CB 3041

Financial Statement Analysis

Asset Valuation & Analysis

Review
 Quick Check Question 1
 Which of the following is least likely a condition necessary
for revenue recognition?

a. Cash has been collected

b. The goods have been delivered
c. The price has been determined
 Quick Check Question 1
 Which of the following is least likely a condition necessary
for revenue recognition?

a. Cash has been collected

b. The goods have been delivered
c. The price has been determined
In order to recognize revenue, the seller must know the
sales price and he reasonably sure of collection, and must
have delivered the goods or rendered the service. Actual
collection of cash is not required.
 Quick Check Question 2
 Which principle requires that cost of goods sold be
recognized in the same period in which the sale of the
related inventory is recorded?

a. Going concern
b. Certainty
c. Matching
 Quick Check Question 2
 Which principle requires that cost of goods sold be
recognized in the same period in which the sale of the
related inventory is recorded?

The matching principle requires that the expenses incurred

to generate the revenue be recognized in the same
a. Going concern
accounting period as the revenue.
b. Certainty
c. Matching
 Quick Check Question 3
 Under which inventory cost flow assumption does
inventory on the balance sheet best approximate its current
cost?

a. First-in, first-out
b. Weighted average cost
c. Last-in, first-out
 Quick Check Question 3
 Under which inventory cost flow assumption does
inventory on the balance sheet best approximate its current
cost?

a. First-in, first-out
b. Weighted average cost
c. Last-in, first-out
Under FIFO, ending inventory is made up of the most
recent purchases, thereby providing a closer approximation
of current cost.
 Quick Check Question 4
 During May, a firm’s inventory account included the
following transactions:

May 1 Inventory 25 units @ $4.00

May 12 Purchased 60 units @ $4.20
May 16 Sold 40 units @ $6.00
May 27 Purchased 30 units @ $4.25
May 29 Sold 40 units @ $6.10
 Quick Check Question 4
 Assuming FIFO inventory costing, gross profit for May
was:

a. $132
b. $147
c. $153
 Quick Check Question 4
 Assuming FIFO inventory costing, gross profit for May
was:

a. $132
Under FIFO, the first units purchased are the first units
b. $147 sold.
Gross profit
c. $153 = (40 x $6.00 + 40 x $6.10) – ($25 x $4.00 + 55 x $4.20)
= $484 - $331
= $153
 Quick Check Question 5
 An entity originally purchased a piece of land on 1 January
2017 for $100,000. On the 31 December 2018 the land was
revalued to $150,000. What entries would be made on 31
December 2018?

a. Dr Asset $50,000, Cr Revaluation reserve $50,000

b. Dr Asset $50,000, Cr Profit & loss $50,000
 Quick Check Question 5
 An entity originally purchased a piece of land on 1 January
2017 for $100,000. On the 31 December 2018 the land was
revalued to $150,000. What entries would be made on 31
December 2018?

a. Dr Asset $50,000, Cr Revaluation reserve $50,000

b. Dr Asset $50,000, Cr Profit & loss $50,000

The increase in value is credited to the revaluation reserve

as the profit is not yet realized.
 Quick Check Question 6
 The land was subsequently sold for $180,000 on 31
December 2020. Calculate the profit or loss on disposal to
be shown in the statement of profit or loss.

a. Profit $80,000
b. Profit $30,000
c. Loss $30,000
 Quick Check Question 6
 The land was subsequently sold for $180,000 on 31
December 2020. Calculate the profit or loss on disposal to
be shown in the statement of profit or loss.

a. Profit $80,000
b. Profit $30,000
c. Loss $30,000
The gain on disposal to the statement of profit or loss
would be $30,000 ($180,000 - $150,000).
The revaluation reserve for the land ($50,000) would now
be released into profits as the gain is now realized by Dr
Revaluation reserve and Cr Retained earnings. This would
be shown as an item of comprehensive income.