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business
accounting and finance

Questions and Answers of Accounting and Finance

●● Understand the differences between the sole trader, partnership and company forms of business organizations, and know, in outline, about some of the sources of business finance available to
●● Be able to identify the principal groups in society who need and use accounting information, and to know about the principal characteristics and features of accounting information.
●● Understand the importance of ethics for the professional accountant.
1.1 Which one of the following statements about the sole trader form of business is correct?a) A sole trader has to pay corporation tax.b) Sole traders submit annual information to Companies House.c)
1.2 Which one of the following statements about the partnership form of business is correct?a) Partnerships are always very small businesses.b) Partners are obliged by law to put £50,000 into the
1.3 Which one of the following statements about the limited company form of business is correct?a) A limited company is a separate person in law.b) Limited companies cannot be sued.c) It costs a
1.4 Select from the following list the most appropriate form of finance for purchasing a new office building:a) ten-year mortgage loanb) loan repayable in six months timec) overdraftd) hire purchase.
1.6 Which one of the following is a fundamental principle of the IESBA Code of Ethics?a) Transparencyb) Objectivityc) Fairnessd) Compliance with law
1.7 Abbas is the auditor of Blank Ltd. He also prepares the annual financial statements of Blank Ltd.This arrangement poses which one of the following ethical threats?a) Intimidationb) Self-reviewc)
1.8 You are a small business adviser. A new client, Arnold Tapwood, has come to you for advice. Mr Tapwood explains that he is the sole proprietor of a small building business. One of his friends,
1.9 Geoffrey is a keen dangerous sports enthusiast. He would like to set up in business as a sole trader organizing dangerous sports events and activities. His business idea is that people would pay
1.10 Which one of the following statements about the regulations governing a sole trader business is correct?a) A sole trader does not need to supply any accounting information about his or her
1.11 Which one of the following statements about the regulations governing partnership businesses is correct?a) Partnerships are obliged to have an annual audit of their financial statements.b)
1.12 Which one of the following statements about the regulations governing limited company businesses is correct?a) All limited companies are obliged by company law to have an annual audit.b) A
1.13 Podgorny & Weaver Limited is involved in the wholesale of fashion goods to retailers. The company directors have a monthly meeting to discuss strategy and to make decisions. The directors are
1.14 A group of environmental activists is interested in the activities of Burnip Chemicals plc, a company which has been regularly fined in the past for emitting toxic waste into the river which
1.15 Chester is the financial controller of Barnes Wallis plc. He reports to the finance director, Amy. It is shortly after the year-end of Barnes Wallis plc, and Chester is in the process of
1.16 Which one of the following statements about the limited company form of business is correct?a) A limited company must submit information on a regular basis to Companies House.b) Directors of
1.17 Select from the following list the most appropriate way of financing the accumulation of stocks of Easter eggs in a chocolate business:a) grant financeb) overdraftc) issue of new share capitald)
1.18 Christie, a chartered accountant, has been appointed as auditor of Brill plc. The finance director of Brill plc is Christie’s brother, Aldous. Which one of the following ethical principles is
1.19 Which one of the following is classified as an ethical threat in the IESBA Code of Ethics?a) Self-promotionb) Over-confidencec) Over-familiarityd) Self-interest
1.20 Marie Deutsch is a fashion designer who, after graduating with a degree in fashion, obtained a very good job as a designer in a lingerie company. She has decided that she would like to leave her
1.21 Which of the following statements is correct?The stewardship function requires directors of limited companies to:a) act at all times in the best interests of the companyb) allow shareholders to
1.23 Mohsin, a bank manager, is looking at an application for a loan from Boxer Burstall Limited, a local company. The company has included a copy of its most recent annual accounts which are for the
1.24 Greg, a chartered accountant, is out one evening with friends. On their way home after a few drinks at a local bar, Greg gets into a fight with another young man who has made disparaging remarks
●● Understand how the statement of financial position relates to the other principal financial statements.
●● Understand the terminology used in a statement of financial position, and some of the principal conventions used in presenting it, and in preparing financial statements in general.
●● Be able to draw up a statement of financial position for a sole trader from a list of account balances and explanatory notes.
●● Be able to understand and comment on the basic information conveyed by a statement of financial position.
2.1 Alexander’s business manufactures and sells biscuits to supermarkets and grocery shops. Below are descriptions of some of the items in his statement of financial position. For each item fill in
2.2 Amir has a consultancy business which he runs from rented offices. The following are descriptions of some of the items in his statement of financial position. For each item fill in the adjacent
2.3 Brian’s statement of financial position shows totals for assets of £83,000 and £36,500 for liabilities. Use the accounting equation to find the total for Brian’s capital.
2.4 Basil’s capital in his business is £43,650. Business assets total £188,365. Use the accounting equation to find the total for liabilities.
2.5 Brenda’s business has non-current assets of £12,000, current assets of £8,500 and total liabilities of £17,300.What is Brenda’s capital?
2.6 Brigitte’s business has non-current assets of £27,000, current assets of £16,000, current liabilities of £12,000 and non-current liabilities of £10,000. What is her capital in the business?
2.7 Bryony’s statement of financial position shows the following totals:£Non-current assets 35,840 Current assets 16,500 Current liabilities 12,000 Non-current liabilities 6,000 What is Bryony’s
2.8 Benito’s statement of financial position shows the following totals:£Non-current assets 39,497 Current assets 26,004 Current liabilities 16,777 Capital 33,058 Work out the missing figure for
2.9 Blanche’s statement of financial position shows the following totals:£Non-current assets 36,609 Current assets 38,444 Current liabilities 26,300 Capital 39,477 What is the missing figure for
2.10 Callum’s statement of financial position at 31 July shows the following:£Non-current assets 18,337 Inventory 12,018 Trade receivables 365 Cash 63 Bank overdraft 3,686 Trade payables 2,999 i)
2.11 Ciera’s business has the following balances at 31 December 20X1:£Inventory 18,600 Trade payables 23,700 Cash in bank account 13,000 Long-term loan 20,000 Non-current assets: premises 39,000
2.12 Dan’s statement of financial position at 1 May 20X3 was as follows:£ £ASSETS Non-current assets 30,000 Current assets Inventory 15,000 Trade receivables 5,000 Bank account 18,000 38,000
2.13 Ernest runs an art gallery. He organizes exhibitions at which painters and sculptors show their work. If a piece of artwork is sold, Ernest takes a commission of 50% of the selling price. He
2.14 Explain the business entity concept of accounting.
2.15 With reference to financial statement information, briefly explain the enhancing characteristic of timeliness.
2.16 Adrian owns and runs a restaurant. The following are descriptions of some of the items in his statement of financial position. For each item fill in the adjacent box with NON-CURRENT ASSET,
2.17 Bernie’s business has liabilities of £63,000. His capital is £28,000. What is the total for assets?
2.18 Bjork’s capital in her business is £97,000. The total for current liabilities is £31,000. There are no non-current liabilities. What is the total for assets?
2.19 Bashir’s statement of financial position shows the following totals:£Capital 68,350 Non-current assets 79,403 Current assets 16,276 What are the liabilities in Bashir’s business?a)
2.20 Benedict’s statement of financial position shows the following totals:£Current assets 716,237 Current liabilities 426,663 Non-current liabilities 100,000 Capital 1,373,424 What is the total
2.21 Carmela’s business has the following balances at 18 October 20X6:£Amounts due from customers 16,303 Non-current assets: machinery 12,722 Amounts payable to suppliers for materials 6,868 Bank
2.22 Diana’s statement of financial position at 28 August 20X1 is as follows:£ £ASSETS Non-current assets 13,500 Current assets Inventory 10,300 Trade receivables 1,200 Bank account 1,000 Petty
2.23 Erik has a retail business selling china and glass ornaments from a small shop in a town centre. He has the following balances at his year-end of 30 November:£Freehold premises 16,800 Shop
●● Understand the terminology used in a statement of profit or loss, and some of the principal conventions used in presenting it.
●● Be able to draw up a statement of profit or loss for a sole trader from a list of account balances and explanatory notes.
●● Be able to understand and comment on the basic information conveyed by a statement of profit or loss.
●● Combine skills gained as a result of studying Chapters 2 and 3 to draw up a set of financial statements comprising a statement of profit or loss and a statement of financial position.
3.1 Jackie sells garden furniture in sets comprising a dining table and four chairs. She purchases each set for£75 from the manufacturer and retails a set for £132. At the beginning of June 20X9
3.2 Jay’s business is shoe retailing. He has bought in a special purchase of 1,000 pairs of trainers for £8,500.He sells 750 pairs quite quickly at a retail price of £15.50 per pair. Then, in
3.3 During the year Jake sells 8,000 units of inventory at £42.50 each. The gross profit on each unit is £17.50.He purchased inventory at a total cost of £197,300 and still had £17,400 in
3.4 Jethro sells an extensive range of children’s toys. He likes to be well informed at all times about the performance of his business. Part of the routine work of his administrative assistant is
3.5 Leon runs a retail grocery business, dealing in luxury and delicatessen goods. In 20X7 revenue was£295,993, with cost of sales at £242,085. The equivalent figures for 20X6 were revenue of
3.6 The summarized results of Louis’s business for the three years to the end of 20X2 were as follows:20X2 £ 20X1 £ 20X0 £Revenue 291,318 282,400 269,340 Cost of sales (213,916) (206,420)
3.7 Madigan & Co is the trading name of Basil Madigan, a chartered accountant. He runs a small city-centre office, employing a part-qualified accountant as an assistant, and a part-time secretary.In
3.8 Norbert runs a small wholesaling business, selling imported Italian coffee machines to retailers. His business is run from a small warehouse with an office at the side on an industrial estate on
3.9 Refer to the example of Mary’s cooker business used earlier in the chapter. Briefly describe the principal groups of users of financial information who are likely to have an interest in
3.10 Identify two listed companies operating in the same business sector (for example, Sainsbury’s and one of its competitors such as Tesco or Morrison). From the annual reports of the companies,
3.11 Identify a company listed on a Stock Exchange outside the UK and download its annual report. Extract the revenue and profit information and identify whether there has been an increase or a
3.12 Jin-Ming’s mail-order business sells trampolines. The selling price is £400 for a standard-sized trampoline, and £550 for a large one. The opening inventory at 1 January 20X6 was six
3.13 Jodie is a wholesaler of electrical discount goods. She buys in end-of-line and seconds quality goods from manufacturers and sells them on to small electrical retailers. She has to take
3.14 Lulu’s revenue in 20X0 was £115,399. The following year, 20X1, revenue increased by 4.3%. In 20X2 revenue was 7.8% higher than it was in 20X1. Gross profit margin in each of the three years
3.15 In 20X2 Lola’s net profit margin fell to 9.8% from 10.2% in the previous year. Her gross profit margin, on the other hand, increased from 30.2% to 33.8%. Revenue in 20X1 was £148,360 and in
What is meant by a conceptual framework of accounting?
Which areas within the income statement and the balance sheet may be considered to identify improvements to the long-term cash position of a company?
Which areas within the income statement and the balance sheet may be considered to identify improvements to the short-term cash position of a company?
Profi t and cash do not always mean the same thing. Why is operating profi t different from operating cash fl ow?
How may a company’s investment in operations, its operating cycle, be minimised? What are the potential risks to the company in pursuing an objective of minimisation?
Describe how supplier payment performance may be regularly monitored.
What are some of the ways in which payments to suppliers may be improved to the mutual benefi t of the company and its suppliers?
Explain whether or not trade payables are a ‘free’ or even a cheap source of fi nance for a company, and why.
What are some of the ways in which the settlement of accounts receivable from customers may be speeded up?
Describe how customer settlement performance may be regularly monitored.
What are the ways in which improvements in the management of trade receivables and credit management may contribute to achievement of optimal levels of working capital requirement(WCR)?
What are some of the systems and techniques that may be used to optimise the levels of inventories held by a manufacturing company?
In the UK there are several low-volume car manufacturers. Make an attempt to relate the optimised production technology (OPT) philosophy to their operations.
Explain briefl y what benefi ts might be gained by both supplier (manufacturer) and customer(national retailer) if they work jointly on optimisation of inventories levels and higher quality levels.
Outline the basic confl ict that might arise between the marketing department and the fi nance department when discussing the practical application of an economic order quantity (EOQ) system.
Describe how inventory turnover may be regularly monitored.
What are the ways in which improvements in a company’s management of inventories may contribute to achievement of optimisation of its level of working capital requirement (WCR)?
Briefl y explain how electronic point of sales (EPOS) provides a system of monitoring inventory turnover performance.
Why is the good management of the working capital requirement (WCR) crucial to company success?
What is meant by working capital (WC)? How may it differ in a manufacturing company compared with a supermarket retailer?
What is meant by working capital requirement (WCR)?
How is a company’s need for investment in operations explained by the operating cycle?
Explain briefl y the main components of working capital, using an example of a UK plc.
In what ways can we ensure that capital investment projects are adequately controlled?
Risk and uncertainty increasingly impact on investment decisions. What are these risk factors, and how may we evaluate their impact?
Why and how should infl ation and working capital be allowed for in making capital investment decisions?
Which technique do you think is the most appropriate to use in capital investment appraisal, and why?
What is discounted payback and how is it calculated?
What are the disadvantages in the use of internal rate of return (IRR) in the support of capital investment appraisal decisions?

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