Questions and Answers of Accounting Practice

You are given the following simplified statement of financial position of the Stonefolk Company as at 31 March year 4.a The following transactions took place in April year 4. Show how each would
What are the main functions of a statement of financial position?
You are given the following simplified statement of financial position of the Hackin Company as at 30 June year 9.a Calculate the company’s current ratio and liquidity ratio.b The following
You are given the following simplified statements of financial position of the Fourpine Company as at 31 December.a How much profit does it at first seem that the company made during year 2?b How
You are given the following simplified statements of financial position of the Port Andrew Company and the Port Edward Company as at 31 December year 1.During year 1 the operating profit of the Port
You are given the following simplified statement of financial position of the Whiting Company as at 31 August year 6:a The following transactions took place in September year 6.Show how each would
‘How much am I worth?’ There is no need to disclose actual figures or personal information. The objective is to determine – and for members of the group to agree – the way in which the
Each member of the group should choose two listed companies, and obtain their published statement of financial position (from the companies’ websites or by using the Financial Times Annual Reports
Is it possible to calculate the value of a company? If not, why not?If so, how?
Which of the following should be included as assets on a company’s statement of financial position: money that is owed to the company; the cost of an advertising campaign; machinery that is over 20
What are the main differences between a statement of financial position and an income statement?
What is an expense? How does an expense differ from an asset? Can an asset become an expense? In what sense could it be argued that an asset is an expense waiting to happen?
How are inventories valued? Why does it matter? Would it be a good idea to show inventories at selling price?
Why is depreciation charged?
What is the difference between capital expenditure and revenue expenditure?
Which of the profit figures shown in a simplified income statement(Illustration 2.2) are shareholders likely to be most interested in, and why?
The Kingsdun Company buys a delivery van for £25,000 and a boring machine for £25,000. They decide that the delivery van should be depreciated at 25 per cent per annum on a diminishing balance
The Dargate Retailing Company sells a range of different products, some with modest gross profit margins, and some with much higher gross profit margins. For example, they buy Fargs for £100 each,
Banterbury Company LtdThe chairman of the company boasts that sales, profits and dividends are at record levels and that the amount of shareholders’funds in the business has increased to £109,000
The Broadstores Company:The chairman of the company states that the management of the company has performed well in a very difficult economic climate, and that increased profits have been retained
The Billygate Company operates with a 40 per cent mark-up on the goods that it buys. What is its gross profit ratio?The Sillygate Company operates with a 40 per cent gross profit margin. What
Roger, a graduate of the University of South East England, has been running a business called ‘SuperSoftService’ since he completed his information technology (IT) degree six years ago.He sells
The Depreciation Company The directors of the Depreciation Company are deciding on their accounting policy on the depreciation of their non-current assets.They have just purchased some new assets
The Chinese Motor Company The Chinese Motor Company runs a UK branch and a China branch. Both branches run three departments for sales, car servicing and the sale of parts.Advise the management of
Profit figures are wanted by so many different groups of people for so many different purposes that it is not possible to define and measure profits in such a way as to meet all of those different
Attempt a definition of ‘profit’. You can use other books. Can all members of the group agree on the definition? Is the definition clear and robust enough to provide a basis for measuring profits
Last year a company’s statement of financial position showed freehold land and buildings at cost, the amount being £4m. This year the properties have been revalued at £7m. Is the company £3m
Why do companies aim to earn profits? Should all organizations attempt to earn profits? If you think that some organizations should not attempt to earn profits, on what basis would you decide which
Do companies have too much freedom to determine the methods and rates of depreciation that they use for their published accounts?Where governments specify methods and rates of depreciation to be used
You are a shareholder in a listed company and are told that last year the company’s net profit after tax increased from £100m to £130m, and that the management of the company is therefore
Examine Marks and Spencer Group’s results since 2010. Has the expansion of the company been successful in leading to a big enough increase in profits?
Compare the gross profit ratios of a number of different retailers.Are the differences very substantial? How do you explain or justify such differences?

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