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Questions and Answers of
Accounting and Finance
I Depreciation is a process of allocation and not valuation.’ What do you think is meant by this statement?
I What is the convention of consistency? Does this convention help users in making a more valid comparison between businesses?
I ‘An asset is similar to an expense.’ In what ways in this true or untrue?
I ‘Searching for an agreed conceptual framework for accounting rules is likely to be a journey without an ending.’ Discuss.
I What problems does a user of segmental statements face when seeking to make comparisons between businesses?
What problems does a user of segmental statements face when seeking to make comparisons between businesses?
The following information was extracted from the financial statements of I. Ching (Booksellers)plc for the year to 31 May 2013:Required:Prepare a statement of comprehensive income for the year ended
Manet plc had the following share capital and reserves as at 1 June 2012:During the year to 31 May 2013, the company revalued property, plant and equipment upwards by £30 million and made a loss on
Segmental information relating to Turner plc for the year to 30 April 2013 is shown below.Required:Analyse the performance of each of the three main business segments for the year and comment on your
What causes the profit for the reporting period not to equal the net cash inflow?
Torrent plc’s income statement for the year ended 31 December 2012 and the statements of financial position as at 31 December 2011 and 2012 are as follows:During 2012, the business spent £67
Chenplc’s income statements for the years ended 31 December 2012 and 2013 and the statements of financial position as at 31 December 2012 and 2013 are as follows:Included in ‘cost of sales’,
The following are the financial statements for Nailsea plc for the years ended 30 June 2012 and 2013:There were no disposals of non-current assets in either year. Dividends were paid in 2012 and 2013
The following financial statements for Blackstone pic are a slightly simplified set of published accounts. Blackstone plc is an engineering business that developed a new range of products in 2009.
Simplified financial statements for York plc are:Notes:2013 1 Operating expenses include depreciation of £13 million and a surplus of £3.2 million on the sale of non-current assets.2 The expense
Threads Limited manufactures nuts and bolts, which are sold to industrial users. The abbreviated financial statements for 2012 and 2013 are as follows:Dividends were paid on ordinary shares of
The financial statements for Harridges Ltd are given below for the two years ended 30 June 2012 and 2013. Harridges Limited operates a department store in the centre of a small town.Dividends were
Iqbal Ltd started trading on 1 July 2008. During the first five years of trading, the following occurred:Required:Assume that the company paid the maximum legal dividend each year. Under normal
The following is a draft set of simplified financial statements for Pear Limited for the year ended 30 September 2013.The following information is available:Required:Prepare a revised set of
Rose Limited operates a small chain of retail shops that sell high-quality teas and coffees.Approximately half of sales are on credit. Abbreviated and unaudited financial statements are as
Consider the shareholder and the director user groups. Describe at least five ways in which their personal objectives might conflict. For each of the conflicts you have already described, how might
Obtain a copy of a quality daily newspaper and identify any article that refers to or discusses the financial problems of a named business firm. Using the World Wide Web as a source discover using a
Ona sheet of paper draw two columns. Head the left hand column ‘financial accounting’ and the right-hand column ‘management accounting’. Using the two columns make comparative notes
Accounting developed in Europe in response to the needs of merchants. Discuss the extent to which the subject has had to change in response to the development of other types of business enterprise.
There are a number of different criteria for evaluating the quality of accounting information. Discuss the extent to which these add anything to our understanding of the nature of such information.
What is a discretionary budget? Try to think of at least three expenses (not already mentioned in the chapter) that might form part of a discretionary budget. What problems do discretionary budgets
Jill manages a team of six junior managers, who in turn each manage a separate section of between five and seven junior employees. The business operates a system of budgetary control through
Why are flexible budgets considered to be more useful than fixed ones in the context of budgetary control?
Chen plc’s income statements for the years ended 31 December 2020 and 2021 and the statements of financial position as at 31 December 2020 and 2021 are as follows:There were no non-current asset
The following are the financial statements for Nailsea plc for the years ended 30 June 2021 and 2022:Required:Prepare a statement of cash flows for Nailsea plc for the year ended 30 June 2022. Income
Iqbal Ltd started trading on 1 July 2017. During the first five years of trading, the following occurred:Required:Assume that the company paid the maximum legal dividend each year. Under normal
The following is a draft set of simplified financial statements for Pear Limited for the year ended 30 September 2022.1 Depreciation has not been charged on office equipment with a carrying amount of
Manet plc had the following share capital and reserves as at 1 June 2021:During the year to 31 May 2022, the company revalued property, plant and equipment upwards by £30 million and made a loss on
Segmental information relating to Turner plc for the year to 30 April 2022 is:Required:Analyse the performance of each of the three main business segments for the year and comment on your results.
A company is considering investing in a new production facility at a cost of $120 million. The new facility is expected to produce annual cost savings as set out in Table 9.21. The facility is
Freshfare Co is a food retailer with 25 stores in the south of the country in which it operates. The board of directors are currently considering expansion into the north of the country by opening a
ANG Co is a manufacturer of high-performance processor chips for smart phones and other mobile devices. The company, based in Europe, has grown rapidly over the last five years. It has been able to
Explain the concept of ‘margin of safety’ in CVP analysis.
If a business reduces its fixed costs whilst maintaining the same contribution margin, will this increase or decrease its break-even point?
Explain what is meant by ‘operating gearing’.
If a company increases its operating gearing, will this make its profit more or less sensitive to changes in sales volume?
Explain three potential weaknesses of CVP analysis as a decision tool.
Alpha Co has 200 units of material x in inventory. This originally cost \($40\) per unit.Alpha Co no longer needs the material x for its original use. It could sell the inventory for \($10\) per
Give an example of a cost which may not be relevant in the short term, but could become relevant in a long-term decision.
Discuss what is meant by the term ‘stakeholder salience’ and why it might be important to incorporate this theory into a business’s communication strategy.
In terms of the accounting standard-setting process, provide examples of who might be classified into each of the following categories and explain why you believe this to be the case:a dormant
Can you explain why analysts might view meetings with management as more important than the annual report?
Can you explain why analysts might view conference calls/investor presentations as more important than the annual report?
Can you explain why the annual report continues to be a useful document?
Describe one occasion where you have been influenced to buy a product or engage in an activity as a direct result of an item of corporate communication, eg social media update; and explain what that
What benefits may an organization derive from a formal budgeting process?
What are the elements of a master budget?
Explain the difference between incremental budgeting and zerobased budgeting.
What are the advantages and disadvantages of a ‘bottom-up’ approach to budgeting?
How would the budget-setting philosophy of a service provider differ from that of a manufacturing business?
Discuss the potential conflict between using a budget as a motivational device and as a means of control.
Identify and comment on three behavioural problems that might be experienced in a system of budgetary control.
You have been elected onto the budget committee of a hospital and have been tasked with reviewing the approach taken by the hospital towards budget-setting. The hospital has a relatively stable level
Ingram Co is a small engineering company. The company does not have a computerized accounting or budgeting system, but rather the chief accountant manually produces a budget each year in conjunction
Khan Co is a publishing business. The budget committee is scheduled to meet very soon to discuss plans for next year’s budget-setting process. One item on the agenda is the sources of information
Chin Co, an architectural services firm, uses a top-down budgeting approach. The budget is prepared by Michael Chin, the CEO, and once finalized it is distributed to departmental managers for
What are the four main ways of delegating responsibility for budget management?
What are the advantages and disadvantages of using flexible budgets?
What type of standard costing system would be most appropriate for a manufacturing business that uses budget targets as part of its employee motivation and reward package?
Compare the relative advantages of ROI and EVA as divisional performance measures.
What are the four perspectives of the balanced scorecard as originally recommended by Kaplan and Norton?
Explain how the concept of VFM can be used to measure performance in a public-sector organization.
Explain how performance measures may have unintended behavioural consequences.
Walkon Co manufactures wooden flooring. The company buys timber which it cuts to standard-length boards, sands and polishes to sell on to builders. The variance analysis shown in Table 6.6 has been
Coat Co manufactures men’s clothing. The company has for many years operated a traditional standard costing and variance analysis approach to performance management. The marketing director has
Jake Designs is a small firm which specializes as a consultant in product packaging and marketing within the cosmetics industry. The company recently appointed a new finance director, Katie Williams.
Tools4U Co operates a chain of tool hire stores across the country. Tool purchases and store staffing levels are managed centrally, so each store is treated as a revenue centre, with the store
Explain the business problems that may be associated with holding insufficient cash balances. What are the problems of holding too much cash?
Distinguish between the transaction motive and the speculative motive for holding cash. How do these two motives differ in terms of their impact upon the level of cash held?
Explain how a business can benefit from a cash forecast, even if it already has an income and expenditure forecast and a balance sheet forecast.
Discuss the assumptions which underpin the Baumol–Tobin model of cash management and explain how they may limit the usefulness of the model for some businesses.
Explain the difference between a finance lease and an operating lease as a means of financing the purchase of an asset.
Discuss the ways in which factoring and invoice discounting can assist in the management of accounts receivable.
Explain what you understand by the terms ‘buffer stock’ and ‘lead time’ and briefly consider any stock policy that would minimize or eliminate such costs.
The management of Darum Co have set a minimum cash balance of \($7,500.\) The average cost to the company of making deposits or selling investments is \($24\) per transaction. An analysis of cash
Jade opens a sandwich shop. She sells sandwiches directly over the counter for cash, but also provides buffet lunches for local businesses. These customers are allowed one month’s credit.Budgeted
Andro Co makes all its sales on credit and allows its customers 30 days’ credit.However, analysis of the financial statements shows that the average accounts receivable period in the last financial
Distinguish between the three main perspectives on pricing and identify the main concerns of each perspective.
What are the 3C’s of pricing and how does each impact upon price?
Distinguish between full-cost and marginal-cost pricing.
If a product is known to have a low price elasticity of demand and a company reduces its price in order to stimulate demand, would you expect this to lead to increased or decreased overall sales
Publisher Co sells both paper books and e-books. If the company reduces the price of its e-books, should it expect demand for paper books to increase or decrease?
Explain how customers’ expectations can impact upon the price they are willing to pay for a product.
What is price skimming and under what circumstances is it an appropriate pricing strategy?
XTA Co is about to launch a new personal computer called the Eye which the user wears like a pair of glasses. Interaction with the computer is through eye movement and voice. No competitors are
ACT Motors, a large vehicle manufacturer, is seeking to launch a new family saloon car. The market for such cars is already well established and highly competitive.Required:Explain the main steps ACT
Printit Co provides rapid printing and design services to the public and small businesses. The business, which has 12 employees, operates out of a high-street shop which includes office space. The
Why is good investment appraisal important to organizations?
What are the three main factors that should be considered when appraising a potential investment?
What are the main drawbacks of the payback method of investment appraisal?
What is the ‘discount rate’ used in NPV calculations and how is it arrived at?
What is an opportunity cost and why should it be included in an investment appraisal calculation?
In what ways can taxation impact upon cash flows from an investment?
List THREE profitability ratios and show how they should be calculated.
Discuss THREE possible reasons why an entity’s gross profit margin might increase from one year to the next.
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