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advanced financial accounting
Questions and Answers of
Advanced Financial Accounting
(i) Who is likely to carry out a business performance review?(ii) Describe what may be required from such reviews giving some examples from different industries and differing perspectives.
(i) Outline how the business performance review process may be used to evaluate the position of a dot.com company like Amazon UK.(ii) What are the limitations to the approach that you have outlined?
How is ratio analysis, in terms of profitability ratios, efficiency ratios, liquidity ratios, investment ratios, and financial structure ratios used to support the business review process?
Why should we be so careful when we try to compare the income statement of a limited company with a similar business in the same industry?
(i) Why does profit continue to be the preferred basis for evaluation of the financial performance of a business?(ii) In what ways can cash flow provide a better basis for performance evaluation, and
In what ways may the performance review process be used to anticipate and react to change?
‘Lies, damned lies, and statistics.’ In which of these categories do you think ratio analysis sits, if at all?
The information below relates to Priory Products plc’s actual results for 2009 and 2010 and their budget for the year 2011.You are required to calculate the following fi nancial ratios for Priory
From the fi nancial statements of Freshco plc, a Lancashire-based grocery and general supplies chain supplying hotels and caterers, for the year ended 30 June 2010, prepare a report on performance
(i) Why, and for whom, do the annual reports and accounts of limited companies have to be prepared?(ii) Where do they have to be filed?(iii) Who are the main users of the information contained in the
(i) Why do you think that the directors, chairman, chief executive and finance director of a plc each need to provide a statement or report for inclusion in the annual report and accounts?(ii) What
(i) Describe the key elements of Johnson Matthey’s financial review that are included in their report and accounts for 2011, and what these indicate about the performance of the business.(ii) Why
Describe the technique of horizontal analysis and how it may be used to evaluate, explain, and compare company performance.
Describe the technique of vertical analysis and how it may be used to evaluate, explain and compare company performance.
(i) What were the inadequacies in financial statement reporting that IFRS 8, Operating Segments, sought to address and how did it do this?(ii) What are the practical problems that companies face
(i) Why do you think that sustainability reporting has become increasingly important in terms of corporate awareness, and the awareness of the non-business community?(ii) Examine the annual reports
(i) How does inflation distort accounting information that has been prepared under the historical cost convention?(ii) In what ways has the accountancy profession considered some alternative
(i) Explain what is meant by a value-added statement.(ii) In what ways may a value-added statement be used to measure financial performance?(iii) What are the disadvantages of using value-added
What information included in the annual report and accounts of UK publicly listed companies(PLCs) may influence prospective investors and in what ways? How impartial do you think this information is?
‘The annual reports and accounts prepared by the majority of UK plcs serve to ensure that shareholders, and other stakeholders, are kept very well informed about the aff airs of their
‘In the global competitive world in which we live, company directors should be able to exercise their full discretion as to the amount of information they disclose in their annual reports and
‘The main reason that companies increasingly include sustainability reports in their annual reports and accounts is to change the views of users and regulators about the activities in which their
Prepare a horizontal analysis from this information, with 2010 as the base year, and use it to explain the appropriate elements of financial performance and the changes in the financial position of
Why may leasing be considered as a long-term source of finance?
How does risk impact on the cost of debt and equity?
How may a company’s return on equity (ROE) be related to its financial structure?
In what way is company growth of such interest to shareholders?
Business performance may be evaluated to determine ways in which it can be improved upon. If managers are capable of delivering improved performance how can EVA be used to support this?
The former owner and manager of a private limited company recently acquired by a large plc, of which he is now a board member, said: ‘This company has grown very quickly over the past few years so
In the long run does it matter whether a company is financed predominantly by ordinary shares or predominantly by loans? What’s the difference?
The marketing manager of a large UK subsidiary of a multinational plc: ‘Surely the interest rate that we should use to discount cash flows in our appraisal of new capital investment projects should
A critically important factor required by a company to make financial decisions, for example, the evaluation of investment proposals and the financing of new projects, is its cost of capital. One of
Your plc is a fast-growing, hi-tech business. Its income statement for the year ended 30 September 2010 and its balance sheet as of 30 September 2010 are shown below. The company has the opportunity
Sparks plc is a large electronics company that produces components for CD players and iPods. It is close to the current year end and Sparks is forecasting profit after tax at £60m. The following two
(i) Why are accountants required to produce financial information?(ii) Who do they produce it for and what do they do with it?
Describe the broad regulatory, professional, and operational framework of accounting.
What are the conceptual frameworks of accounting?
(i) What is accountancy?(ii) What is an accountant?(iii) What do accountants do?
(i) What is financial management?(ii) How does financial management relate to accounting and perhaps other disciplines?
The managing director of a large public limited company stated: ‘I’ve built up my business over the past 15 years from a one-man band to a large plc. As we grew we seemed to spend more and more
The managing director of a growing private limited company stated: ‘All these accounting concepts and standards seem like a lot of red tape to me, and we’ve got financial accountants and
Is accounting objective? Discuss concerning at least six different accounting concepts.
At a recent meeting of the local branch of the Women’s Institute, they discussed what sort of organization they were. The discussion broadened into a general debate about all types of
Mary Andrews was an accountant but is now semi-retired. She has been asked by her local comprehensive school careers officer to give a talk entitled: ‘What is an accountant and what is accounting,
Accounting standards in general are reasonably unambiguous. Are there any major areas where accountants may disagree in balance sheet accounting?
Financial statements are produced each year by businesses, using prescribed formats. Should major plcs be allowed to reflect their individuality in their financial statements?
Professionals in the UK, for example, doctors, solicitors, accountants, etc., normally work within partnerships. Many tradesmen, such as plumbers, car mechanics, carpenters, and so on, operate as
Bill Walsh has just been appointed Finance Director of a medium-sized engineering company, Nutsan Ltd, which has a high level of exports and is very sensitive to economic changes throughout the UK
Wembley Stadium II (the Football Association’s replacement for the original iconic Wembley Stadium) was planned to open in 2003 but due to numerous problems financing the construction, problems in
Conceptual frameworks of accounting have been developed over many years and in many countries. Explain how these culminated in the publication of the UK Statement of Principles (SOP) in 1999, and
The International Accounting Standards Board (IASB) decreed the adoption of the International Financial Reporting Standards (IFRSs) by all listed companies within the European Union are mandatory
What are the four basic business transactions and what are their corresponding debit and credit accounting entries under the convention of double-entry bookkeeping?
(i) Name each of the books of account and ledgers in an accounting system.(ii) What are they used for?
(i) At a specific point in time, what does a company’s trial balance show?(ii) What may the trial balance not show?
How may the financial position of a company be ascertained from its trial balance?
How may the cash position of a company be ascertained from its trial balance?
Why is the profit made during an accounting period not necessarily equal to the cash flow during that period?
In what ways do businesses adjust their accounts for accruals and prepayments?
‘Managers who are non-accounting specialists don’t need to learn about bookkeeping, debits and credits, etc.’ Discuss.
Computerised accounts and information systems have speeded up the recording of accounting data and the presentation of information. What are the other advantages over manual accounting systems and
Use the same example in P9.11. The investment is reclassified from FVOCI to amortized cost on 1 January 2012. Prepare the journal entries on 1 January 2012 to record the reclassification of the
Use the same example in P9.12 . The investment is reclassified from FVTPL to amortized cost on 1 January 2012.Prepare the journal entries on 1 January 2012 to record the reclassification of the
Assume the same information as in P10.10, except that the hedged item is a firm commitment, and the forward contract was designated as a fair value hedge of the foreign exchange risk of a firm
Describe the three types of share-based payment transactions under IFRS 2.
Discuss the methods of measurement of the fair value of equity instruments allowed under IFRS 2.
Explain what is meant by “repricing” and how it is accounted for under IFRS 2.
On 1 December 20x0, the board of Progressive Corporation approved a share option plan for selected employees.Up to 5,000,000 ordinary shares could be issued under this option plan. The terms of the
Generally, new shell entities inserted into existing group structures as part of the corporate reorganization process will meet the definition of business under IFRS 3.
Company B paid cash consideration amounting to \($250\),000 to Company A in exchange for 100% interests held by Company A in the paid up capital of Company D on 1 January 20x5. Company D was
Assume the same facts as in P3.11 with the exception that in this case, Company X exchanges replacement awards for the share-based payment awards of Company Y, for which employees had yet to render
The trial balances for FIRE and WALL as of 31 December 20x3 are as follows:Additional information:(a) On 1 January 20x2, FIRE purchased 70% of WALL’s ordinary shares. At the date of acquisition,
Why do VHWOs not report all pledges received in the period in the assets without donor restrictions section of the statement of activities? Identify what is not included.
In the period in which an intercorporate sale occurs, how do the consolidation eliminating entries differ when unrealized profits pertain to an intangible asset rather than a tangible asset?
One difference between accounting for a governmental (not-for-profit) unit and a commercial (for-profit) enterprise is that a governmental unit shoulda. Not record depreciation expense in any of its
Belle Valley incurred $100,000 of salaries and wages for the month ended March 31, 20X2. How should this be recorded on that date? c. Expenditures Salaries and Wages Debit Vouchers Payable Salaries
Which of the following accounts of a governmental unit is credited when taxpayers are billed for property taxes?a. Estimated Revenue.b. Revenue.c. Appropriations.d. Fund Balance—Assigned for
Fixed assets purchased from general fund revenue were received. What account, if any, should have been debited in the general fund?a. Noneb. Fixed Assetsc. Expendituresd. Fund Balance—Unassigned
The initial transfer of cash from the general fund to establish an internal service fund requires the general fund to credit Cash and debita. Accounts Receivable—Internal Service Fund.b. Transfers
Which of the following steps in the acquisition of goods and services occurs first?a. Appropriationb. Encumbrancec. Budgetd. Expenditure
What account is used to earmark the fund balance to recognize the contingent obligations of goods ordered but not yet received?a. Appropriationsb. Encumbrancesc. Obligationsd. Fund Balance—Assigned
When a governmental unit’s Estimated Revenues Control account is closed out at the end of the fiscal year, the excess of estimated revenues over estimated appropriations isa. Debited to Fund
Carson City’s general fund issued purchase orders of $630,000 to vendors for supplies. Which of the following entries should the city make to record this transaction? Debit Credit Q. ENCUMBRANCES
The following balances are included in the subsidiary records of Dogwood’s Parks and Recreation Department on March 31, 20X2:How much does the department have available to purchase additional
Which of the following accounts of a governmental unit is credited when the budget is recorded?a. Encumbrancesb. Budgetary Fund Balance—Assigned for Encumbrancesc. Estimated Revenue Controld.
Which of the following accounts of a governmental unit is debited when supplies previously ordered are received?a. Encumbrancesb. Budgetary Fund Balance—Assigned for Encumbrancesc. Vouchers
Which of the following situations will increase a governmental unit’s fund balance at the fiscal year-end?a. Appropriations are less than expenditures and budgetary fund balance assigned for
Which of the following accounts of a governmental unit is credited to close it out at the fiscal year-end?a. Appropriations Controlb. Revenue—Property Taxc. Budgetary Fund Balance—Assigned for
The primary focus in accounting and reporting for governmental funds isa. Income determination.b. Flow of financial resources.c. Capital maintenance.d. Transfers relating to proprietary activities.
The governmental fund measurement focus is the determination of Income Financial Position Flow of Financial Resources Yes Yes No b. No Yes No d. 2 2 No Yes Yes Yes
A Budgetary Fund Balance—Assigned for Encumbrances in excess of a balance of Encumbrances Control indicatesa. An excess of vouchers payable over encumbrances.b. An excess of purchase orders over
The Encumbrances Control account of a governmental unit is debited whena. Goods are received.b. A voucher payable is recorded.c. A purchase order is approved.d. The budget is recorded.
The following pertains to property taxes levied by Cedar City for the calendar year 20X6:City Cedar should report revenues from property taxes for 20X6 ofa. $700,000.b. $600,000.c. $690,000.d.
Oak City issued a purchase order for supplies with an estimated cost of $5,000. When the supplies and accompanying invoice were received, the invoice indicated a $4,950 actual price. What amount
For the budgetary year ending December 31, 20X6, Johnson City expects the following inflows of resources in its general fund:In the budgetary entry, what amount should Johnson City record for
Encumbrances outstanding at year-end in a state’s general fund should be reported as aa. Liability in the general fund.b. Fund balance designation in the general fund.c. Fund balance reserve in the
Interperiod equity is an objective of financial reporting for governmental entities. According to the Governmental Accounting Standards Board, is interperiod equity fundamental to public
Which of the following statements is correct regarding comparability of governmental financial reports?a. Comparability is not relevant in governmental financial reporting.b. Differences between
Using the requirements of GASB 33, classify each of the following independent transactions for the community of Fair Lake into the proper category of revenue presented in the right-hand column.
The governmentwide financial statements use thea. Economic resources measurement focus and the accrual basis of accounting.b. Current financial resources measurement focus and the accrual basis of
The financial statements for the governmental funds use thea. Economic resources measurement focus and the accrual basis of accounting.b. Current financial resources measurement focus and the accrual
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