21010024 Haris Imran

Chapter 4 Summary

1. Assets and liabilities can be categorized as current or non-current depending on the

operating cycle.
2. Operating cycle is the time from commitment of cash to collection of cash for earned
revenue.
3. Financial assets are usually measured at market value
4. Operating assets are usually valued at cost
5. Working capital needs to be maintained enough to ensure smooth running of
operations but too much working capital can be very costly to maintain.
6. Liquidity allows to take advantage of changing market and is more important for
dynamic industries.
7. Receivables ae recorded at net releasable value and are exposed to
a. Collection risk
b. Authenticity of receivables
c. Scrutiny of receivables
8. FIFO gives more gross profit but also more taxable income in times of rising prices
compared to LIFO.
9. Non-Current Assets are subjected to:
a. Capitalization: determination of their cost
b. Allocation: expensing a deferred cost
c. Impairment: Writing down of the value
10. Capitalization decreases volatility in income but overstates cashflow.
11. Assets are valued using historical cost concept do all costs needed to get it up and
running are capitalized.
12. Depreciation is the matching of oncome generated from asset to part of is cost.
13. Depletion is allocation of cost on unit bases.
14. Intangible assets are rights and perks of the control of the business and are not
depreciated but amortized by directly decreasing their value.