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business
introducing accounting
Questions and Answers of
Introducing Accounting
A medicinal product ‘Supertab’ is produced in batches. Batch number x 308 has the following costs:Production overheads are based on labour hours at £3 per hour. 20,000 tablets are produced, but
Dodo Airways has agreed a tender for a new aircraft at £20m. The company making the product has the following cost structure for this long-term contract.Required:What is the profit Dodo should take
Serveco is a home-service computer company. There are two levels of computer service offered: basic and enhanced service. You have the following details on each. You have the following costs:Serveco
A company, Rugger, manufactures two products: the Try and the Conversion. The company has traditionally allocated its production overhead costs on the basis of the 100,000 direct hours used in the
What do you understand by ratio analysis? Distinguish between the main types of ratio analysis.
Do the advantages of ratio analysis outweigh the disadvantages? Discuss.
‘Each of the main financial statements provides a distinct set of financial ratios.’ Discuss this statement.
Devise a set of non-financial performance indicators which might be appropriate for monitoring: (a) The Police (b) The Post Office (now known as Royal Mail in the UK)
State whether the following are true or false. If false, explain why. (a) Gross profit ratio (b) Net profit ratio (c) Current ratio Gross profit Revenue Net profit after taxation Average capital
The information below is from the accounts of John Parry, a sole trader.All of John Parry’s sales and purchases are on credit.Required:Calculate the following profitability and efficiency ratios:
Henry Mellett has the following extracts from his statement of financial position as at 31 March 2012: Required:Calculate the following ratios: (a) Current ratio (b) Quick ratio (c) Gearing ratio.
Jane Edwards Ltd has prepared its statement of cash flows under the direct method. It has the following main cash flows:Required:Calculate the cash flow ratio. Cash from customers Cash paid to
From the following information for Clatworthy plc calculate the investment ratios as indicated:Preference dividends for the year were £20,000 and ordinary dividends were £40,000. Market price
The abridged accounts for N.O. Hope plc are given below.1. Retained earnings were after taking into account dividends of £46,000 for 2010 and £45,000 for 2012.Required:Prepare a horizontal and
The following two non-listed companies, Alpha Industries and Beta Industries, operate in the same industrial sector. You have extracted the following ratios from their accounts:Required:Compare the
Anteater plc has produced the following summary accounts:Note that preference dividends of £10,000 and ordinary dividends of £40,000 have been charged to retained earnings.Required:From the above
You are an employee of a medium-sized, light engineering company. Your managing director, Sara Potter, asks you to analyse the accounts of your company, Turn-a-Screw Ltd, with a competitor,
You have been employed temporarily by a rich local businessman, Mr Long Pocket, as his assistant. He has been told at the golf club that Sunbright Enterprises plc, a locally based company, would be a
What is the role of directors, shareholders and auditors in the corporate model?
What is the decision-making model? Assess its reasonableness.
Discuss the view that if a regulatory framework did not exist it would have to be invented.
Companies often disclose ‘voluntary’ information over and above that which they are required to do. Why do you think they do this?
What is a conceptual framework and why do you think so much effort has been expended to try to find one?
‘Accounting measurement systems are the skeleton of the accounting body.’ Critically evaluate this statement.
Why is historical cost still so widely used, if it is so deeply flawed?
What is the difference between a financial capital maintenance concept and a physical capital maintenance concept?
Why do many UK companies revalue their property? How might this affect profit? Why is this practice unusual internationally?
Explain the role that the annual report plays in the corporate governance process.
Evaluate the stewardship/accountability, decision making and public relations roles of the annual report and identify any possible conflicts.
In your opinion what are the six most important sections of the annual report. Why have you chosen these sections?
Why do companies prepare group accounts?
What do you understand by the term ‘impression management’? Why do you think that managers might use the annual report for impression management?
At the start of this chapter, it was stated that ‘cash is king’ and that it is relatively easy ‘to manufacture profits, but virtually impossible to create cash’. Discuss this statement.
What is the relationship between profit and cash flow?
The direct method of preparing the statement of cash flows is the easiest to understand, but most companies use the indirect method. Why do you think this might be so?
Preparing a statement of cash fl ows using the indirect method is like being an accounting detective. Discuss this view.
State whether the following are true or false. If false, explain why:(a) Depreciation and profit from sale of property, plant and equipment are both non-cash flow items and must be added back to
Bingo has the following items in its accounts:(a) Dividends payable(b) Cash from loan(c) Sale of goods on credit(d) Purchase of goods for cash(e) Cash purchase of property, plant and equipment(f)
The cash flows below were extracted from the accounts of Peter Piper, a music shop owner.Required:Prepare a statement of cash flows using the direct method for the year ended 31 December 2012.
The cash flows below were extracted from the accounts of Picasso and Partners, a painting and decorating business.Required: Prepare a statement of cash flows under the indirect method for the year
Diana Rink Ltd, a chain of off-licences, has the following extracts from the accounts.Required:Prepare a statement which reconciles operating profit to operating cash flow. Income Statement for 2012
Brian Ridge Ltd, a construction company, has extracted the following cash flows from its books as at 30 November 2012.Required:Prepare a statement of cash flows using the indirect method. The
You have the following extracts from the income statement account and statement of financial position for Grow Hire Ltd, a transport company.There were no sales of property, plant and equipment
You have the following information regarding taxation for Brain and Co. a software house:Required:Calculate tax paid. Income Statement (Extract) Statement of Financial Position (Extracts) From Year
A construction company, Expenso plc, has the following summaries from the income statement and statement of financial position for the year ended 30 September 2012:1. There were no sales of property,
Michael Anet has the following trial balance.Required:Prepare Michael Anet’s income statement for the year ended 31 December 2012 and statement of financial position as at 31 December 2012. M. Anet
Paul Icasso has the following trial balance.Required:Prepare Paul Icasso’s trading and income statement for the year ended 31 March 2013 and a statement of financial position as at 31 March 2013.
Rose Ubens, buys and sells goods. Her trial balance is presented below.Note: 1. Closing inventory is £4,000 Required:Prepare Rose Ubens, income statement for the year ended 31 December 2012 and a
Clara Onstable has prepared her trial balance as at 31 December. She has the following additional information. (a) She pays £240 rent per month. She has paid £3,600, the whole year’s rent plus
Vincent Gogh, a shopkeeper, has the following trial balance.You also have the following additional information. 1. Closing inventory as at 31 December 2012 is £9,000. 2. V. Gogh owes £350 for
Leonardo Da Vinci, who sells computers, has extracted the following balances from the accounts.You have the following additional information.1. Closing inventory of computers as at 30 September 2012
Helen Ogarth is preparing her accounts for the year to 31 December 2012. On 1 January 2012 she purchased the following property, plant and equipment. Required:Prepare the appropriate extracts for
Michael Atisse, a carpenter, has the following trial balance as at 31 December 2012.You have the following additional information.1. Closing inventory of tools £4,500 2. Depreciation is to be
Clare Analetto, an antique dealer, has the following trial balance as at 31 December 2012.You also have the following notes to the accounts.1. Closing inventory of antiques is £7,000.2. Depreciation
Michelle Angelo has trade receivables of £40,000 at the year end. However, she feels that £4,000 are irrecoverable.Required:Prepare the appropriate statement of financial position and income
Simon Eurat, who runs a taxi business, has the following trial balance.You have the following additional information.1. 10% of the trade receivables are considered irrecoverable.2. £800 of the
Rebecca Odin has the following details of her property, plant and equipment.She charges depreciation at 2% per annum on cost for buildings, 10% per annum on cost for machinery, 25% per annum on cost
Deborah Urer owns a small bar. Her trial balance as at 30 June 2012 is set out below.You also have the following additional information.1. Closing inventory is £6,250.2. There is £200 owing for
Bernard Ruegel has drawn up a trial balance which is presented below. You have the following extra information:1. Closing inventory is £13,206.2. There are the following amounts owing: advertising
Why do you think that three different types of business enterprise (sole traders, partnerships and limited companies) exist?
Discuss the view that the accounts of partnerships are much like those of sole traders except for the need to share out the equity and profi t between more than one partner.
Distinguish between a private limited company and a public limited company. Is there any difference between the users of the accounts of each type of company?
Why is the distinction between capital and revenue reserves so important for a company?
State whether the following are true or false. If false, explain why. (a) Drawings are an expense recorded in the partners’ trading, profit and loss and appropriation account (i.e., a separate
Two partners, Peter Tom and Sheila Thumb, have the following details of their accounts for the year ended 31 December 2012.Required:Prepare the relevant income statement and statement of financial
J. Waite and P. Watcher’s trial balance as at 30 November 2012 is set out below.1. Closing inventory is £15,000.2. Salaries are £18,000 for Waite and £16,000 for Watcher.3. There is £300 owing
Cherie and Tony’s trial balance as at 31 December 2012 is set out below.1. Closing inventory is £12,000.2. £197 of the other expenses was prepaid and £200 is owed for the telephone.3. Salaries
Sister and Sledge are trading in partnership, sharing profits and losses in the ratio of 2:1, respectively. The partners are entitled to salaries of Sister £6,000 per annum and Sledge £5,000 per
Red Devils Ltd has the following extracts from its accounts.1. An audit fee is to be provided of £7,500.2. The debenture interest for the year has not been paid.3. The directors propose to transfer
Superprofit Ltd.1. Closing inventories are £26.2. The following had not yet been recorded in the trial balance: (a) Taxation payable £13 (b) Interest on long-term loan £4 (c) Auditors’ fees £2
Lindesay Trading plc1. Closing inventories are £13.2. The following are not recorded in the trial balance: Taxation payable £58.3. Authorised share capital was £500 for ordinary share capital and
The following trial balance was extracted from the books of Leisureplay plc, a listed company, for the year ended 31 December 2012.(a) Inventories as at 31 December 2012 are £12,000(b) Depreciation
You have the following summarised trial balance for Stock High plc as at 31 March 2013. Further details are provided in the notes.1. At the statement of fi nancial position date £8 is owing for
The statement of financial position and income statement provide complementary, but contrasting information. Discuss.
What are the main limitations of the statement of financial position and how can they be overcome?
Is the statement of financial position of any use?
Are the different elements of the statement of financial position changing over time, for example, as manufacturing industry gives way to service industry?
State whether the following are true or false. If false, explain why.(a) A statement of fi nancial position is a collection of assets, liabilities and equity.(b) Inventory, bank and trade payables
The following financial details are for Jane Bricker as at 31 December 2012.Required:Jane Bricker’s capital employed as at 31 December 2012. Equity 1 January 2012 Drawings 5,000 Profit 7,000
Alpa Shah has the following financial details as at 30 June 2013.Required:Alpa Shah’s total net assets as at 30 June 2013. Non-current assets Current assets 100,000 Current liabilities 30,000
Jill Jenkins has the following financial details as at 31 December 2012.Required:Jill Jenkins’ net current assets as at 31 December 2012. Inventory 18,000 Cash 4,000 Trade receivables 8,000 Trade
Janet Richards has the following financial details as at 31 December 2012.Required: Janet Richards’ Statement of fi nancial position as at 31 December 2012. Land and buildings 100,000 Trade
What is a sole trader and why is it important for the sole trader to prepare a set of financial statements?
‘Profit is the figure which links the income statement and the statement of financial position.’ Discuss.
Why do we need to carry out post trial-balance adjustments when we are preparing the final accounts?
From the following accounting figures show the six steps in the accounting equation:opening assets £25,000, opening liabilities £25,000 (£15,000 third party and£10,000 equity), profit £15,000
Show the debit and credit accounts of the following transactions in the ledger and what effect (i.e., increase/decrease) they have on assets, liabilities, equity, income and expenses.The first one is
You have the following details for A. Bird of transactions with customers and suppliers.(a) 1 June credit purchases of £8,000, £6,000 and £5,000 from Robin, Falcon and Sparrow, respectively.(b) 4
Balance off the following four accounts from four different businesses at the month end. Transfer the balances for revenue and purchases to the trading account.Sales Rets. represents sales returns.
John Frier has the following transactions during a six month period to 30 June.(a) Invests £10,000 in the business on 1 January.(b) Buys a motor van for £4,000 on 8 February by cheque.(c) Purchases
Katherine Jones sets up a small agency that markets and distributes goods. She has the following regular credit customers (Edwards, Smith and Patel) and regular suppliers of credit goods (Johnston
R. Poon was having a whale of a time trying to get a trial balance for his company Redwar. He had the following transactions during the month of May. He asks you to prepare the book entries and a
Jay Shah has the following balances as at 31 December in his accounts.Required:(i) Jay Shah’s trial balance as at 31 December.(ii) An indication of which balances are assets, liabilities, equity,
Mary Symonds, a management consultant has the following balances from the accounts on 30 September.Required: Mary Symonds’ trial balance as at 30 September. Office 80,000 Equity 28,150 Long-term
The following trial balance for Rajiv Sharma as at 31 December has been incorrectly prepared.Required:A corrected trial balance as at 31 December.Helpnote: If you rearrange the balances and the trial
Rachel Thomas’s trial balance balances as follows:Unfortunately, Rachel Thomas’s bookkeeper was not very experienced. The following transactions were incorrectly entered:(a) Purchase of a
Which of the following balances extracted from the books on 31 December would be used as a basis for next year’s accounts? Equity employed 9,200 Trade receivables 700 Rent and rates 1,000 Trade
Why is the income statement such an important and useful financial statement to such a variety of users?
‘There is not just one profit there are hundreds of profits.’ Do you agree with this statement, taking into account the subjectivity inherent in calculating profit?
The matching principle is essential to the calculation of accounting profit. Discuss.
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