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accounting and finance for non specialists

Questions and Answers of Accounting And Finance For Non Specialists

What is meant by ‘ earnings ’ ? (Section 7.3.3)
What is meant by the term ‘diluted earnings per share ’ ? (Section 7.3.5)
What is the significance of a relatively high PE ratio? (Section 7.3.6)
State three limitations of ratio analysis based on published financial statements. (Section 7.4)
Describe one method that may be used to calculate the free cash flow for a period. (Section 7.5.1)
What does the acronym EBITDA stand for? (Section 7.6)
Why is it not correct to say that EBITDA provides a good approximation for a company’s operating cash flow? (Section 7.6)
Refer to Question 3 at the end of the previous chapter (RC Ltd). Required (a) Use the income statements and balance sheets to calculate the following for Year 7 and Year 8 for RC Limited. (i) Gearing
The PE ratios for two companies in the same industry are as follows: Company A Company B 31 March Year 2 9.5 10.8 31 March Year 3 14.6 12.9 What broad conclusions can be drawn from this information?
The following extracts are taken from the latest results of F plc.Required Use the extracts and additional information above to calculate the following for the latest year. (a) Gearing ratio (b)
The directors of G Limited are concerned that the company’s cash balance has reduced during the latest year despite the achievement of a healthy profit result and the addition of a new long-term
The directors of Mylo Ltd are considering two mutually exclusive investment projects.Both projects are concerned with the purchase of new plant. The following data are available for each project:The
Newton Electronics Ltd has incurred expenditure of 5 million over the past three years researching and developing a miniature hearing aid. The hearing aid is now fully developed. The directors are
Chesterfield Wanderers is a professional football club that has enjoyed considerable success in recent years. As a result, the club has accumulated 10 million to spend on its further development. The
C. George (Controls) Ltd manufactures a thermostat that can be used in a range of kitchen appliances. The manufacturing process is, at present, semi-automated. The equipment used cost 540,000 and has
The accountant of your business has recently been taken ill through overwork. In his absence his assistant has prepared some calculations of the profitability of a project, which are to be discussed
Answer all parts of this question.Required:Provide reasons why a business may decide to:(a) Lease rather than buy an asset which is to be held for long-term use.(b) Use retained earnings to finance
H. Brown (Portsmouth) Ltd produces a range of central heating systems for sale to builders’merchants. As a result of increasing demand for the business’s products, the directors have decided to
Devonian plc is expected to have the following equity as at 31 December this year:During this year, the operating profit (profit before interest and taxation) is estimated at £40 million and it is
Russell Ltd instals and services heating and ventilation systems for commercial premises. The business's most recent statement of financial position and income statement are as follows:The business
Gainsborough Fashions Ltd operates a small chain of fashion shops. In recent months the business has been under pressure from its suppliers to reduce the average credit period taken from three months
Tariq is the credit manager of Heltex plc. He is concerned that the pattern of monthly cash receipts from credit sales shows that credit collection is poor compared with budget. Heltex’s sales
What are the reasons for holding inventories? Are these reasons different from the reasons for holding cash?
The chief executive officer of Sparkrite Ltd, a trading business, has just received summary sets of financial statements for last year and this year:Required:(a) Show, by using the data given, how
Hercules Wholesalers Ltd has been particularly concerned with its liquidity position in recent months. The most recent income statement and statement of financial position of the business are as
International Electric plc at present offers its customers 30 days' credit. Half of the I customers, by value, pay on time. The other half takes an average of 70 days to pay. The business is
Mayo Computers Ltd has annual sales of 20 million. Bad debts amount to 0.1 million a year. All sales made by the business are on credit and, at present, credit terms are negotiable by the customer.
Boswell Enterprises Ltd is reviewing its trade credit policy. The business, which sells all of its goods on credit, has estimated that sales revenue for the forthcoming year will be 3 million under
A nursing home, which is linked to a large hospital, has been examining its budgetary control procedures, with particular reference to overhead costs. The level of activity in the facility is
Newtake Records Ltd owns a chain of 14 shops selling DVDs and CDs. At the beginning of June the business had an overdraft of 35,000 and the bank had asked for this to be eliminated by the end of
The payback method has been criticised for not taking the time value of money into account. Could this limitation be overcome? If so, would this method then be preferable to the NPV method?
Research indicates that the IRR method is extremely popular even though it has shortcomings when compared with the NPV method. Why might managers prefer to use IRR rather than NPV when carrying out
Lombard Ltd has been offered a contract for which there is available production capacity.The contract is for 20,000 identical items, manufactured by an intricate assembly operation, to be produced
The management of a business is concerned about its inability to obtain enough fully trained labour to enable it to meet its present budget projection.The amount of labour likely to be available
A hotel group prepares financial statements on a quarterly basis. The senior management is reviewing the performance of one hotel and making plans for next year. The managers have in front of them
A business makes three products, A, B and C. All three products require the use of two types of machine: cutting machines and assembling machines. Estimates for next year include the
How does activity-based costing (ABC) differ from the traditional approach? What is the underlying difference in the philosophy of each of them?
Distinguish between job costing process costing and batch costing fully explaining each approach.
Athena Ltd is an engineering business doing work for its customers to their particular requirements and specifications. It determines the full cost of each job taking a 'job cost- ing' approach,
Moleskin Ltd manufactures a range of products used in the building industry.Manufacturing is undertaken using one of two processes: the Alpha Process and the Omega process. All of the products are
A business manufactures refrigerators for domestic use. There are three models: Lo, Mid and Hi. The models, their quality and their price are aimed at different markets.Product costs are computed
On Thursday, the fourth day of his business venture, Paul, the street trader in wrapping paper (see earlier in the chapter, pages 27 to 35), bought more inventories for £53 cash.During the day he
The following is a list of the assets and claims of Crafty Engineering as at 30 June last year:Required:(a) Prepare the statement of financial position of the business as at 30 June last year from
The statement of financial position of a business at the start of the week is as follows:During the week the following transactions take place:(a) Sold inventories for £11,000 cash; these
Comment on the following quote:Limited companies can set a limit on the amount of debts that they will meet. They tend to have reserves of cash, as well as share capital and they can use these
The following information was extracted from the financial statements of |. Ching(Booksellers) plc for the year to 31 December 2013:Required:Prepare a statement of comprehensive income for the year
Presented below is a draft set of financial statements for Chips Limited.The following additional information is available:1 Purchase invoices for goods received on 29 June 2014 amounting to £23,000
Rose Limited operates a small chain of retail shops that sells high-quality teas and coffees. Approximately half of sales are on credit. Abbreviated and unaudited financial statements are as
The following information has been taken from the financial statements of Juno ple for last year and the year before last:Required:What is the figure for cash generated from the operations for Juno
Torrent plc’s income statement for the year ended 31 December 2014 and the statements of financial position as at 31 December 2013 and 2014 are as follows:During 2014, the business spent £67
Chen plc’s income statements for the years ended 31 December 2013 and 2014 and the statements of financial position as at 31 December 2013 and 2014 are as follows:Required:Prepare a statement of
The following financial statements for Blackstone plc are a slightly simplified set of published accounts. Blackstone plc is an engineering business that developed a new range of products in 2011.
Two businesses operate in the same industry. One has an inventories turnover period that is longer than the industry average.
The other has an inventories turnover period that is shorter than the industry average. Give three possible explanations for each business's inventories turnover period ratio. In the chapter it was
Threads Limited manufactures nuts and bolts, which are sold to industrial users. The abbreviated financial statements for each of the last two years are as follows:Required:(a) Calculate the
The financial statements for Harridges Ltd are given below for the two years ended 31 December for each of the last two years. Harridges Limited operates a department store in the centre of a small
What are the benefits of issuing share warrants for a company?
Why might a public company which has a stock exchange listing revert to being an unlisted company?
Answer all three questions below.(a) Discuss the main factors which should be taken into account when choosing between long-term debt and equity finance.(b) Explain the term ‘convertible loan
Venture capital may represent an important source of finance for a business.(a) What is meant by the term ‘venture capital’? What are the distinguishing features of this form of finance?(b) What
Telford Engineers pic, a medium-sized Midlands manufacturer of automobile components, has decided to modernise its factory by introducing a number of robots.These will cost £20 m and will reduce
C. George (Western) Ltd has recently produced its accounts for the current year. The board of directors met to consider the accounts and, at this meeting, concern was expressed that the return on
Conday and Co. Ltd has been in operation for three years and produces antique reproduction furniture for the export market. The most recent set of accounts for the company is set out below:Notes:1 .
The directors of Helena Beauty Products Ltd have been presented with the following abridged accounts for the current year and the preceding year:Using six ratios, comment on the profitability and
Threads Limited manufactures nuts and bolts which are sold to industrial users. The abbreviated accounts for 19X8 and 19X7 are given below.Note2 The bank loan was taken upon 1 J uly 19X7 and is
Define the terms ‘fixed cost’ and ‘variable cost’.
What is meant by the ‘break-even point’ for an activity? How is the break¬even point calculated?
When we say that some business activity has ‘high operating gearing’, what do we mean?
If there is a scarce resource which is restricting sales, how will the business maximise its profit?
The management of your company is concerned at its inability to obtain enough fully trained labour to enable it to meet its present budget projection.The amount of labour likely to be available
Lannion and Co is engaged in providing and marketing a standard cleaning service. Summarised results for the past two months reveal the following:There were no price changes of any description during
A hotel group prepares accounts on a quarterly basis. The senior management is reviewing the performance of one hotel and making plans for 19X5.They have in front of them the results for 19X4 (based
A company makes three products. A, B and C. AU three products require the use of two types of machine, cutting machines and assembling machines.Estimates for next year include the following:Fixed
Darmor Ltd has three products which require the same production facilities.Information about their per unit production costs are as follows:All labour and materials are variable costs. Skilled labour
What is the point of distinguishing direct costs from indirect ones?
Are direct costs and variable costs the same thing?
Dodgers Ltd operates a job costing system. Towards the end of each financial year, the overhead recovery rate (the rate at which overheads will be charged to jobs) is estabhshed for the forthcoming
Many businesses charge overheads to jobs, in a job costing environment, on a departmental basis.What is the advantage which is claimed for charging overheads to jobs on a departmental basis and why
In a job costing system it is necessary to divide the business up into departments. Fixed costs (or overheads) will be collected for each department. Where a particular fixed cost relates to the
What were the four uses of budgets which were identified in the chapter?
What is meant by a variance?
Finetime Ltd a new business started production on 1 April. Planned sales for the next eight months are as follows:The selhng price per unit will be a consistent £100 and all sales will be made on
Antonio pic makes product X, the standard cost of which is:The budgeted output for March was 1,000 units of product X; the actual output was 1,100 units, which was sold for £28,200. There were no
Lewisham Ltd manufactures one product line — the Zenith. Sales of Zeniths over the next few months are planned as follows:requires 0.5 kg of the raw material, which costs £1.50 per kg.Raw
Mowbray Ltd makes and sells one standard product, the standard costs of which are as follows. Direct materials: 3 kg at 2.50 per kg 7.50 Direct labour: 30 minutes at 4.50 per hour 2.25 Fixed
Hercules Wholesalers Ltd has been particularly concerned with its liquidity position in recent months. The most recent profit and loss account and balance sheet of the company are as follows:The
International Electric pic at present offers its customers 30 days’ credit. Half the customers, by value, pay on time. The other half take an average of 70 days to pay. It is considering offering a
The managing director of Sparkrite Ltd, a trading company, has just received summary sets of accounts for 19X2 and 19X3. The financial director has expressed concern at the deterioration in stock
Your superior, the general manager of Plastics Manufacturers Limited, has recently been talking to the chief buyer of Plastic Toys Limited, which manufactures a wide range of toys for young children.
Mayo Computers Ltd has an annual turnover of £20 m before taking into account bad debts of £0.1 m. All sales made by the company are on credit and, at present, credit terms are negotiable by the
Why is timeliness an important characteristic of accounting information?Can you think of a potential conflict between the characteristics of timeliness and reliability?
An accountant prepared a balance sheet for a business using the horizontal layout. In the balance sheet, the capital of the owner was shown next to the liabilities. This confused the owner, who
‘The balance sheet shows how much a business is worth.’ Do you agree with this statement? Discuss.
Can you think of a more appropriate name for the balance sheet?
In recent years there have been attempts to place a value on the ‘human assets’ of a business in order to derive a figure which can be included on the balance sheet. Do you think humans should be
Whilst on holiday in Bridlington, Helen had her credit cards and purse stolen from a beach whilst she was swimming. She was left with only £40 which she had left in her hotel room but had three days
On 1 March 19X6 Joe Conday started a new business. During March he carried out the following transactions:Required:(a) Draw up a balance sheet for the business at the end of each day using the
The following is a list of assets and claims of a manufacturing business at a particular point in time:Write out a balance sheet in the standard vertical form incorporating these figures. Bank
The following is a list of the assets and claims of Crafty Engineering Ltd at 30 June 19X0:Required:a) Prepare the balance sheet of the business as at 30 June 19X0 from the above information using
The balance sheet of a business at the start of the week is as follows:During the week the following transactions take place:■ Sold stock for £11,000 cash. This stock had cost £8,000.■ Sold

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