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Questions and Answers of
Business Accounting
When you prepare one of these variance diagrams, there are two simple rules you can use to identify the type (price or usage) and nature (favourable or adverse) of the variance. What are they?
Calculate the labour variances from the following data: Job J (ii) Job K (iii) Job L (iv) Job M (v) Job N (vi) Job O (vii) Job P (viii) Job
Calculate the labour variances from the following data: (i) Job a (ii) Job b (iii) Job c (iv) Job d (v) Job e (vi) Job
The company for which you are the accountant manufactures three related, but different, products. These are dishwashers, washing machines and refrigerators. Each product has a standard time per unit
Central Grid plc manufactures tungsten parts which pass through two processes, machining and polishing, before being transferred to finished goods. The management of the company have in operation a
Borrico Ltd manufacture a single product and they had recently introduced a system of budgeting and variance analysis. The following information is available for the month of July 20X1:Required:(a)
(a) How does a system of standard costing enable a business to operate on the principle of management by exception?(b) Some of the following materials and labour variances have been wrongly
Makers Ltd assembles computer games machines. Standard costs have been prepared as follows:The standard direct labour rate is £5 per hour.During May 20X5, 5,000 Gamesmasters were sold at £60 each
The following diagram reflects costs under a standard costing system. Assume that all the variances are unfavourable. State, with reasons, which rectangle(s) represent:(i) The standard cost(ii) The
What does this last statement remind you of from earlier chapters?
The following are the summarised balance sheets of P Ltd and S Ltd at 31 December 20X6.There were no additions or disposals of fixed assets by the group during the year.(b) P Limited acquired its
From the following balance sheets and further information you are to draw up a consolidated balance sheet as at 31 December 20X3.During the year Parent Ltd had sold to Subsidiary Ltd for £70,000 a
The revaluation upwards of the fixed assets by £2, and the consequent reduction of the goodwill figure by £2 brings the figures into line with how P views them. Where there are depreciation charges
From the following balance sheets and supplementary information you are to draw up a consolidated balance sheet as at 31 March 20X4.During the year Pop and Mom Ltd sold a fixed asset to Son Ltd. It
When Parental Times Ltd bought the shares of Siblings Ltd it valued the fixed assets at £120,000 instead of the figure of £90,000 as shown in the balance sheet of Siblings Ltd.Draw up a
When Parent Undertakings Ltd took control of Sons and Co Ltd it valued the fixed assets at 31.12.20X7 at £75,000 instead of £60,000 as shown.Draw up the consolidated balance sheet as at 31 December
From the following balance sheets, you are to draft a consolidated balance sheet for the group of Parent Ltd and its two subsidiaries, Sub 1 and Sub 2. Investment in Sub 1: 45,000 shares bought
Would P6 be considered the ultimate parent company of S12?
From the following balance sheets prepare a consolidated balance sheet for the group of Parenting Ltd, Sub A and Sub B. Parenting Ltd Balance Sheet as at 31 March 20X3 Investment in Sub A: 40,000
Why do you think wholly-owned subsidiaries are exempted from preparing consolidated financial statements?
On 1 April 20X1, Machinery Limited bought 80 per cent of the ordinary share capital of Components Limited. On 1 April 20X3, Machinery Limited was itself taken over by Sales Limited who purchased 75
Bryon Ltd has held 1,500,000 shares in Carlyle Ltd for many years. At the date of acquisition, the reserves of Carlyle Ltd amounted to £800,000. On 31 March 20X6 Carlyle Ltd bought 400,000 shares in
The following information relates to the Brodick group of companies for the year to 30 April 20X7:Additional information:(a) The issued share capital of the group was as follows:Brodick plc:
Why can’t we simply add together all of the separate profit and loss accounts to form the consolidated profit and loss account when the subsidiaries are partly owned and there are no intra-group
Why was the £2 unrealised profit in the stock held by S Ltd added to the consolidated figure for cost of sales in Working 2?
The following figures for the year to 30 April 20X6 have been extracted from the books and records of three companies which form a group:Profits are deemed to accrue evenly throughout the year.Other
You are presented with the following summarised information for Norbreck plc and its subsidiary, Bispham Ltd:Additional information:(a) Norbreck plc acquired 80 per cent of the shares in Bispham Ltd
The following are the trial balances of ATH Ltd, GLE Ltd, and FRN Ltd as at 31 December 20X8.ATH Ltd acquired the shares in FRN Ltd on 31 December 20X6, when the credit balance on the profit and loss
Explain the difference between the consolidated retained profits figure of £83 and the total of £109 found if you add together the retained profits of P2 Ltd and S2 Ltd.
Given a choice, why would most companies prefer to adopt acquisition accounting?
Relevant balance sheets as at 31 March 20X4 are set out below:You have recently been appointed chief accountant of Jasmin (Holdings) plc and are about to prepare the group balance sheet at 31 March
Why do you think this change in the definition of an associate was made?
At the end of 20X5, a parent company, P plc, with one subsidiary had a holding representing 10 per cent of the equity of R Ltd, a clothing company. It had cost £80,000 when purchased at the start of
If stock is removed from the analysis when calculating the acid test ratio, why isn’t the figure for debtors also removed? Debtors can be just as difficult to turn into cash.
Describe two ratios from each of the five groups of ratios, including how to calculate them.
What is the purpose in using each of the following ratios:(a) Current ratio(b) Net profit after tax : sales(c) Asset turnover(d) Interest cover(e) Dividend cover?
Using the following balance sheet and profit and loss accounts, calculate and comment on ten accounting ratios (ignore taxation): Fixed assets Equipment at cost Less Depreciation to date Current
A company has capital of 1 million ordinary shares of £1 each. It pays a dividend of 6 per cent out of its profits after tax of £480,000 on sales of £4 million. The market price of the shares is
The directors of L Ltd appointed a new sales manager towards the end of 20X2. This manager devised a plan to increase sales and profit by means of a reduction in selling price and extended credit
The following are extracts from the balance sheets as at 31 March 20X4 and 31 March 20X5 of Glebe Ltd:Required:(a) Calculate for each of the two years two ratios that indicate the liquidity position
J plc supplies and fits car tyres, exhaust pipes and other components. The company has branches throughout the country. Roughly 60 per cent of sales are for cash (retail sales). The remainder are
State whether you consider the following statements to be true or false:(a) The current cost of plant and machinery is likely to be its net realisable value.(b) A company should distribute dividends
Plant and machinery was purchased on 1 January 20X3 for £30,000, when the relevant specific price index was 90. What is the current cost value of the asset at 31 December 20X4 if the index at that
The plant and machinery, details of which are given in question 30.4, is depreciated on a straight line basis at 10 per cent per annum. The depreciation charge is based on year end values. What is
Calculate backlog depreciation at 31 December 20X5 for the plant and machinery whose details are given in question 30.5A.Data from Question 30.5AThe plant and machinery, details of which are given in
The historical cost of sales figure for Apple Ltd for the year ended 31 December 20X3 is calculated as follows:Price indices for stock are as follows:Required:Assuming that purchases occur evenly
A firm purchased machinery on 1 January 20X4 for £40,000, at which date the relevant price index for machinery was 100. Depreciation is charged on a straight line basis at 25 per cent per annum. The
The balance sheet of Seafield Ltd at 31 December 20X4 shows the following balances:The relevant price indices for trade debtors and trade creditors are:Required:Using the above information, calculate
If the relevant price indices for trade debtors and trade creditors are as follows, calculate the monetary working capital adjustment for Seafield Ltd, using the details given in question 30.9A.Data
The information given below has been extracted from the accounting records of Cedarwood Ltd for the year ended 30 June 20X4. Prepare a statement showing the current cost operating profit to 30 June
The balance sheet for Cremore Ltd at 31 December 20X3 is given below (£000):Required:Using the above information, calculate the gearing adjustment percentage: Plant and
The following information has been extracted from the accounting records of Sycamore Ltd for the year ended 30 June 20X3.Required:Prepare a current cost profit and loss account for Sycamore Ltd for
How would you value employee loyalty?
Describe how an increase in gross national product may not have a positive effect on the well-being of the country.
Why is an ongoing information system required in order to do this?
What types of measure could be used to measure social well-being? What difficulties would be discovered in trying to use accounting in measuring these?
What aspects of an organisation’s activities could be measured in a social audit?
Describe how there could be conflicts between short-term and long-term benefits.
Describe how PPBS may conflict with departmental budgets.
Review a set of company financial statements for social disclosures. Consider the usefulness of such disclosures to different user groups.
Why has the traditional model of income measurement failed to account for the impact of business activities on the environment?
If corporate governance is so important, why do you think unlisted companies are not required to apply the Combined Code?
Define corporate governance.
If the Combined Code is a voluntary code of conduct for the directors of all UK limited companies, why is it that all listed UK companies must report annually on their compliance with it?
Briefly describe the development of the Combined Code from 1991 to the present day.
Briefly describe the main and supporting principles relating to directors contained in the Combined Code.
Why do you think similar public sector organisations are likely to use virtually identical control systems?
What is the public sector?
Briefly describe the differences between the structure of local authority auditing in Northern Ireland compared to England and Wales
Briefly describe the role of the Accounting Officer of a central Government department.
Briefly describe the differences between the structure of public sector auditing in Scotland compared to the rest of the UK.
Imagine we bought a building in 1990 for £40,000 that is now worth £120,000. If we rented a similar building now it might cost us £30,000 a year. What use would you make of the knowledge that the
‘Financial accounting looks behind, whilst management accounting looks ahead.’ To what extent does this quotation accurately reflect the role of the two branches of accountancy?
What other objectives can you think of? Try to think of another two. If you can, try to make them objectives which cannot be identified or demonstrated using information provided by financial
‘Financial accounting is non-dynamic, backward looking, conservative, as objective as possible, and subject to statutory and other regulation. Management accounting is future oriented, is dynamic,
Both these examples have something in common relating to the timeframe in which the actions taken can be justified. What is it?
What are some of the deficiencies of financial accounting?
Apart from what is said above, what do you think is the main difference between formal and informal information systems?
Why is it important that the employees of an organisation should clearly understand what the objectives of the organisation are?
How can there be a conflict between the various objectives of an organisation?
Describe how the management process is carried out.
Which aspects of this exhibit also relate to financial accounting?
Categorise each of the following costs into one of these six categories:(i) Direct materials(ii) Direct labour(iii) Indirect manufacturing costs(iv) Administration expenses(v) Selling and
Here is a list of typical types of expenses found in a manufacturing firm. These can be analysed as to whether they are direct materials, direct labour, direct expenses, indirect manufacturing costs,
Apart from the obvious fact that it is irrelevant, why is useless data such a bad thing?
Categorise each of the following costs into one of these six categories:(i) Direct materials(ii) Direct labour(iii) Indirect manufacturing costs(iv) Administration expenses(v) Selling and
From the following information, calculate:(a) Prime cost(b) Production cost(c) Total cost. Wages and salaries of employees: In factory (70 per cent is directly concerned with units being
From the following information work out:(a) Prime cost(b) Production cost(c) Total cost. Wages and salaries of employees: In factory (60 per cent is directly concerned with units being
Raleigh Ltd’s costs and revenues for the current year are expected to be:It was expected that 200,000 units would be manufactured and sold, the selling price being £12 each. Suddenly during the
(a) The terms cost behaviour and analysis of total cost are regularly used in cost accounting to classify costs. Distinguish between the two terms.(b) Explain how the following costs will:(i)
Jack Ltd expects its cost per unit, assuming a production level of 200,000 units per annum, to be:Selling price is £15 per unit.The following propositions are put to the managing director. Each
Assume that two companies have exactly the same pattern of costs and revenue and both use FIFO when valuing stock, but that Columbus Ltd uses a marginal costing approach to the valuation of stock in
Greatsound Ltd manufactures and sells compact disc players, the cost of which is made up as follows:The current selling price is £187.Greatsound Ltd works a day shift only, at present producing
Your company has been trading for three years. It has used a marginal costing approach to value its stock in its financial statements. The directors are interested to know what the recorded profits
Arncliffe Limited manufactures two types of product marketed under the brand names of ‘Crowns’ and ‘Kings’. All the company’s production is sold to a large firm of wholesalers.Arncliffe
Gainford Ltd is a manufacturing company which produces three specialist products – A, B and C. For costing purposes the company’s financial year is divided into thirteen periods of four weeks.
(a) What is meant by the terms contribution and marginal cost?(b) Barton & Co Ltd make and sell 2,000 units per month of a product ‘Barco’. The selling price is £65 per unit, and unit costs are:
Reed Ltd manufactures three products A, B and C. Budgeted costs and selling prices for the three months ending 30 September 20X2 are as follows:Labour costs are £3 per hour, and material costs are
Paul Wagtail started a small manufacturing business on 1 May 20X8. He has kept his records on the double entry system, and has drawn up a trial balance at 30 April 20X9 before attempting to prepare
The figures given below are all that could be salvaged from the records after a recent fire in the offices of Firelighters Limited. The company manufactures a single product, has no raw materials or
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