Balance Sheet Test

This test consists of 10 questions designed to test your understanding of the structure of and ability to simply analyse a Balance sheet. The links provide you with a choice of answer, along with explanations and solutions. You will need a calculator to complete this test.

Question 1.
Which of the following is a Fixed Asset a. Factory Premises b. Work-in-progress c. 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. Workin-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.
Which of the following is a Current Liability? A. Debtors B. Commercial Mortgage C. 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.
A firms Current Assets are 376,000, and Current Liabilities are 293,000. What is the firms Net Current assets Figure? A. 669,000 B. 83,000 C. - 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.
A firms Current Assets are 376,000, and Current Liabilities are 293,000. What is the firms Current Ratio figure? A. 0.78 : 1 B. 1 : 1.28 C. 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.
Which of the following defines Retained Profits? A. Profits made by the business, but kept by the business as cash in the bank. B. Profits made by the business, but reinvested in the business, as working 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.
A firm starts trading with Fixed Assets to the value of 45,000. In a three year period it purchases no new assets and depreciates the value of its assets by 10% of the initial cost each year.What will be the value of its assets at the end of the period? A. 31,500 B. 45,000 C. 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.
Which of the following defines current liabilities? A. Debts owed by the business due to be repaid in more than one year. B. Debts owed by the business due to be 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.
Which of the following is a reason why stock is ignored when calculating the firms Acid Test Ratio? A. the value of stock is hard to calculate B. stock may not be easily converted into cash C. stock is often overvalued on a firms balance sheet

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.
Which of the following is a long term liability? A. Share Capital B. Overdraft C. 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.
For which of the following can reserves be used? 1. Paying dividends in a loss making year 2. Purchasing Fixed assets 3. Funding a take-over A. 2 only B. 2 and 3 C. 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