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financial accounting an introduction

Questions and Answers of Financial Accounting An Introduction

When preparing a Consolidated Statement of financial position, the pre-acquisition portion of subsidiary’s retained earnings needs to be frozen by offsetting it from the cost of investments. Which
Any amount owed by one member of a group to another needs to be cancelled when preparing the Consolidated Statement of financial posiition. As at the year-end the parent’s receivable includes £90
As at the year-end the parent’s Statement of financial position reports rent receivable as an asset at £600 and this includes £150 due from the subsidiary. Subsidiary reports rent payable as
The parent paid £480 to acquire 75% of 300 ordinary shares issued by the subsidiary on 1 January 2012 when shares in the subsidiary were quoted at 180p per share and the equity and reserves of the
Which of the following statements is/are correct with regard to accounting for goodwill?(a) Goodwill needs to be written off as soon as it is identified(b) Goodwill is reported continuously as an
If the capital and reserves, including fair valuation gain of a subsidiary, is £5,400 and the parent acquires the whole of it for £4,000, the difference of £1,400 would be known as:(a) Goodwill(b)
How is a negative goodwill reported on the Consolidated Statement of financial position?(a) As a negative asset – i.e. shown on the asset side but as a deduction(b) As a reserve, which may
With regard to preparing a Consolidated Income statement which of the following statements are correct?(a) Only the group portion of subsidiary’s sales, cost of sales and expenses are included(b)
When preparing a Consolidated Statement of income, inter-company transactions are cancelled. Which one or more of the following would you say is the reason for this step?(a) That is how it is
Though a subsidiary is only partly owned, the whole of the subsidiary’s sales, cost of sales and expenses are aggregated with those of the parent to report the group’s income and expenses. Which
For identifying the group profit for the current year at which of the following points is the profit relating to non-controlling interest removed?(a) After identifying the gross profit(b) After
Alpha paid £300,000 on 1.1.2010 to acquire 80% of Beta. On that date Beta had in issue one hundred thousand ordinary shares of £1 each issued at 120p each, but quoted on this date at 145p. Identify
Alpha paid £750,000 to acquire 60% of equity in Beta on 1 January 2010. Beta’s Statement of financial position as at 31 December 2012 reports its Share capital as £500,000, Share premium as
As at 31 December 2012 the retained earnings reported in their own Statement of income by Alpha was £394,500 and by Beta £240,000. Identify the Consolidated Retained earnings as at 31 December 2012
Draft Statements of financial position are stated on the left. Alpha acquired 160 shares in Beta for £400 on 1 January 2008 when Beta’s retained earnings were £40, the fair valuation of its
Trading particulars of Alpha and its 75% controlled subsidiary Beta are shown. During the year Alpha sold goods to Beta for £90,000 and a third of these goods remain unsold with Beta by the yearend.
Trading particulars of Alpha and its 60% controlled subsidiary Beta are shown. During the year Alpha sold goods to Beta for £84,000 at cost plus a third. As at the year-end £16,000 of the goods
Jack and Jill are in business as partners without any formal agreement. Their Trial Balance as at the year-end appears as shown. During the year Jack’s drawings amounted to £35,000 and Jill’s to
In respect of the year ended 31 March 2012, partners Andy, Berty and Camron have been told that the partners’ entitlements are as stated.Required:(a) Identify the amount of the partnership profit
A, B and C carried on a business in partnership. They extracted their year-end Trial Balance as shown. You are informed as follows:(i) Goods costing £20,000 removed by partner A for personal use
The end portion of the individual Statements of income of Alpha and its subsidiary Beta are shown. Alpha acquired 75% of Beta three years earlier. Identify the amounts that should be reported on the
The individual Statements of financial position of the parent and the subsidiary, as at 31 December 2012, report their retained earnings as £540,000 and £297,000 respectively. The profit after tax
Individual Statements of income of Alpha and its 80% owned subsidiary Beta report the information shown. A fourth of the interest paid by Beta was received by Alpha. During the current year Beta has
Individual Statements of income of Alpha and its 80% owned subsidiary Beta report the information shown. A third of the interest paid by Beta was received by Alpha. During the current year Alpha has
Which of the following characteristics should exist to recognise a business as a partnership?(a) The business needs to be registered with the Registrar of Companies(b) The business needs to have more
With regard to a partnership agreement which of the following statements are correct?(a) Agreement may be an oral one(b) The agreement can be inferred from the manner of their past behaviour(c) The
With regard to a partnership business which of the following statements are correct?(a) Every partner has to participate in management(b) Every partner needs to contribute equal amounts as capital(c)
With regard to a partnership agreement which of the following statements are correct?(a) A partnership agreement is not essential(b) The agreement can be inferred from the manner of their past
(a) Identify three circumstances in which assets of a partnership need to be fair valued.(b) Explain why the partnership assets need to be fair valued in the stated circumstances.
Which of the following matters would you suggest should be dealt within a partnership agreement?(a) How they propose to share profits(b) Whether salary and interest on capital needs to be allowed(c)
Rosy, Serah and Terese carried on a business in partnership, sharing profits in the ratio 2:1:1 respectively, and their Statement of financial position on 31 March 2012 was prepared as shown. They
Hickory and Dickory are in partnership with a capital of £500,000 and £400,000 and sharing profits in the ratio 2:1, respectively. On 1.1.2012 they admit Dock, with a capital of £300,000, to a
Which one or more of the following statements is/are correct with regard to the application of section 24 of the Partnership Act 1890?(a) Section 24 applies to all partnerships(b) Section 24 applies
In a situation where section 24 of the Partnership Act applies, which one or more of the following statements are correct?(a) Profits and losses have to be shared equally(b) If any partner
With regard to a business carried on as a partnership which one or more of the following statements are correct? (a) A partner may agree to join on condition he would risk only his capital
For which one or more of the following reasons would you advise partners to have their financial statements professionally audited?(a) So that each partner may feel assured that his/her interests are
Where a partnership maintains separate Capital accounts and Current accounts for each partner, which one or more of the following should be credited to the Current accounts?(a) Share of profit from
Which one or more of the following are charges (rather than appropriation) of profit among partners?(a) Salary payable to a partner(b) Rent payable to a partner(c) Interest payable to a partner on
In which of the following circumstances would you suggest that a partnership agreement should provide that salary and interest on capital should be allowed to partners?(a) If there is a difference in
In which of the following circumstances is there a need for fair valuing partnership assets and recording any partnership goodwill?(a) When a new partner is admitted(b) When an existing partner
Having recognised goodwill in specific circumstances, for which of the following reasons are partners usually reluctant to continue recording goodwill in their books?(a) Goodwill is an intangible
Whenever there is a change in the profit-sharing arrangements among partners, which of the following need adjustments?(a) Goodwill not recorded or partly recorded in the books(b) Work in progress
With regard to interest charged on partners’ drawings which one or more of the following statements is/are correct?(a) Interest is charged to ensure partners do not draw their profit share at
Which of the following is the correct way of accounting for interest charged on a partner’s drawings?(a) Debit an expense account (to be shown in Income statement) and credit Current account(b)
With regard to death or retirement of a partner which of the following statement(s) is/are correct?(a) When a partner leaves his dues should be settled at once(b) If retiring partner’s dues are not
When a partnership is dissolved piecemeal, and the following claims need to be met out of the cash realised, which is the correct sequence in which these claims have to be met?(a) Any partner’s
Anton, Berty and Carol are in partnership without an agreement. However, Carol is entitled to rent from the partnership at £2,000 per month, while Berty has provided a loan of £50,000 to the
Alfred, Ben and Charles are in partnership without an agreement. The partnership profit for the year ended 31 March 2012, after writing off £58,400 as bad debts, has been determined as £398,000.
Akbar, Bashir and Cader are in partnership with an agreement that provides for a salary of £2,000 per month to Akbar, interest of their fixed capital balances at 6% per annum and profit sharing in
Eddie, Fredie and Girly, with capital balances of £300,000 £200,000 and £200,000, are in partnership, sharing profits and losses in the ratio 2:2:1 respectively, after allowing Girly a
The balance in a Bank account appearing in the Cash Book:(a) Will always be on the debit side(b) Will always be on the credit side(c) Will always be either on the debit side or credit side(d) If it
The credit entries in a Bank account:(a) Should each be supported by a sequential cheque number(b) Should each be supported by a cheque number which depends on when the cheque was posted(c) Will not
As at 16 May Olive Retail had £425 in cash and a bank balance of £15,200. Among others the following transactions took place in May:Required: Write up a two-column Cash Book drawn with all the
Simon’s Corner Shop received its bank statement reporting an overdraft, as at 14 May 2012, of £29,800. Inquiries revealed the following:(i) A payment by cheque of £72,800 to a supplier has been
The bank account in the Cash Book reports an overdraft of £7,250 as at 19 July 2012, whereas the bank statement reports a favourable (credit) balance. The difference has arisen because of:(i)
A cheque for £1,000 received from Rebecca Jones, a customer, is accounted for as:(a) Debit Bank account and credit Rebecca Jones’ account(b) Debit Rebecca Jones’ account and credit Cash
The Cash Book of a business shows a favourable bank balance of £3,856 at 30 June 2012. After comparing the entries in the Cash Book with the entries on the related bank statement you find that:(i)
An extract from the Cash Book of Olive May Retail, along with particulars of its banking and a copy of the bank statement for the period, are shown below:Required:(a) Trace each item entered in the
Confirm whether the following statements are true or false by placing a tick in grid ‘x’ if true and grid ‘y’ if false.(a) A debit balance in the Bank account in the Cash Book appears as a
A contra entry in the Cash Book means that:(a) Debit and credit entries are on the same folio of the Cash Book(b) Debit and credit entries are on any folio but in the Cash Book(c) Debit must be in
Given below is the bank column of the Cash Book of Roger Retail and on the right the relevant bank statement:Required:(a) Update the Cash Book to obtain the corrected balance.(b) Prepare a bank
A cheque drawn by Dawn Toby, a trade customer, is received back from the bank marked ‘r/d’:(a) Debit Bank account and credit Cash account(b) Debit Dawn Toby’s account and credit Bank account(c)
We have seen that the Petty Cash Book is a book of prime entry in which the first entry is made of routine payments by the petty cashier.Required: Is the Petty Cash Book a subsidiary book of
The accounting entry to record bank charges deducted from the Bank account of the business is:(a) Debit Interest account credit Bank account(b) Debit Bank charges account credit Bank account(c) Debit
The accounting entry required when the bank advises that a bank loan has been approved is:(a) Debit Bank account credit Cash account(b) Debit Bank account credit Bank loan account(c) Debit Cash
On 1.1.2012 Hilda Stores had £650 in hand and £12,740 at the bank. The transactions on that day were as follows:(i) Paid £450 for advertising by cheque no 476.(ii) Paid £13,800 to Peter Tell, a
A trader’s Cash Book reported a bank overdraft of £5,240 as at 14 September 2012. Inquiries revealed the following:(i) Deposits amounting to £11,600 are yet to be cleared as at that date.(ii) The
The bank statement reports a credit transfer of £400 from a customer on 29 July. Accounting entries for this are:(a) A debit in the Cash account and a credit in the account of the debtor
The Bank account in the Cash Book reports a balance of £11,400 as at 10 December 2012 whereas the corresponding amount in the bank statement is an overdraft of £2,450. When preparing the
The following information relates to the receipts and payments of Paul Wallis for the month of April, 2012:(i) The balances brought forward at 1 April were: Cash £100 Bank £400 (overdrawn)(ii)
Ted Smile, a wholesaler, buys his requirements on a month’s credit from three reputed suppliers – Alpha, Beta and Gamma. All of them allow 10% settlement discount if purchases are paid for within
What would be the bank balance as at 11 May 2012 as reported in the bank statement in each of the following circumstances?(a) As at this date the deposits awaiting clearance are £18,240 and cheques
The Petty Cashier of Jockfield received £300 on 1 May 2012 as petty cash float. A summary of payments during the month is stated.Required:(a) Rule up a Petty Cash Book with analysis columns for
The balance at bank as at 17 July 2012 is stated on the bank statement as £18,450. Cheques yet to be presented to the bank on this date amount to £19,720. Assuming that the balance in the Bank
The bank statement reports an overdraft of £17,455 as at 27 May 2012. As at that date cheques to the value of £14,280 have not been presented for payment and deposits amounting to £39,450 await
The following differences between the Cash Book entries and information in the bank statement have been identified:(i) An amount incorrectly credited to the company’s account by the bank(ii)
Shoemart’s ledger reports that it owes £128,900 to Whites, a supplier; whereas the corresponding figure stated in Whites’ monthly statement is £154,700. The difference is found to have arisen
Which of the following is the most appropriate description of cash discount?(a) A reduction in price permitted when items are purchased in bulk(b) A reduction permitted for inducing someone to pay up
The prime entry for reversing a discount allowed to a customer would be in:(a) The credit side of the Cash Book(b) The debit side of the Cash Book(c) The Sales Day Book(d) Neither of the above
Upon dishonour of a customer’s cheque for £4,275 the accounting entries for reversing a 5% discount allowed would be:(a) Debit the Cash account and credit the customer with £225(b) Debit the
Which of the following statements is incorrect?(a) The petty cashier is reimbursed regularly to make up the cash balance to the imprest(b) Every payment made by the petty cashier should be supported
If the Petty Cash Book is treated as merely a subsidiary book of accounts, £78 paid by the cashier to restore the petty cash balance to the level of the imprest should be accounted for as:(a) Debit
The Petty cash float, fixed at £100, is reimbursed on the last day of the month. It is decided that from 1 August 2012 the float should be increased to £120. Petty cash expenses paid in July 2012
The owner of a shop draws a cheque on his personal bank account to pay for shop rent. This should be accounted for as:(a) Credit Bank account in the Cash Book and debit Drawings account(b) Debit Bank
Which of the following statements are incorrect with regard to preparation of a Consolidated Statement of financial position?(a) Gain on fair valuation of a subsidiary’s asset is a pre-acquisition
Alpha paid £4,800 to acquire 3,000 ordinary shares of £1 each in Beta on 1 January 2010 when:(i) Beta’s share capital consisted of 4,000 ordinary shares of £1 each;(ii) Beta’s reserves stood
Alpha plc paid £760,000 to acquire two-thirds of Beta plc’s equity on 1 April 2010 when Beta plc had an accumulated profit of £90,000.You are informed as follows:(a) During the year ended 31
Statements of financial position as at 31 March 2012 of Alpha and its fully owned subsidiary Beta include items stated. Alpha’s trade receivables include £80 due from Beta; whereas the
When preparing a Consolidated Statement of financial position the identifiable non-monetary assets of the subsidiary need to be fair valued. Which of the following assets of the subsidiary need to be
Alpha paid £3,600 to acquire 2,400 ordinary shares in Beta on 1 January 2010 when:(i) Beta’s Share capital consisted of 3,000 ordinary shares of £1 each, quoted at 160p each;(ii) Beta’s
Draft statements of financial position of Spyder and its subsidiary Phly are shown. The following information is available:(1) Spyder purchased 480 million shares in Phly some years ago when Phly had
Statements of financial position, as at 31 December 2011, of Alpha and its fully owned subsidiary, Beta, include items stated below. Trade receivables reported by Alpha includes £70 receivable from
When preparing a Consolidated Statement of financial position the identifiable non-monetary assets of the subsidiary need to be fair valued for which of the following reasons?(a) To inform the
Year-end Trial Balance has been extracted from the books of Phoenix plc as stated.You are informed as follows:(a) Cost of unsold goods, identified as £386,000, includes goods costing £40,000 used
Sylvio plc has extracted its year-end Trial Balance as shown below, after after making most of the year-end adjustments. You are informed as follows:(a) Buildings, not depreciated until now, need to
Set out the Statement of income of Magnolia plc shown in paragraph 9.16 above on format 2 as illustrated in IAS 1.Data from income Statement paragraph 9.16: Statement of income for the year ended 31
On 11 January 2012 Betty assumed duties as accountant in Tongdean, a retail shop. The shop’s owner provided her with the following information:(i) The shop’s assets and liabilities are
Genus plc invited application for ten million ordinary shares of £1 each, stipulating that it should receive 20p per share with the application, 70p more per share should be paid at the point the
The capital and reserves section of Crimson plc’s Statement of financial position as at 31 December 2011, after recording the following transactions all of which took place in the current
Small Fry’s business submits to you the following financial statements:Required: Assess:(a) The profitability;(b) The liquidity; and(c) The operational efficiency of this business.Calculate not

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