When an Entity Has a Legally Enforceable Right to Set

question 13

Multiple Choice

When an entity has a legally enforceable right to set off the recognised amounts of a financial asset and financial liability and it intends to settle on a net basis, it:

• A) can write off both the asset and the liability;
• B) may offset the financial asset and liability;
• C) is not entitled to offset the asset and liability;
• D) need not present the asset, the liability or the net amount in its financial statements.

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Definitions:

DFL

Degree of Financial Leverage, a ratio that measures the sensitivity of a company’s earnings per share to fluctuations in its operating income, based on its capital structure.

EBIT

Earnings Before Interest and Taxes, a measure of a firm's profit that includes all incomes and expenses except interest and income tax expenses.

EPS

Earnings Per Share (EPS) is a company's net profit divided by the number of common shares outstanding, indicating the company's profitability on a per-share basis.

Leverage

The use of borrowed capital or financial instruments to increase the potential return of an investment.