Financial Statements and Analysis Test - 15

Money received against share warrants is shown under shareholders’ funds in the balance sheet. Once shares are allotted against these warrants, it becomes the part of share capital.

It is a short term liability payable within one year.

Normally these liabilities are repayable after one year. Amount of such liabilities are normally high and company may pay to such creditors in installments,  in such case,  the repayment time is more than one year. 

Cash and Cash Equivalents include balance with banks and cheques and drafts on hand,marketable securities. Items which can be converted in cash in a very short period of time.

 Accrued income is normally receible in next accounting year,  therefore,  accrued income is a short term asset until it gets realised. 

Company buy such investment for long period,  more than one year,  therefore, the company can get the economic benefits from these investments in the form of dividend,  interest, etc

The life of current assets are less than a year.  They gets converted into cash and they keeps rotating several times in a year. Their balance is fluctuating, not fixed.  Examples of current assets are,  inventories, cash and cash equipments,  trade receivables, etc. 

Bank overdraft, Cash Credit and Loans repayable on demand comes under short term borrowings. Short term borrowings are due for payment within 12cmonths from date of balance sheet or within period of operating cycle.

Negative balance of statement of profit and loss indicates current year loss or accumulated losses. The head under which statement of profit and loss placed is reserves and surplus with amount in bracket which indicates a negative balance. 

(i) Rent Received is non-operating income. Because renting a property is not the operating activity of business it is a result of an investing activity. 
(ii) Loss on sale of fixed asset is not operating expense/loss.  Because,  selling goods is an operating activity but selling asset is not a routine or operating activity of business. 
(iii) Cash discount allowed to customers is an operating expense.  Because, discount is allowed to customers in a normal course of business and as a result of sale of goods and services.