Statement of Changes in Equity Quiz
40 Questions
0 Views

Choose a study mode

Play Quiz
Study Flashcards
Spaced Repetition
Chat to lesson

Podcast

Play an AI-generated podcast conversation about this lesson

Questions and Answers

What is the asset turnover for Softomation indicated in the content?

  • 20%
  • Low (correct)
  • 40%
  • 23%

    • What percentage of Softomation's sales are represented by receivables?

  • 40% (correct)
  • 50%
  • 60%
  • 20%

    • How much profit did Softomation earn on Suresh's investment?

  • `15,200
  • `20,000
  • `13,400 (correct)
  • `58,900

    • What is Softomation's debt-to-equity ratio?

    <p>0.34:1</p> Signup and view all the answers

    What is Suresh’s payout ratio based on his withdrawals?

    <p>34%</p> Signup and view all the answers

    How does the content characterize Softomation's reliance on debt?

    <p>Not too much dependent</p> Signup and view all the answers

    What does a high payout ratio at early business stages typically indicate?

    <p>Potential lack of business faith</p> Signup and view all the answers

    What aspect is NOT mentioned about Suresh’s commitments to Softomation?

    <p>Investment diversification</p> Signup and view all the answers

    What does the statement of changes in equity primarily describe?

    <p>Changes in equity items such as share capital and retained earnings</p> Signup and view all the answers

    How are changes in retained earnings primarily affected?

    <p>By net profits and distributions to the owners</p> Signup and view all the answers

    What total cash did Softomation end the month with?

    <p>`15,200</p> Signup and view all the answers

    Which type of transaction is described as affecting more than one financial statement?

    <p>Collecting invoices</p> Signup and view all the answers

    What does the statement of cash flows NOT report?

    <p>Current liabilities of the business</p> Signup and view all the answers

    What results in changes in share capital?

    <p>Introduction or withdrawal of capital by the owners</p> Signup and view all the answers

    Which financial statement records the cash effects of an enterprise's financing activities?

    <p>Statement of cash flows</p> Signup and view all the answers

    Which of the following financial statements would be affected by the transaction, 'Paid dividends'?

    <p>Statement of changes in equity; statement of cash flows</p> Signup and view all the answers

    Which of the following is classified as a tangible asset?

    <p>Computers</p> Signup and view all the answers

    What constitutes current assets?

    <p>Cash, short-term investments, and trade receivables</p> Signup and view all the answers

    Which of the following best describes non-current liabilities?

    <p>Obligations due after one year from the balance sheet date</p> Signup and view all the answers

    Which item is an example of an intangible asset?

    <p>Software</p> Signup and view all the answers

    What type of liability results from differences between accounting profit and taxable profit that are expected to be settled in future periods?

    <p>Deferred tax liabilities</p> Signup and view all the answers

    Which of the following is NOT considered an aspect of equity?

    <p>Deferred tax assets</p> Signup and view all the answers

    Which of the following represents current liabilities?

    <p>Trade payables</p> Signup and view all the answers

    Which of the following would be classified as a financial asset?

    <p>A loan to another company</p> Signup and view all the answers

    What total amount did Sampath invest in starting Point Cabs including his savings?

    <p>`618,000</p> Signup and view all the answers

    How much did Sampath earn in total from customers during the first 20 days of April?

    <p>`25,300</p> Signup and view all the answers

    What was the total expenditure on fuel for Sampath's taxi business in April?

    <p>`12,400</p> Signup and view all the answers

    What is the monthly installment amount Sampath has to pay for his bank loan?

    <p>`10,000</p> Signup and view all the answers

    How much cash did Sampath have left after all transactions on April 21?

    <p>`107,100</p> Signup and view all the answers

    What was the purpose of the `10,000 payment made for the airport parking license?

    <p>To secure parking for the taxi business</p> Signup and view all the answers

    Which of the following represents a liability on Sampath's balance sheet?

    <p>Bank loan of `500,000</p> Signup and view all the answers

    What was the amount collected from customers that is expected to be paid next month?

    <p>`900</p> Signup and view all the answers

    What is the total amount of assets listed on Softomation's balance sheet?

    <p>82,900</p> Signup and view all the answers

    Which of the following represents the total liabilities of Softomation?

    <p>24,000</p> Signup and view all the answers

    What does the balance sheet primarily indicate about a company's financial position?

    <p>Assets, liabilities, and equity at a specific point in time</p> Signup and view all the answers

    What was Softomation's net profit for the period reported in the statement of profit and loss?

    <p>13,400</p> Signup and view all the answers

    In the context of Softomation's financial performance, what type of report is the statement of profit and loss?

    <p>A report summarizing revenues and expenses for a period</p> Signup and view all the answers

    What is the total amount of equity for Softomation at the end of March 20XX?

    <p>58,900</p> Signup and view all the answers

    How much did Softomation earn from its services in March 20XX?

    <p>20,000</p> Signup and view all the answers

    What can be inferred as the relationship between total assets, liabilities, and equity in Softomation's balance sheet?

    <p>Assets equal liabilities plus equity</p> Signup and view all the answers

    Study Notes

    Statement of Changes in Equity

    • Reflects changes in equity items like share capital and retained earnings over a specific period.
    • Changes in share capital occur due to capital introduction/withdrawal by owners.
    • Retained earnings change due to net profit and distributions to owners.
    • For Softomation, changes arose from owner transactions (Suresh's withdrawal) and non-owner transactions (routed through profit and loss).
    • Suresh withdrew ₹4,500 from March earnings of ₹13,400, retaining ₹8,900.
    • Distribution of profit appears in changes in equity, not as an expense in profit and loss.

    Statement of Cash Flows

    • Reports cash effects from three activities: operations (goods/services), investments (asset transactions), and financing (fund management).
    • Softomation ended March with cash of ₹15,200, starting from zero.
    • Generated ₹6,700 from operations, spent ₹58,000 on equipment, and received ₹46,500 from Suresh (net of withdrawal) and ₹20,000 from Manish.

    Effects of Transactions on Financial Statements

    • Most transactions impact multiple financial statements.
    • For example, cash service provision affects balance sheet (cash, equity), profit and loss (revenue), and cash flow statement (operating cash flow).
    • Transactions, like loan acquisition, impact both balance sheet (cash, borrowings) and cash flow statement (financing cash flow).

    Financial Statements of Softomation (March 31, 20XX)

    • Balance Sheet Assets totaled ₹82,900, with cash at ₹15,200, trade receivables at ₹8,000, supplies at ₹1,700, and equipment at ₹58,000.
    • Liabilities stood at ₹24,000, with trade payables of ₹4,000 and a loan payable of ₹20,000.
    • Equity consisted of Suresh's capital of ₹50,000 and retained earnings of ₹8,900.

    Understanding Financial Performance

    • The balance sheet provides a snapshot of assets, liabilities, and equity at a specific time.
    • The profit and loss statement summarizes revenue of ₹20,000 and expenses of ₹6,600, leading to a net profit of ₹13,400 for March.
    • Softomation's asset turnover seems low but may improve as business grows.
    • Accounts receivable are 40% of sales, indicating potential delays in customer payments.
    • Softomation can comfortably pay its suppliers with ₹15,200 in cash against ₹4,000 owed.

    Key Financial Ratios

    • Return on equity for Suresh: Profits of ₹13,400 on equity of ₹58,900 yields 23%.
    • Debt-to-equity ratio is 0.34:1 (₹20,000 in loans to ₹58,900 in equity), showing low reliance on debt.
    • Payout ratio calculated at 34% (withdrawal of ₹4,500 from profit of ₹13,400).

    Asset Classification

    • Long-term assets include tangible assets (property, equipment) and intangible assets (goodwill, software).
    • Current assets are those easily convertible to cash within 12 months, including inventories and cash equivalents.

    Liabilities Classification

    • Non-current liabilities due after a year include financial liabilities and provisions (employee benefits).
    • Current liabilities cover financial obligations due within a year, such as trade payables and taxes.

    Sample Business Scenario (Sampath’s Taxi Business)

    • Started with ₹118,000 savings, a bank loan of ₹500,000, and a car purchase of ₹600,000, plus ₹18,000 for operational needs.
    • Business transactions included fuel purchases, customer collections, and operational costs throughout April.
    • All transactions tracked through a bank account for transparency.

    Studying That Suits You

    Use AI to generate personalized quizzes and flashcards to suit your learning preferences.

    Quiz Team

    Description

    This quiz covers the statement of changes in equity, detailing how items like share capital and retained earnings change over a period. It explores the effects of owner and non-owner transactions on equity items, including net profit and distributions. Test your understanding of these key concepts!

    More Like This

    Use Quizgecko on...
    Browser
    Open
    Browser
    Browser