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business
accounting a smart approach
Questions and Answers of
Accounting A Smart Approach
The NPV technique takes account of all the cash flows associated with a project and treats all cash flows as being of equal value regardless of when they are expected to arise.
The IRR of a project is the discount rate that gives an NPV of zero when applied to the cash flows arising from a project.
Consider how a business might set its long-term strategy
Assess the performance of a business using non-financial as well as financial measures
Consider the use of benchmarking to improve performance
Construct a balanced scorecard
Calculate customer profitability
Understand the need for corporate governance and how ethical and environmental issues should be taken into account.
What kinds of issues should a company include in its CSR report?
An operational plan is drawn up prior to the formulation of a corporate strategy.
Accountants are only interested in the financial performance of a business.
Benchmarking can be used to assess a company against industry best practice.
The balanced scorecard always has four perspectives: financial, customer, internal processes, and learning and growth.
Leading indicators give managers warning about what might happen in the future.
In addition to the statement of financial position, what other documents might a bank ask to see in order to determine whether to lend money to a business?
Astatement of financial position can be prepared for a business without considering whether or not the business is a going concern.
Astatement of financial position should distinguish long-term from short-term assets and liabilities.
The net profit for the year, from the statement of financial position, should be added to the bank balance at the year end.
When an expense has been prepaid during a financial year, the amount of the prepayment should be shown as a current asset on the statement of financial position.
Anaccrual has to be recognized and accounted for when an expense has been incurred during a financial period but not paid for during that period.
The value of inventory held at the end of a financial period is deducted in arriving-at the cost of sales but is not shown as an asset on the statement of financial position.
Understand why non-current assets need to be depreciated
Use the straight-line and the reducing-balance methods of providing for depreciation
Explain why we need to provide for bad and doubtful debts
Prepare a final adjusted statement of profit or loss and statement of financial position
Explain some of the limitations of a statement of financial position.
Property is shown as a non-current asset on the statement of financial position and it is usually included at cost less accumulated depreciation. Is this likely to be the most relevant value for all
The provision for doubtful debts is based on a percentage of trade receivables at the year end, a percentage that varies from business to business. Why is there no~ common percentage for all
Charging depreciation on a non-current asset will reduce its value, as shown on the statement of financial position, over its useful life in the business.
The depreciation charge always represents the total depreciation that has been charged on an asset since it was purchased,
Ifthe reducing-balance method of depreciating an asset is used, this will give rise to an equal annual depreciation charge.
Abusiness with ten motor vehicles could choose to depreciate eight of them at the rate of 33% per annum on the straight-line basis and to provide no depreciation on the remaining two vehicles.
Any trade receivable that has remained unpaid for more than three months should be written off as a bad debt.
When a bad debt is written off, this reduces the trade receivables figure on the statement ofinancial position and reduces the profit for the year,
Discuss the nature of a limited company
Describe the main external sources of finance available to limited companies, and
Discuss their characteristics
understand the role of a stock exchange outline the reporting requirements placed upon the directors of a company.
Given that companies issuing loans and debentures will be obliged to meet interest payments when they fall due, why do companies not just issue share capital rant and avoid this obligation?
Limited liability only protects the directors of a company as it means that they are only liable to lose the amount they have invested in the company.
A company can raise funds by issuing either ordinary shares or preference shares.
A limited company is a separate legal entity, distinct from the shareholders who own it.
The stock exchange is a marketplace where the shares of all limited companies, can be bought and sold.
Debentures, issued by a company, are long-term loans on which security is usually provided.
Debenture interest and share dividends are both expenses that are allowable for tax purposes.
Prepare a statement of profit or loss and a statement of comprehensive income for a limited company
Prepare a statement of financial position for a limited company
Explain the purpose of a statement of changes in equity
Understand the importance of reliable corporate governance.
Acompany’s shareholders’ equity is made up of all of the company's share capital and all of its reserves. =
Allinterest payable is deducted in arriving at the operating profit for the year.
The ordinary share capital account records the total nominal value of all the ordinary shares that have been issued.
When shares are issued at a price in excess of their nominal value, this excess amount is recorded in the share premium account.
|faproperty is revalued at £1 million and it was previously included at a net book value of £800,000, the profit for the year will increase by the £200,000 gain arising on the revaluation.
|fa property is revalued at £600,000 and it was previously included at a net book value of £800,000, the profit for the year will reduce by the £200,000 loss arising on the revaluation.
Explain the difference between profit and cash
Prepare a simple statement of cash flows.
Acompany’s statement of cash flows should enable a user to understand why profits and cash generated are not the same.
Cash flows from operating activities are a measure of the cash generated from the main activities of the company.
The depreciation charge for the year isa non-cash expense and will always be a reconciling item in the statement of cash flows.
The nominal value of shares issued would always be shown as cash inflow from financing activities. ~ 4
Acompany that has poor liquidity is one that has adequate cash and other liquid assets available to allow it to pay any liabilities as they fall due.
Inorder to improve the liquidity in a business, it is helpful to reduce the time taken to pay trade payables and hence reduce the amount owed to them.
Explain the purpose of accounting
Discuss why non-accountants need to understand accounting
Understand the basic terminology of business transactions
Calculate the gross profit margin of a product and business.
What assumptions have to be made in preparing a cash budget? Will they be based on judgements or facts?
The cash budget for a business should include business transactions plus all personal cash receipts and expenses.
Capital is the amount the owner has invested in the business.
Drawings are the salaries paid to staff of the business.
Asaleis made when the order for goods or services is received,
Gross profit margin is calculated by dividing gross profit by sales and multiplying by 100.
Understand the difference between cash and the profits of a business
Understand that a set of financial statements can be prepared from data included in a trial balance
Differentiate between revenue and capital expenditure and explain the significance of the distinction
Prepare a simple statement of profit or loss for a sole-trader business.
When Sam first put money into the new business, the business then:* had an asset in the form of the business bank account* had received his investment in the business, which is recorded in the
When Sam first purchased the printing machine, the business then:* had anew asset, the printing machine* had reduced the business bank account by the cost of the printing machine.
If Sam paid an electricity bill for the garage he is working from, the effect on the business will be:* areduction in the bank account* an expense of the business will have been paid.The double-entry
Why are drawings taken out by the owner not treated like employees’ wages, which are shown as expenses in the statement of profit or loss?
A purchase is recognized for accounting purposes when a business takes delivery of goods or receives services.
Trade payables are the amounts owed by customers of the business who have not yet paid for goods or services received.
The total of the debit entries on a trial balance should equal the total of the credit entries.
The profit or loss for a business is found by comparing the revenue income with the revenue expenses for a period.
Capital expenditure is expenditure on the business’ day-to-day expenses.
The net profit for a period is highly unlikely to be greater than the gross profit.
Explain the purpose of a statement of financial position
Recognize the assets and liabilities in a business
Understand what an accrual and a prepayment are and how to account for them
Prepare a statement of financial position for a simple business.
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