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business accounting
Questions and Answers of
Business Accounting
'Bank reconciliations are rather pointless; if I add and subtract the right things I am mathematically certain to reconcile the bank statement to the bank account.' Is this statement correct, and if
Hoddles' cash book on 30 June showed a balance due to his bank of£1,210 on his No. 1 account, and a balance of £706 overdrawn appeared on his bank statement. On investigation you find(i) Cheques
Two antique dealers, currently running separate businesses in the same town, are wondering whether to combine and form a partnership. They seek your help and advice in the matter, and ask you to
The two antique dealers, having carefully considered your advice, decide to form a partnership, and wish to draw up a written agreement.What are the main points the agreement should cover?
In the absence of agreement, the Partnership Act 1890 lays down the way in which profits are to be shared between the partners. In what circumstances would you consider these rules to be inequitable?
On 30 September 1984, Alexander and Arnold completed their first year of trading in partnership. They shared profits and losses in the ratio Alexander f, Arnold f, and were entitled to 5 per cent
The summarized balance sheet of A. Jones at 31 Decembe r 1983 was as follows:During the past five years the net profits had been £2,500, £2,000, £3,500, £4,000 and most recently £5,000. Mr Jones
Why is it necessary to establish a value for goodwill when admitting a new partner? Wha t are the methods for dealing with goodwill in the financial accounts, and what are their advantages and
A and Β are equal partners. Their balance sheet at 30 June 1983 isThey agree to admit C as a new partner with effect from 1 July 1983, sharing profits A:B:C,3:3:2 . Goodwill is valued at £16,000,
Explain carefully the main differences between a limited company and a partnership. What advantages do you see in turning a partnership into a limited company?
Obtain a recent copy of the Financial Times in which there is a company prospectus. Ascertain from it:(i) The objective of the company.(ii) The structure of the share capital.(iii) The type, number
Obtain, from a library, a copy of a company Memorandum and Articles of Association. From the Memorandum, identify the main purposes of the company. From the Articles, ascertain the powers and
Draw up a table distinguishing between ordinary shares, preference shares and debentures under the following headings:(i) Status of holders.(ii) Rights to dividend/interest.(iii) Voting rights.(iv)
Balance Sheet of A Ltd(a) What is the par value of (i) the ordinary share, and (ii) the preference share?(b) What dividend will the preference shareholder receive? Ar e the preference shares
A company which currently has a share capital consisting only of 100,000 £1 ordinary shares wishes to raise an additional £50,000 of capital. List the different ways in which the company might
An abridged balance sheet of Β Ltd shows the following:The company currently distributes all of its profits of £25,000 to its shareholders. It now wishes to raise an additional £80,000 by issuing
Using suitable data, explain why the market price of an ordinary share is likely to fluctuate more in a highly geared than in a low-geared company. Why would you prefer to be an ordinary shareholder
Distinguish carefully between a capital and revenue reserve; explain into which category each of the following falls, and how it may have arisen:(i) Share premium.(ii) Revaluation reserve.(iii)
A limited company issues the following capital:50,000 £1 ordinary shares at a premium of 20p per share.20,000 £1 5 % preference shares at a premium of 5p per share.30,000 10% debentures at a
The company in question 10 above pays and declares the following dividends and interest in 1984:Interim dividends paid 5 % ordinary 2\% preference Debentur e interest paid, 5%T he directors propose
The following list erf balances was extracted from the books of Newman P LC on the 31 December 1984:Notes:(i) Stock at 31 December 1984 £90,000.(ii) Provide tor depreciation of plant and machinery
Distinguish carefully between a bonus (or scrip) issue and a rights issue. In what circumstances may a company wish to make either type of issue?
The balance sheet of Menis PLC is as follows:T he company has normally paid a dividend of 30 per cent, the market price of the shares reflecting the shareholders' acceptance of an 8 per cent yield.
'Shareholders get something for nothing when a company issues bonus shares.' Do you agree?
Explain why the market price of a share may diverge from the par value of that share.
The balance sheet of Eaton PLC is as follows:The market price of the ordinary shares is £1.50, and the company proposes to make a rights issue of 1 for 2 at a price of £1.30 per share:(a) What is
Ask your library to supply you with some back copies of the Financial Times and find a company which has made a rights issue. Using EXTEL(or some similar source) discover what you can about the
Explain carefully the distinction between 'purchase' and 'redemption' of its own shares by a public company. What limitations and requirements are attached by the Companies Acts to this power?
What are the motives for seeking growth through the acquisition of other businesses?
What do you understand by the term 'holding company'?
The balance sheet of two companies, A and B, at 31 December 1984, was as follows:A had acquired 90 per cent of the equity of Β on 31 December 1984.Required:(a) Calculate the goodwill on
The balance sheet of Tarns PLC is as follows:he company proposes to redeem the preference shares at a premium of 10 per cent by finding the cash from alreadv available internal
Examine a series of job advertisements for accountants, and try to deduce what accounting is from the descriptions.
Find a number of different definitions of accounting, and consider the extent to which they coincide or diverge.
Normative accounting theories need to be 'generally acceptable' to be of use. Discuss the extent to which the criteria for acceptability can be in conflict.
Outline the major influences on the development of accounting practices from the earliest times to the present day.
To what extent should accounting information reflect the impact the business has on the social as well as the economic environment?
Accounting is not an end in itself, but aims to help people make decisions. What different groups may need accounting information, and for what purposes?
Accounting theory is variously described as setting out 'principles','postulates', 'concepts', 'rules' or 'practices'. Is there any difference between these terms, or is this just a matter of
'With inflation running in double figures, the accounting use of money and purchase price as a concept of value is so obviously misleading that it makes accounting quite useless.' D o you agree?
Make a list of your major possessions. Wha t value do you place on them? Explain and justify your basis of valuation. Ar e you 'better off now than you were a year ago? Explain and justify your
The use of 'historic cost' as a concept of value is sometimes defended on the grounds that it is objective. Can you think of some examples where this is not so, and, if so, is the defence justified?
Why does a balance sheet balance?
Define carefully the terms 'asset' and 'liability'. How clear-cut is the distinction between 'fixed' and 'current' assets? How would you categorize the following:(i) An investment in the shares of a
Prepare a series of sequential balance sheets from the following data:(i) M. Brown commences business with cash of £10,000 which he deposits in a business bank account and uses his car, valued
Obtain several sets of published company accounts. Examine the balance sheets and discover:(i) What types of assets are shown?(ii) Wha t is the basis of valuation of those assets?(iii) To what extent
What do you understand by the 'entity concept'? How do you reconcile the fact that records are kept from the viewpoint of the 'entity' with the fact that the business belongs to its proprietors?
If I own my own business, how can my capital invested in it be a liability?
To what extent does a balance sheet disclose what a business is worth?
What different groups of people may be interested in the balance sheet of a business? To what extent are their needs for information (a)similar and (b) different? Can all of the different needs be
(a) Draw up two balance sheets for lî)83 and 1984 from the following information, inserting the necessary 'missing' item:(b) Comparing the two balance sheets, what conclusions, if any, can you
Explain why a profit is represented by an equivalent increase in assets.
It is possible, after making appropriate adjustments, to measure profit by calculating the change in capital between two dates. Why then is it necessary to prepare an income statement (or profit and
Make a list of the main sectors of British industry and try to ascertain a typical 'production cycle' in each. How well does the accounting year match up with these cycles? What problems may any
Examine a numbe r of published company accounts and ascertain the date of the accounting year-ends. Can you find any explanation for the selection of a particular year-end date?
Define carefully the terms 'cost', 'expense' and 'expenditure'. Collect other definitions from alternative sources, and consider the extent to which they are in agreement.
'An expense is an expired asset'. Make a list of the main categories of assets and consider to what extent the statement is correct.
The following expenditure in the year to 31 December 1984i relates to motor vans owned by a small haulage company:On 31 Decembe r 1984, the stock of tyres amounted to £40, and petrol bills unpaid
Complete the following table, to show how costs incurred during the year ended 31 March 1984 affect the expenses of that, and the subsequent, year: Details (a) Goods bought and sold during 83/84
The following list of balances was extracted from the books of Clifton, a trader, at 31 Decembe r 1984:T he following matters are to be taken into account:(i) Stock at 31.12.84, £8,500.(ii) Wages
Collect from as many different sources as possible definitions of the term 'revenue'. Consider the extent to which the definitions are in conflict, and explain what effect, if any, this conflict has
Explain carefully in your own words the conditions which must be satisfied before revenue is recognized.
The data below relate to the business of commodity dealer J. Smith:(i) Started business with capital in cash of £1,000.(ii) Bought stock for resale for cash £500.(iii) Paid expenses in cash
The following details relate to two contracts of a civil engineering contractor (year-end December):Required:(a) Identify the general principles of revenue and expense recognition and relate them to
Mr Green runs a small 'do-it-yourself business. During the year to 31 December 1984 his sales were: cash sales £10,000, credit sales £5,000.At 31 Decembe r 1984 his debtors, who totalled £800,
The following trial balance was taken from the books of Yama Co. as at 31 December 1984.The following information is also to be taken into account:(i) Stock at 31 December 1984, £6,000.(ii) Selling
Explain carefully the distinction between gross and net profit. Why is the distinction considered important? Indicate whether each of the following items incurred by a manufacturing business affect
To what extent, if any, is the distinction between gross and net profit useful in the following organizations? What alternatives can you suggest?(i) A veterinary business.(ii) A dentist's
If we combine the conservatism convention with the realization postulate, we reach the following conclusion:A current asset has been bought and is shown in the accounts at£100. If we expect it to be
What is meant by 'double entry' bookkeeping?
What is the purpose of a ledger account? Mr Jones is considering running a small sub post office which also will sell newspapers and confectionery. List the accounts you consider he should keep. What
For each of the following transactions indicated which accounts will be debited and credited:(i) Goods purchased on credit from A. Jones.(ii) Goods purchased for cash.(iii) Payment to a creditor, M.
The following are some of the accounts of P. Goodhope :At this stage, some additional information was discovered:(i) The goods debited to J. Jones (£35) had been sold to A. Jones.(ii) J. Jones had
A trial balance extracted from the books of a trader did not balance, and the following errors were discovered:(i) Sales account undercast by £20.(ii) Office wages of £180 shown on the credit side
Max, a trader, who had been in business many years, rented additional premises from 1 April 1984. The following are his payments:Max has an accounting year ending 31 December.Required:Write up (a)
The following expenditure in the year to 31 December 1984 relates to motor vans owned by Instant Delivery Ltd:On 31 December 1984 stock of tyres amount to £22.Required:Write up the motor expenses
The following balances appeared in the ledger of J. Smith at the end of the accounting year 31 March 1984:At the year end the following adjustments were necessary:(i) Closing stock was valued at
The following transactions relate to the business of Mr Smith:Required:(a) List all of the ledger accounts you consider necessary to record the above transactions.(b) Record the above transactions in
The following transactions are to be entered up in the books for June:Required:(i) Extract a trial balance as at 30 June;(ii) Prepare a trading, profit and loss account for the period ended 30 June,
Alan, Bob and Charles are in partnership sharing profits and losses in the ratio 3:2:1 respectively. The balance sheet for the partnership as at 30 June 2006 is as follows:Charles decides to retire
A, B and C are partners sharing profits and losses in the ratio 2 : 2 : 1. The balance sheet of the partnership as at 30 September 2007 was as follows:Authors’ Note: Inventory is another word for
Amis, Lodge and Pym were in partnership sharing profits and losses in the ratio 5 : 3 : 2. The following trial balance has been extracted from their books of account as at 31 March 2008: f Bank
From the following, draw up a bank reconciliation statement from details as on 31 December 2006: Cash at bank as per bank column of the cash book 2,910 Unpresented cheques 730 Cheques received and
Read the following and answer the questions below.On 31 December 2008 the bank column of C Tench’s cash book showed a debit balance of £1,500.The monthly bank statement written up to 31 December
The bank statement for R Hood for the month of March 2006 is:You are required to:(a) Write the cash book up to date, and (b) Draw up a bank reconciliation statement as on 31 March 2006. 2006 Mar 1
The following is the cash book (bank columns) of F King for December 2007:You are required to:(a) Write the cash book up to date to take the necessary items into account, and (b) Draw up a bank
You are required to prepare a purchases ledger control account from the following information for the month of April. The balance of the account is to be taken as the amount of creditors as on 30
After preparing its draft final accounts for the year ended 31 March 2006 and its draft balance sheet as at 31 March 2006 a business discovered that the stock lists used to compute the value of stock
If the two totals of a trial balance do not agree, the difference must be entered in(A) The profit and loss account(B) A suspense account(C) A nominal account(D) The capital account.
What should happen if the balance on a suspense account is of a material amount?(A) Should be written off to the balance sheet(B) Carry forward the balance to the next period(C) Find the error(s)
G Flynn is a trader who sells all of his goods at 20% above cost. His books give the following information at 31 December 2007:You are required to:(a) Ascertain cost of goods sold.(b) Show the value
R Jack gives you the following information as at 31 March 2005:Jack’s mark-up is 40% on ‘cost of goods sold’. His average stock during the year was £17,000. Draw up a trading and profit and
The following trading account is extracted from the trading and profit and loss account for the year ending 31 December 2008 and is given to you by the owner of the business, M Pole:Pole says that
Arthur deals in bicycles. His business position at 1 October was as follows:Capital £3,369 Stock £306 (3 x Model A bicycles @ £54 and 3 x Model B @ £48)Balance at bank £3,063 Having established
The following information is available for the years 2007, 2008, and 2009:The stock valuations used above at the end of 2007 and at the end of 2008 were inaccurate. The stock at 31 December 2007 had
F Lee started in business on 1 January 2002 with £35,000 in a bank account. Unfortunately he did not keep proper books of account.He must submit a calculation of profit for the year ending 31
Ivor Clue is a magician. He has conjured up the following results from his non-existent accounting records.Fees are equal to five times his direct costs. (This term is explained in Section 35.3.)At
B Barnes is a dealer who has not kept proper books of account. At 31 October 2003 his state of affairs was as follows:During the year to 31 October 2004 his drawings amounted to £32,200. Winnings
A Bell has kept records of his business transactions in a single entry form, but he did not realise that he had to record cash drawings. His bank account for the year 2008 is as follows:Records of
A summary of the Downline Rugby Club’s cash book is shown below. From it, and the additional information, you are to construct an income and expenditure account for the year ending 31 December
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