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advanced financial accounting
Questions and Answers of
Advanced Financial Accounting
Some commentators on financial reporting practices argue that financial statements produced under the historic cost convention do not provide relevant information to users of those statements in
(a) Give a brief summary of the current value replacement cost accounting system (entry values).(b) Give a brief summary of the current value net realisable value accounting system (exit values).(c)
Three unrelated companies, Tower plc (a public company), Book Ltd (a private company) and Holdings plc (a quoted investment company) have summarised balance sheets, as on 30 June 1985, as set out
The balance sheet of Omega as at 30 September 1992 contained the following balances and notes:Note 1 The share premium arose on the issue of shares on 1 October 1989.Note 2 The revaluation reserve
You are the Chief Accountant of JKL plc, a UK company that has three wholly-owned overseas subsidiaries.● Company A is located in Spain. The company assembles computer terminals from materials
Shott, a public limited company, set up a wholly owned foreign subsidiary company, Hammer, on 1 June 1999 with a share capital of 400 000 ordinary shares of 1 dinar. Shott transacts on a limited
Howard plc acquired 2 100 000 ordinary shares of Kroner 1 in Pau Ltd on 1 January 1985 when the reserves of Pau Ltd were Kr1 500 000 and the exchange rate was Kr10 to £1.Goodwill was eliminated
One of the frequent criticisms of SSAP 20, Foreign currency translation, is that exchange differences on net investments in foreign enterprises, and on borrowings which are a hedge, never pass
In November 1996 the Accounting Standards Board issued FRS 1 (Revised) – Cash Flow Statements. The appendix to FRS 1 contains a number of examples of cash flow statements drawn up in accordance
Pitted Prunes plc merged with Rosy Plums plc and changed its name to Pitted Rosy Plums plc in June 1987. The figures included in the accounts for the year ended 31 December 1987 included the results
In recent years several large listed companies have purchased their own ordinary shares.You are required to summarise:(a) the accounting requirements for a public listed company when it purchases its
H plc was established in 1996 to develop advanced computer software. The company was established with the financial backing of B Bank. B Bank invested £2 million in H plc’s share capital, buying 2
Capital plc carried on business in four product segments, namely aircraft design, hairdressing salons, import agencies and beauty products.The directors are now considering the dividend policy and
(a) What do you consider to be the main weaknesses of historical cost accounting when prices are rising? (10 marks)(b) State two ways in which firms have adopted different accounting policies for
In the ASC’s handbook, Accounting for the Effect of Changing Prices, accountants are faced with a choice of systems of accounting when dealing with the effects of inflation.Requirements (a) Briefly
(a) Explain the primary objective of current purchasing power accounting and outline the basic technique. (8 marks)(b) What do you consider are the advantages and disadvantages of current purchasing
(a) Provide a definition of the deprival value of an asset. (2 marks)(b) For a particular asset, suppose the three bases of valuation relevant to the calculation of its deprival value are (in
‘The recognition and correct treatment of holding gains in company financial statements are vital for a proper understanding of the position and performance of the business entity.’You are
It has been stated that: ‘Current cost accounts allow for the impact of specific price changes on the net operating assets and thus the operating capability of the business. The same tools of
You are a financial analyst specialising in the analysis of the profitability of organisations in the engineering sector. One such company is D Ltd. The directors of D Ltd have always been interested
(a) Identify and explain the main accounting issues in SSAP 24, Accounting for pension costs, for defined contribution schemes and defined benefit schemes. (7 marks)(b) Provide a numerical
Diverse plc has established a defined benefit pension scheme for all the company’s fulltime employees. The scheme receives contributions from the company and the participating employees. The scheme
You are the financial controller of C Ltd, a company which has recently established a pension scheme for its employees. It chose a defined benefit scheme rather than a defined contribution scheme.C
Court plc has a defined benefits pension scheme for all its employees. Based on actuarial advice the company has previously made contributions of £2 million per annum to the pension fund, being 10%
(a) Accounting for retirement benefits remains one of the most challenging areas in financial reporting. The values being reported are significant, and the estimation of these values is complex and
The introduction of FRS 3, Reporting Financial Performance, has resulted in a considerably expanded profit and loss account with related disclosures and a new primary statement.The standard is
Discuss whether the range of information provided by the implementation of FRS 3, Reporting financial performance, is helpful to users of published financial statements.
FRS 3, Reporting financial performance, significantly supplements the financial information required under statutory formats.Requirements(a) Discuss the effect of the following disclosures on
A Ltd is a company which specialises in the processing of canned beans and canned spaghetti for sale to retail shops. The canned beans are processed from beans bought in directly from UK farmers. The
Crail plc has the following matters outstanding before finalising its published financial statements for the year ended 30 April 2002.(1) The company sold its European business operations, excluding
Glamis plc manufactures, distributes and retails glassware. The following matters relate to its financial statements for the year ended 31 July 1998:(1) On 25 June 1998, one of the company’s
The Accounting Standards Board has published a Discussion Paper, Reporting Financial Performance: Proposals for Change. The proposals in the Discussion Paper build upon the strengths of, and are a
Travis plc is a large grocery retailing and wholesaling organisation. It is presently drawing up its financial statements for the year ended 31 October 1993 and, mindful of the requirements of SSAP
Spreader plc is a UK parent company with a number of wholly-owned subsidiaries in the USA and Europe. Extracts from the consolidated financial statements of the group for the year ended 30 April 1997
(a) For enterprises that are engaged in different businesses with differing risks and opportunities, the usefulness of financial information concerning these enterprises is greatly enhanced if it is
You are the Management Accountant of Global plc. Global plc has operations in a number of different areas of the world and presents segmental information on a geographical basis in accordance with
FRS 3, Reporting Financial Performance, requires that earnings per share should be calculated on the profit after tax, minority interest and extraordinary items. FRS 3 permits an additional measure
A plc is a company which is listed on the UK Stock Exchange. Your client, Mr B, currently owns 300 shares in A plc. Mr B has recently received the published financial statements of A plc for the year
(a) Explain the purpose of FRS 8, Related party disclosures, its relevance to users of published financial information and the main differences to international accounting standards. (6 marks)(b) The
Newcars plc is a vehicle dealership; it sells both new and good quality second-hand cars. The company is large and has a large number of shareholders. The only large block of shares is held by
Engina, a foreign company, has approached a partner in your firm to assist in obtaining a Stock Exchange listing for the company. Engina is registered in a country where transactions between related
[Authors’ note: This question has been included for students who wish to consider the partial provision method of accounting for deferred tax, which was required by SSAP 15 but is now outlawed by
The problem of accounting for deferred taxation is one that has been on the agenda of the Accounting Standards Board for some time. In December 2000, the Accounting Standards Board published FRS 19
H plc is a major manufacturing company. According to the company’s records, timing differences of £2.00 million had arisen at 30 April 2002 because of differences between the carrying amount of
Explain how the requirements of FRS 18, Accounting policies, and FRS 19, Deferred tax, reflect the Statement of Principles.ICAEW, Financial Reporting, June 2002
‘Accounting standards should narrow differences in reporting yet acquisition accounting and merger accounting result in significantly different results in the year of combination and thereafter.You
The balance sheets of Left plc and Right plc at 31 December 1999, the accounting date for both companies, were as follows.On 31 December 1999, Left plc purchased all the equity shares of Right plc.
AB, a public limited company manufactures goods for the aerospace industry. It acquired an electronics company CG, a public limited company on 1 December 1999 at an agreed value of £65 million. The
There are currently two possible methods of preparing consolidated financial statements when two or more separate legal entities combine to form a single economic entity in the form of a group. The
Growmoor plc has carried on business as a food retailer since 1900. It had traded profitably until the late 1980s when it suffered from fierce competition from larger retailers. Its turnover and
FRS 10 – Goodwill and Intangible Assets – was issued in December 1997. At the same time, SSAP 22, the previous Accounting Standard which dealt with the subject of accounting for goodwill, was
Islay plc has acquired the following unincorporated businesses:(1) ‘Savalight’, a business specialising in the production of low-cost, energy efficient light bulbs, acquired on 1 June 1996 for
Elie plc acquired 80% of the £1 million ordinary share capital of Monans Ltd on 1 July 2001 by issuing 200 000 £1 ordinary shares. Elie plc’s ordinary shares were quoted at £17 on 1 July 2001.
FRS 11 – Impairment of fixed assets and goodwill requires that all fixed assets and goodwill should be reviewed for impairment where appropriate and any impairment loss dealt with in the financial
Acquirer plc is a company that regularly purchases new subsidiaries. On 30 June 2000, the company acquired all the equity shares of Prospects plc for a cash payment of £260 million. The net assets
The accountancy profession has developed a range of techniques to measure and present the effects of one company owning shares in another company.Briefly describe each of these techniques and how the
You are group financial accountant of a diverse group of companies. The board of directors has instructed you to exclude from the consolidated financial statements the results of some loss-making
Fair value is a concept underlying external financial reporting.You are required(a) to explain why fair value accounting is required; (4 marks)(b) to explain how the fair value concept is applied; (5
Relevant balance sheets as at 31 March 1994 are set out opposite:You have recently been appointed chief accountant of Jasmin (Holdings) plc and are about to prepare the group balance sheet at 31
Balmoral plc acquired 75% of the ordinary share capital and 30% of the preference share capital of Glenshee Ltd for £2 million on 1 November 1994. The draft profit and loss accounts for the
Highland plc owns two subsidiaries acquired as follows:1 July 1991 80% of Aviemore Ltd for £5 million when the book value of the net assets of Aviemore Ltd was £4 million.30 November 1997 65% of
Ardrossan plc acquired holdings in two companies as follows:Barmulloch Ltd – 75% of the ordinary share capital purchased on 1 August 2000 for£4 million.Cumbernauld Ltd – 25% of the ordinary
Aberdeen plc acquired shares in two other companies as follows:Additional information (1) It is group policy to amortise purchased goodwill over five years with a full year’s charge in the year of
The ASB’s Statement of Principles sets out the concepts which underpin its development of financial reporting standards.Required Discuss why the ASB has adopted this conceptual approach and whether
The Statement of Principles identifies the elements of financial statements. The measurement basis which is applied to these elements can significantly affect the reported financial performance and
The Statement of Principles deals with the presentation of financial statements i.e. disclosure in primary statements and supporting notes.Requirements(a) Discuss the purposes and usefulness of the
Your managing director has approached you saying that he is ‘confused at all the different accounting bodies that have replaced the old Accounting Standards Committee’.You are required to draft a
Before the introduction of accounting standards, accounting practices varied from enterprise to enterprise – there was inconsistency and occasionally practices were inappropriate.Intercompany and
‘At their simplest, accounts comprise a summary of cash receipts and payments. Concepts such as accruals and substance over form lead to increased complexity and may make it difficult for a user to
The following is an extract from a press note published by the Financial Reporting Review Panel (FRRP):FINDINGS OF THE FINANCIAL REPORTING REVIEW PANEL IN RESPECT OF THE ACCOUNTS OF S PLC FOR THE
It is a requirement of the Companies Acts that the accounts of limited companies must show a true and fair view of the state of affairs at the end of a period and the profit or loss for the
‘In recent years, there has been growing interest in, and efforts directed towards, the harmonisation of international accounting.’ (Advanced Financial Accounting by Taylor and Underdown
You are the chief accountant of Britain plc. Britain plc has a number of subsidiaries located in various parts of the world. One of these subsidiaries is Faraway Ltd. Faraway Ltd prepares its
‘Now that the EU has decided to harmonise financial reporting by Regulation rather than by the issue of new Directives, the financial statements of all companies in Europe will be comparable by the
Some commentators on financial reporting practices argue that financial statements produced under the historic cost convention do not provide relevant information to users of those statements in
(a) Give a brief summary of the current value replacement cost accounting system(entry values). (6 marks)(b) Give a brief summary of the current value net realisable value accounting system(exit
The balance sheet of Omega as at 30 September 1992 contained the following balances and notes:Note 1 The share premium arose on the issue of shares on 1 October 1989.Note 2 The revaluation reserve
The valuation and depreciation of fixed assets are covered by both mandatory accounting standards and the Companies Acts as sources of authority.Requirement Identify the main accounting issues
The managing director of your company has always been unhappy at depreciating the company’s properties because he argues that these properties are in fact appreciating in value.Recently he heard of
X Ltd is a retail supermarket chain which regularly constructs its own superstores. During the year ending 31 December 1995, X Ltd began work on a new site.On 1 January 1995, a leasehold interest in
C & R plc is a large company which operates a number of retail stores throughout the United Kingdom. The company makes up financial statements to 30 September each year.On 1 October 1996 the
L plc has never revalued its land and buildings. The directors are unsure whether they should adopt a policy of doing so. They are concerned that FRS 15 – Tangible Fixed Assets has an “all or
You are the management accountant of Historic Ltd. Historic Ltd makes up its financial statements to 30 September each year. The financial statements for the year ended 30 September 2000 are
K is a CIMA member who has recently established a limited company which specialises in biotechnology applications. The company has just reached the end of its first year of trading.K is working
(a) Accounting practices for fixed assets and depreciation can be said to have developed in a piecemeal manner. The introduction of FRS 11 ‘Impairment of Fixed Assets’ has meant that a standard
N Ltd is an independent company which manufactures clothing. For many years, N Ltd has worked exclusively for Store plc, a national group of department stores, manufacturing gloves. Store plc
Wick plc has produced the following trial balance as at 31 August 2002 as a basis for the preparation of its published accounts:Additional information (1) As a new venture, the company started work
G Ltd is a company specialising in the construction of sophisticated items of plant and machinery for clients in the engineering industry. Details of two contracts outstanding at 30 September 1995
Lewis plc specialises in bridge construction and had two contracts in progress at its year end, 30 April 1999.Stornoway Bridge Construction on this contract started in May 1997. Contract details
S plc is a shipbuilder which is currently working on two contracts:S plc recognises turnover and profit on long-term contracts in relation to the proportion of work completed.Required (a) Calculate
H plc is a major electronics company. It spends a substantial amount of money on research and development. The company has a policy of capitalising development expenditure, but writes off pure and
MWT plc is a company involved in the design and manufacture of aircraft. During the year ended 31 March 1995, the company had commenced the following projects.A. Project Alpha involves research into
Forfar plc is an innovative engineering company with a substantial research and development budget. It is company policy to capitalise all expenditure relevant to development work wherever possible
Amesbury plc produces and distributes computer-controlled machinery. As accountant for the company, you have been provided with the following information regarding the company’s activities in
Global plc, which prepares accounts to 31 January each year, operates in several different countries and has recently obtained government financial assistance both in the UK and abroad:(1) A foreign
Provisions are particular kinds of liabilities. It therefore follows that provisions should be recognised when the definition of a liability has been met. The key requirement of a liability is a
FRS 12 – Provisions, contingent liabilities and contingent assets was issued in September 1998.Prior to its publication, there was no UK Accounting Standard that dealt with the general subject of
FRS 12 – Provisions, Contingent Liabilities and Contingent Assets requires contingencies to be classified as remote, possible, probable and virtually certain. Each of these categories should then
L plc sells gaming cards to retailers, who then resell them to the general public. Customers who buy these cards scratch off a panel to reveal whether they have won a cash prize. There are several
(a) Explain the main reasons for the introduction of FRS 4, Capital instruments. (7 marks)(b) Explain how FRS 4, Capital instruments, deals with the accounting treatment of:(i) convertible debt;
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