When investing in exam preparation study tools keep in mind that doing practice questions teaches you absolutely nothing. It’s only afterwards, when you review the explanation that will either confirm or correct your understanding and any learning occurs. SeeWhy Learning senior trainers have over 40 years combined experience coaching students through regulatory exams in the financial service industry. They take great care when writing an answer key and they will impart their knowledge or give you a tip or a strategy on how to tackle a certain question. Now, in this coach’s hangout video, I’m going to show you how a SeeWhy exam prep question can teach you how to think when tackling certain questions. You will see a question on the screen taken from our exam preparation study tools.
It is a relatively simple concept but it’s made really challenging based on the wording. It almost requires you to do a little bit of mental gymnastics in your head to try and figure out the right answer, but not with good training. Okay?
Let’s dive into this question and tackle it together. “What is always true of a company statement of financial position?” Each answer is some kind of mathematical equation. Now I’m going to assume you have some basic knowledge of this statement. This isn’t in the course but it may help some of you. The statement of financial position used to be called a “balance sheet”. But, like I said, I want to assume that you have some basic knowledge in this area. If you need a refresher, and you added the SeeWhy Learning full suite of videos to your subscription, we do have a video where we go into this concept in more detail, it is called “Statement of a financial position and statement of changes in equity”.
When looking at this question there are really two ways we can do it. We can just try to look at the wording and figure out which one is right and which three are wrong. Personally, I find that challenging and even though I’m really comfortable with this statement, just the wording it’s like trickery, it’s challenging.
Here is a really simple way. Let’s make up a very basic statement of financial position. So let’s assume our assets are $3 and our liabilities are $2. What would our equity be? Well, $3 in assets minus $2 in liabilities equals a dollar in equity. Now let’s take those numbers and plug them into each equation and see which one makes sense. If we took assets of $3 and added $2 in liabilities we would get $5, not $1, so answer “a” is wrong. Let’s cross it out.
Then let us take a look at answer “b”. If we took assets of $3 minus equity of a dollar that would give us $2 in liability so answer “b” is a correct statement. Let’s put a check mark there for now be we’re not going to select it. We need to make sure we can eliminate the other two. Okay. Answer “c” equity of a dollar plus assets of $3 would equal $4, not two, so answer “c” is wrong. Then answer “d”, we’ve got, you know, a little greater than sign there. Way back in school my teacher taught me to think of it like a alligator’s mouth and it’s eating the bigger piece. Well, is it true that assets are always bigger than liabilities? No, not at all. I mean, that’s obviously the goal and the sign of a healthy company, but as you know, companies do go bankrupt. So it’s possible for a company’s liabilities to be greater than their assets. So answer “d” is also wrong. So let’s select answer “b and, of course, we are correct.
Now, in our exam preparation tools, we don’t just give you the answer. We will give you an explanation and probably a tip like this on how to tackle it because it’s so much easier. This is a great example of why it is important to do exam prep questions, because they allow you to apply what you’ve learned and you can learn from your mistakes. But most importantly, read the answer keys and at SeeWhy Why Learning we really take a lot of effort to make sure that our answer keys are effective and easy to understand. Good luck on your upcoming exams.