These resources are not meant for resale.
Examples of Fixed Assets include:
- Land;
- Building;
- Premises;
- Plant;
- Machinery;
- Office equipment;
- Motor vehicle;
- Furniture;
- Fittings;
- Fixtures;
- Goodwill;
- Patent.
- Current Assets:
- These are resources of the business held for a period of one year;
- They can change form or can easily be converted to cash;
- They are used for the day-to day running of the business.
Examples of Current Assets include:
- Stock or inventory;
- Debtor or account receivables;
- Expenses prepaid or prepayment;
- Cash at bank;
- Cash in hand;
- Income owed.
- Capital:
- These are resources introduced by the owners of a business;
- They may be in the form of cash and or asset.
- These represents the amount of claim an owner has on the resources of the business.
Examples of Capital include:
- Shares;
- Loan capital or Debentures;
- Cash;
- Property;
- Plant;
- Equipment;
- Working capital.
- Intangible Assets:
- These are non-monetary assets;
- They can neither be seen nor touched or they have no physical form.
Examples of Intangible Assets include:
- Trade mark;
- Patent;
- Royalties;
- Goodwill;
- Copyright;
- Preliminary expenses;
- Software licenses;
- Franchises;
- Intellectual property.
- Current Liabilities:
- These are financial obligations of the business;
- They are expected to be honoured within a period of one year.
Examples of Current Liabilities include:
- Trade creditors or account payables;
- Bank overdraft;
- Expenses accrued
- Income prepaid;
- Unearned revenue;
- Customer deposit;
- Current portion of long-term loans.