Accounting Short Answer Questions

1. Explain the meaning of the terms "tangible" and "intangible" and discuss how these terms are used in describing assets.

Tangible assets are the economic resources of a firm, whose existence can be physically felt or perceived.
Examples: Inventory, land and buildings and plant and machinery.  
              
Intangible assets are non physical economic resources and rights, which carry a value with them and confer some advantage on the firm in the market place.

Examples: Goodwill, copyrights, patents and trademarks.

            In accounting, it is only the tangible assets that are found in the balance sheet. Intangible assets do not find a place in the balance sheet of the firm. But while calculating the value of the firm in the market, the intangible assts are also taken into account.

2. Discuss the advantages of establishing a line of credit

            A line of credit is a commitment from the bank to lend the firm up to a certain amount to meet various financial needs. It provides an opportunity for the firm to establish access to credit even before the exact expenditure decisions are finalized. It is more flexible than a loan, which makes finance available for a specific purpose. It can be used for different purposes. It need not be drawn at a time like a loan, but can be used as and when the need arises. The line of credit is thus the most flexible and comfortable financing arrangement for a firm to take care of its present and future needs as well as contingencies.

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Assignment Help-Corporate Accountancy Short Answer questions

1. Why is the IRS concerned with the corporate debt to equity ratio?

Investments in companies can be by two ways (1.) By equity and (2.) By debt. Equity earns dividend if the company earns profits and debt earns interest irrespective of profit earning by the company.

Dividend by companies is doubly taxed once at corporate tax point and the other at the investor as dividend income tax. Debt on the other hand is taxed only once at the interest receiver.

In view of this difference in taxation, there may be attempt by some companies and investors to show their investment in debt rather than in equity. Such companies will be thinly capitalised and debt-equity ratio would be high. IRS would then rechristen some debt as disguised equity.

IRS is thus concerned about debt-equity ratio because disguised capital may appear as debt.

2. Relative to corporate formation, how one can contribute appreciated property without gain recognition to the Transferor?

Relative to corporate formation, the corporate can contribute appreciated property without gain to the transferor by issuing company’s stock to the transferor so that he can have control in the affairs of the company. Nothing else should be given by the company to the transferor.

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