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Questions and Answers of Accounting and Finance

4.16 Sylvester runs a consultancy business, employing two members of staff as consultants and a secretarial assistant. Because he has done an accountancy course, he is able to prepare his own
4.17 Umberto makes an allowance of 1.5% against his total trade receivables each year. In the year ended 31 August 20X2 he has used up £650 of this allowance because a company has gone out of
4.18 Identify and explain the fundamental rule that is applied to the valuation of inventory.
●● Understand the application of the accruals convention of accounting to produce adjustments for depreciation and amortization.
●● Understand the distinction between tangible and intangible non-current assets.
●● Be able to incorporate adjustments for depreciation and amortization into a statement of profit or loss and statement of financial position.
5.1 Valerie runs a small delivery business. She has a van which she replaces every four years. On 1 January 20X1 she sells her old van for £2,000 and buys a new one for £14,460. She expects to be
5.2 Victoria owns a gym. In her financial year to 31 August 20X5 she buys a new exercise bike for £450. The date of purchase was 1 March 20X5. Victoria aims to keep gym equipment for three years.
5.3 Vinny is expanding his electrical components business. During his accounting year ended 31 December 20X8 he buys new machinery as follows:●● On 1 April, a machine costing £10,300. The
5.4 Having qualified as a mining engineer, Violet decides that she would like to go into the gold mining business. She spends a considerable period of time looking for mining opportunities. Finally,
5.5 Vincenzo’s statement of financial position at 31 August 20X3 showed the following balances in respect of non-current assets:£Buildings at cost 306,000 Less: accumulated depreciation
●● Buildings: at 2% per annum on cost on the straight-line basis
●● Motor vehicles: at 25% per annum on the reducing balance basis
●● Fixtures and fittings (which were all purchased at the same time): over 10 years on the straight-line basis.i) Calculate the total charge to Vincenzo’s statement of profit or loss in respect
5.6 Wilma runs a wedding car service. Business is expanding and she is planning to buy a new vehicle.The basic list price of a new car is £24,400, but Wilma must pay an additional £800 for it to be
5.7 At 1 January 20X9 William had the following balances in his books related to the non-current asset of cars:Cars at cost £38,370 Less: accumulated depreciation (15,540)Carrying amount 22,830 He
5.8 Xenia no longer needs a second van in her business, and so she decides to sell it. The van originally cost£8,300 and by Xenia’s year-end of 31 March 20X5 depreciation had accumulated of
5.10 Ying runs a wholesale business supplying art equipment to retailers. She uses two computers to keep stock and other records, one in the office and one in the warehouse. In her accounting year
5.11 Zoe started up an independent fast food outlet at 1 January 20X2, trading as Zoe’s Snacks. Her accountant advised her that she should depreciate her machinery and fixtures over a period of
5.12 Describe the effect of a charge for depreciation upon the components of the accounting equation.
5.13 Sage plc, a company listed on the London Stock Exchange, sells software and related services. Find the latest financial statements available for Sage plc, and identify the relevant accounting
5.14 Victor adopts the straight-line method of depreciation in his accounts. He purchases a new machine on 1 June 20X1 for £13,750. He expects to keep the machine for approximately six years, at the
5.15 Virginia runs a business which supplies food for office parties and similar functions. Food is delivered to the client’s premises in vans which have been specially adapted to take shallow
5.16 Valda runs a marketing agency. She prepares her own accounts and is currently working on the statement of profit or loss and statement of financial position at 31 December 20X7. She purchased
5.17 Wally’s business owns several machines which he depreciates on the reducing balance basis at the rate of 10% per annum.His statement of financial position at 31 March 20X6 showed the following
5.18 Xavier depreciates his machinery over ten years using the straight-line method. Xavier assumes that the machinery will be worth £0 at the end of 10 years. On 31 December 20X8 he sold a machine
5.19 Xan has a machine at carrying amount of £13,338 in his accounts. If he sells the machine for £15,000 he makes a profit on disposal of £1,662. Using the accounting equation, what is the effect
5.20 For several years Zak has run a contract office cleaning business. He employs several part-time staff who work at night and weekends. Zak has always run the business from rented premises; he has
5.21 Explain the purpose of making adjustments for depreciation in the accounts of businesses, briefly describing the process involved in determining the appropriate amount of depreciation.
5.22 Explain the difference between depreciation and amortization.
5.23 Describe the accruals convention in accounting, and explain how it is applied to non-current assets.
●● Be able to draw up a statement of cash flows for a small business.
●● Understand some of the messages conveyed by the statement of cash flows.
6.1 Fergus’s business incurred the following transactions in the year ended 31 December 20X4:●● Fergus introduced additional capital of £10,000 in cash.●● Purchase on credit of goods for
6.2 Gilbert’s business sells a non-current asset for cash proceeds of £1,300. The asset originally cost £20,700, and accumulated depreciation at the point of sale was £18,210.Three of the
6.3 Gregory, trading as Ketchup & Co, made an operating loss of £38,650 in the year ended 31 March 20X6, after deducting £12,750 in depreciation for the year.At 31 March 20X6 the statement of
6.4 Gayle is preparing the statement of cash flows for her business, for the year ended 31 August 20X7. After calculating the net operating cash inflow, she is left with the following list of
6.5 Gaston’s business prepares accounts to 31 December each year. In the year ended 31 December 20X2 inventory, trade receivables and trade payables are shown in the statement of financial
6.6 Henrietta runs a business, trading as Spicer & Co. She prepares accounts to 31 March each year. By the yearend 31 March 20X3 the business has run into overdraft. Henrietta asks you to prepare a
6.7 Ishmael prepares accounts to 31 July each year. He asks you to prepare a statement of cash flows for the business for the year ended 31 July 20X5 and provides you with the following
6.8 Flynn’s business incurred the following transactions in the year ended 31 March 20X9:●● Purchase of inventory for cash of £1,300.●● Sale of a non-current asset with a written down
6.9 Grant’s business made an operating profit of £16,632 in the year ended 30 April 20X1. One of the deductions in arriving at operating profit was depreciation of £6,650.At 30 April 20X1 the
6.11 Gary is preparing the statement of cash flows for his business, for the year ended 31 December 20X6. After calculating the net operating cash inflow, the following list of cashflows
6.12 Hamid prepares his business financial statements to 31 May each year. Because he attended an accounting course at college he knows how to prepare statements of profit or loss and statements of
6.13 India runs a business and prepares accounts to 31 December each year. India asks you to prepare a statement of cash flows for the business for the year ended 31 December 20X7 and provides you
6.14 Ilyas’s business has the following summary statement of cash flows for the year ended 31 May 20X6:20X6 20X5£000 £000 Net cash generated by operating activities 106,700 89,950 Net cash
●● Know about some of the important elements of corporate governance.
7.1 Two of the following four statements are correct:1 Directors must prepare the company’s financial statements themselves.2 Directors take complete responsibility for the preparation of financial
7.2 Bayliss Chandler Ltd has an issued share capital of £20,000, split into 50p shares. In the year ended 31 May 20X7 a dividend of 6p per share was paid.Ambrose owns 10% of the issued shares in
7.3 Peachey plc has an issued share capital of £60,000 denominated in 25p shares. On 13 May 20X2 Carina, a shareholder, sold half of her total shareholding of 8,000 shares to her sister Cathy.
7.4 Butterthwaite plc had issued share capital on 1 January 20X3, as follows:Ordinary share capital: 68,000 £1 ordinary shares Preference share capital: £20,000 6% cumulative preference shares On
7.5 Slaithwaite Ltd has 1,000 ordinary shares of 50p in issue. The company then issues a further 2,000 shares of 50p, at a premium of 25p per share.Which of the following statements is
7.6 The directors of Solar Bubble plc, a trading company, have asked the company’s chief accountant to prepare a draft statement of profit or loss for the year ended 31 January 20X8 in time for
7.7 Brighton Magnets Ltd has the following balances in its books at 31 August 20X9:£Closing inventories 186,420 Delivery vans at carrying amount 120,000 Secretarial costs 51,498 Electricity
7.8 Two of the following statements are correct:1 Listed companies are obliged to produce a social responsibility report as part of their annual report.2 Consolidated financial statements bring
7.9 Explain the principal objectives of the strategic report.
7.10 Explain the status of UK accounting standards and International Financial Reporting Standards in financial reporting for UK companies.
7.11 Which one of the following statements about corporate governance is correct?The UK Corporate Governance Code:a) is produced by the Department of Work and Pensions.b) derives from EU law.c)
7.12 Here are two statements about corporate governance:A Companies should employ non-executive directors from their own workforce.B The work of the remuneration committee is overseen by the
7.13 Three of the following six statements are correct:1 The audit report of a company states that the accounts are correct.2 A private limited company does not have to make any information available
7.14 Western Gadgets Limited has an issued share capital of £5,000 denominated in 25p shares. In the year ended 30 April 20X4 an interim dividend of 2p per share and a final dividend of 2.5p per
7.15 Parlabane Limited has an issued share capital of 42,500 50p shares. In the year ending 31 December 20X5 a dividend of 2p per share was paid on 1 December.Jonah owns 13,000 shares in Parlabane
7.16 Penge and Purley plc have in issue at 31 December 20X6:138,000 ordinary shares of 50p each 40,000 8% preference shares of £1 each, issued on 1 July 20X6.Derek owns 3,250 ordinary shares in the
7.17 Downside Green Limited had the following balances relating to its position at 31 December 20X1:£Overdraft 7,746 Share capital 100,000 Loan repayable 31 December 20X8 100,000 Trade receivables
7.18 Given the failure of Carillion (which is not an isolated incident) what measures could be/should be taken to address corporate governance deficiencies in the UK?Note to lecturers: this question
●● Understand the problems which can arise in comparing businesses with each other.Techniques of analysis will be developed further in Chapter 9.
8.1 Ronald’s trading business operates from a shop in a large city centre. Extracts from Ronald’s most recent statements of profit or loss for 20X2 and 20X1 show the following key figures:20X2
8.2 Rory’s statements of profit or loss show the following figures for the period 20X1 to 20X4 inclusive:20X4 20X3 20X2 20X1£ £ £ £Revenue 562,064 539,409 520,665 505,500 Cost of sales
8.3 Inge Larsen is the principal shareholder in Larsen Locations Limited. Her company provides services to businesses that are in the process of moving from one location to another. Inge and her
8.4 Chapter Protection Limited is a security firm. Its statement of profit or loss for the year ended 31 December 20X4 is as follows:£Revenue 188,703 Cost of sales (115,863)Gross profit 72,840
8.5 Causeway Ferguson plc is a trading company specializing in the supply of tea and coffee and related products.Jason has a small shareholding in the company which was left to him by a relative. He
8.6 The five-year financial record for Marks & Spencer plc published in the company’s 2019 Annual Report includes the following information:2019 2018 2017 2016 2015£m £m £m £m £m Revenue:UK
8.7 Rasheda’s sales for 20X7 were £206,400, and for 20X8 were £214,656.Her gross profit margins were: 36.3% for 20X7 and 36.4% for 20X8.Rasheda expects sales in 20X9 to increase by the same
8.8 Reva has a jewellery business in a well-established shop. Her most recent statement of profit or loss show the following key figures:20X5 20X4£ £Revenue 696,400 585,702 Cost of sales (416,447)
8.9 Isaac Prentiss Limited produce parts and components for ships’ engines. The business requires a continuing investment in new machinery in order to keep production as efficient as possible.
8.10 Starkey Wilmott Limited has the following statement of financial position at 31 March 20X5:£ £ASSETS Non-current assets 704,710 Current assets Inventories 369,440 Trade receivables 416,700
9.1 What is the pre-tax return on equity (to one decimal place)?a) 13.2%b) 10.1%c) 26.9%d) 11.7%
9.2 What is the post-tax return on equity (to one decimal place)?a) 3.8%b) 8.2%c) 3.3%d) 7.1%
9.3 What is the return on capital employed (to one decimal place)?a) 8.2%b) 11.5%c) 13.2%d) 10.1%
9.4 Shania would like to invest in a company which will give her a good rate of return on her investment. She has collected information on four companies. Extracts from their most recent financial
9.5 Trixie Stores Limited has the following current asset and current liability items in its statement of financial position at 31 December 20X4:£Inventory 18,370 Trade receivables 24,100 Cash in
9.6 Trimester Tinker Limited has the following working capital items in its statement of financial position at 31 December 20X3:£Inventory 108,770 Trade receivables 94,300 Cash in hand 1,600 Trade
9.7 Upwood Sickert Limited has total revenue in the year ended 31 May 20X7 of £686,430. Extracts from the company’s statement of financial position at that date show non-current assets as
9.8 A sole trader’s inventory at 31 December 20X1 was £405,000. By 31 December 20X2 inventory had increased in value by 10%. Cost of sales for the year ended 31 December 20X2 was £1,506,700.What
9.9 A company has trade receivables in its year-end statement of financial position of £218,603. Revenue for the year was £1,703,698. 70% of the revenue was in respect of sales made on credit. What
9.10 The managing director (MD) of Winger Whalley Limited has just received a report from one of the accounting assistants employed by the business. The report shows key ratios and supplies
9.11 A business has trade payables at its year-end of £206,460. Purchases for the year are £1,952,278, of which 90% were made on credit. What is the trade payables turnover period?a) 42.9 daysb)
9.12 What is the dividend per share?a) 10pb) 5pc) 50pd) 100p
9.13 What is the dividend cover ratio?a) 3.77b) 5.39c) 2.77d) 6.12
9.14 What are the earnings per share (in pence)?a) 18.86pb) 26.94pc) 13.86pd) 37.71p
9.15 What is Waldo Wolff ’s market capitalization at 31 December 20X5?
9.16 At 30 April 20X7 Wilson Streep plc had a market capitalization of £6,303,000 with 3,300,000 ordinary 50p shares in issue. The profit attributable to ordinary shareholders in its statement of
9.17 Brazier Barkiss plc had the following capital structure at 30 April 20X4:£Ordinary share capital (£1 shares) 1,000,000 Retained earnings 2,739,400 Long-term borrowings (10% interest rate)
9.18 The directors of the Cuttlefish Biscuit Corporation Limited have calculated a set of key accounting ratios for their biscuit manufacturing business. These are set out in the following table,
9.19 Cryer Roussillon Limited is a trading company. At the beginning of the 20X6 accounting year (which ends on 31 December) a new managing director (MD) was appointed. He made the strategic decision
9.20 The table below presents some of the key figures from the statement of profit or loss of Tesco plc from its 2019 Annual Report:2019 2018£m £m Revenue 63,911 57,493 Cost of sales 59,767 54,141
9.21 What is return on total capital employed (to one decimal place)?a) 15.5%b) 13.3%c) 9.1%d) 22.8%
9.22 What is pre-tax return on shareholders’ equity (to one decimal place)?a) 15.5%b) 10.8%c) 9.1%d) 22.8%
9.23 What is post-tax return on shareholders’ equity (to one decimal place)?a) 15.5%b) 9.1%c) 10.8%d) 6.3%
9.24 Shirley has been thinking for a while about investing some surplus cash in an unlisted company which organizes lettings of holiday properties in France. The company is run by an old friend of

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