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advanced financial accounting

Questions and Answers of Advanced Financial Accounting

You are the Chief Accountant of JKL plc, a UK company that has three wholly-owned overseas subsidiaries.- Company A is located in Spain. The company assembles computer terminals from materials
The balance sheets of UK plc and its subsidiary undertaking Germany GmbH at 31 March 1996 and their profit and loss accounts for the twelve months then ended are given overleaf:Germany GmbH operates
Howard plc acquired 2100000 ordinary shares of Kroner 1 in Pau Ltd on 1 January 1985 when the reserves of Pau Ltd were \(\mathrm{Kr} 1500000\) and the exchange rate was \(\mathrm{Kr} 10\) to \(£
The balance sheets of UK plc and its subsidiaries France SA and US Inc at 30 September 1998 (the accounting date for all three companies) are given below:Note 1 UK plc has owned \(100 \%\) of the
(a) Newton plc, to whom you are financial adviser, is preparing its financial statements for the year ended 31 March 1992. It has two wholly owned subsidiaries:- An Italian company, Darwin SpA, which
The accountancy profession has developed a range of techniques to measure and present the effects of one company owning shares in another company.Briefly describe each of these techniques and how the
You are group financial accountant of a diverse group of companies. The board of directors has instructed you to exclude from the consolidated financial statements the results of some loss-making
Fair value is a concept underlying external financial reporting.You are required(a) to explain why fair value accounting is required;(b) to explain how the fair value concept is applied;(c) to list
Relevant balance sheets as at 31 March 1994 are set out below:You have recently been appointed chief accountant of Jasmin (Holdings) plc and are about to prepare the group balance sheet at 31 March
Balmoral plc acquired \(75 \%\) of the ordinary share capital and \(30 \%\) of the preference share capital of Glenshee Ltd for \(£ 2\) million on 1 November 1994. The draft profit and loss accounts
Highland plc owns two subsidiaries acquired as follows:1 July \(1991 \quad 80 \%\) of Aviemore Ltd for \(£ 5\) million when the book value of the net assets of Aviemore Ltd was \(£ 4\) million.30
The summarised balance sheets of A plc and its two subsidiaries, B Ltd and C Ltd, at 31 December 1992 are shown below:The summarised profit and loss accounts for A plc and B Ltd for the year ended 31
You are the management accountant of Complex plc, a listed company with a number of subsidiaries located throughout the United Kingdom. Your assistant has prepared the first draft of the financial
Mull plc acquired shares in two companies as follows:Skye Ltd Ordinary shares - 8 million acquired on 1 June 1996 for \(£ 4.50\) each.Preference shares - \(£ 5000008 \%\) redeemable preference
The balance sheets of A plc and its investee companies B Ltd and D Ltd, and of B Ltd's investee company C Ltd at 31 March 1998 (the accounting date for all four companies) are given below:1.
You are the accountant responsible for the Rag group consolidation. The profit and loss accounts of Rag plc, Tag Ltd and Bobtail Ltd for the year ended 31 March 1999 are given opposite.\section*{Note
Wiltshire plc's draft accounts for the year ended 30 June 1993 disclosed profit before tax of \(£ 20\) million, on turnover of \(£ 310\) million, and net assets of \(£ 140\) million. Wiltshire plc
The introduction of FRS 3, Reporting Financial Performance, has resulted in a considerably expanded profit and loss account with related disclosures and a new primary statement. The standard is
The stated objective of FRS 3 is to 'require reporting entities failing within its scope to highlight a range of important components of financial performance to aid users in understanding the
One of your clients. Sanna Ltd, has prepared a draft set of financial statements and submitted them to you for your advice:(2) Development costs have arisen as a result of developing a product for a
Brachol plc is preparing its accounts for the year ended 30 November 1992.The following information is available from the previous year's balance sheet: At 30 November 1991 there were credit balances
During the completion of the financial statements of Angus plc for the year ended 28 February 1997, the following matters have been brought to your attention.(1) On 1 March 1996, the company revalued
Glamis plc manufactures, distributes and retails glassware. The following matters relate to its financial statements for the year ended 31 July 1998:(1) On 25 June 1998, one of the company's
Shiny Bright plc was incorporated in 1980 to provide cleaning services for hotel, hospital and catering clients; it diversified into hotel ownership in the 1990s. In the early 1990s the company
You are the financial director of Pilgrim plc, a listed company. Your new group managing director, appointed from one of Pilgrim plc's overseas subsidiaries, is reviewing the principal accounting
Holmes Ltd, which has a year end of 30 September, is considering the replacement of its now outdated mainframe computer on 1 October 1988. The replacement computer has a cost of \(£ 2120000\) and
Flow Ltd prepares financial statements to 31 March each year. On 1 April 1998, Flow Ltd sold a freehold property to another company, River plc. Flow Ltd had purchased the property for \(£ 500000\)
Financial Reporting Standard 5 'Reporting the Substance of Transactions' requires an entity's financial statements to report the substance of transactions into which it has entered. The FRS sets out
FRS 5 - Reporting the Substance of Transactions - requires that a reporting entity's financial statements should report the substance of the transactions into which it has entered. FRS 5 states that
FRS 5 - Reporting the substance of transactions - requires that a reporting entity's financial statements should report the substance of the transactions into which it has entered.You are the
You are the management accountant of Prompt plc, a UK company which prepares financial statements to 31 March each year. The financial statements for the year ended 31 March 1998 are due to be
In connection with SSAP 15 Accounting for Deferred Taxation:(a) Write a description of accounting for deferred taxation which includes all of the main items in the Standard. The description should be
Harmonise plc is a plastic toy manufacturer. Its toy sales have been adversely affected by imports and it has been changing towards the supply of plastic office equipment. Profits are expected to
UK Ltd is the wholly-owned subsidiary of a US parent, US Inc. US Inc has a number of subsidiaries located in the US and in Europe. All group companies prepare financial statements to 31 December.For
You are the management accountant of Construct Ltd, a private company which has as its main business activity the construction of houses for sale in the domistic sector. For its year ended 31
The Accounting Standards Board (ASB) currently faces a dilemma. IAS 12 (revised), 'Income Taxes' published by the International Accounting Standards Committee (IASC) recommends measures which
In connection with merger accounting:(a) Since the issue of FRS 6 'Acquisitions and mergers', under what circumstances may a business combination be accounted for as a merger?(b) What are the
'Accounting standards should narrow differences in reporting yet acquisition accounting and merger accounting result in significantly different results in the year of combination and thereafter.'You
A merger is 'a business combination that results in the creation of a new reporting entity formed from the combining parties, in which the combining entities come together in a partnership for the
The balance sheets of A plc and its investee undertakings, B Ltd and C Ltd, at 30 September 1996 (the accounting date of all three companies) are given below:The fixed assets of C Ltd at 1 June 1996
FRS 10 - Goodwill and Intangible Assets - was issued in December 1997. At the same time, SSAP 22, the previous Accounting Standard which dealt with the subject of accounting for goodwill, was
Islay plc has acquired the following unincorporated businesses:(1) 'Savalight', a business specialising in the production of low-cost, energy efficient light bulbs, acquired on 1 June 1996 for \(£
'Much of the true value of a business is reflected not in its balance sheet but in intangible factors such as brands, customer loyalty and the skill of its work-force.'\section*{Required}Discuss,
The valuation and depreciation of fixed assets are covered by both mandatory accounting standards and the Companies Acts as sources of authority.Requirement Identify the main accounting issues
The managing director of your company has always been unhappy at depreciating the company's properties because he argues that these properties are in fact appreciating in value. Recently he heard of
In accounting for physical fixed assets, the use of 'cost' as a valuation basis is well established.You are required to outline the difficulties that arise in applying the cost principle, and to
X Ltd is a retail supermarket chain which regularly constructs its own superstores. During the year ending 31 December 1995, X Ltd began work on a new site.On 1 January 1995, a leasehold interest in
\(\mathrm{C} \& \mathrm{R}\) plc is a large company which operates a number of retail stores throughout the United Kingdom. The company makes up financial statements to 30 September each year.On
G Ltd is a company specialising in the construction of sophisticated items of plant and machinery for clients in the engineering industry. Details of two contracts outstanding at 30 September 1995
Lewis plc specialises in bridge construction and had two contracts in progress at its year end, 30 April 1999 .\section*{Stornoway Bridge}Construction on this contract started in May 1997. Contract
MWT plc is a company involved in the design and manufacture of aircraft. During the year ended 31 March 1995, the company had commenced the following projects.A. Project Alpha involves research into
Forfar plc is an innovative engineering company with a substantial research and development budget. It is company policy to capitalise all expenditure relevant to development work wherever possible
Amesbury plc produces and distributes computer-controlled machinery. As accountant for the company, you have been provided with the following information regarding the company's activities in
Global plc, which prepares accounts to 31 January each year, operates in several different countries and has recently obtained government financial assistance both in the UK and abroad:(1) A foreign
You are the management accountant of Short plc. On 1 October 1993 Short plc issued 10 million \(£ 1\) preference shares at par, incurring issue costs of \(£ 100000\). The dividend payable on the
Your managing director has recently read an article which referred to Financial Reporting Standard 4 (FRS 4) - Capital instruments. He has requested a report from you about FRS
Brora plc has prepared draft financial statements for the year ended 30 September 1997 and the Board of Directors has asked you, the group's financial accountant, to provide guidance on the following
Diverse plc has established a defined benefit pension scheme for all the company's fulltime employees. The scheme receives contributions from the company and the participating employees. The scheme
You are the financial controller of C Ltd, a company which has recently established a pension scheme for its employees. It chose a defined benefit scheme rather than a defined contribution scheme.C
Court plc has a defined benefits pension scheme for all its employees. Based on actuarial advice the company has previously made contributions of \(£ 2\) million per annum to the pension fund, being
The ASB’s Statement of Principles sets out the concepts which underpin its development of financial reporting standards.Required Discuss why the ASB has adopted this conceptual approach and whether
The Corporate Report states that accounting information should be useful.Required(a) Identify the characteristics of useful information and discuss each briefly. (10 marks)(b) Explain whether or not
Your managing director has approached you saying that he is ‘confused at all the different accounting bodies that have replaced the old Accounting Standards Committee’.You are required to draft a
‘It is fundamental to the understanding and interpretation of financial accounts that those who use them should be aware of the main assumptions on which they are based.’Requirement Explain how
The Accounting Standards Committee (ASC) was criticised heavily prior to its replacement by the Accounting Standards Board (ASB). The principal intention of the ASC was to create greater uniformity
Before the introduction of accounting standards, accounting practices varied from enterprise to enterprise — there was inconsistency and occasionally practices were inappropriate.Intercompany and
‘At their simplest, accounts comprise a summary of cash receipts and payments. Concepts such as accruals and substance over form lead to increased complexity and may make it difficult for a user to
‘In recent years, there has been growing interest in, and efforts directed towards, the harmonisation of international accounting.’ Advanced Financial Accounting by Taylor and Underdown
Some commentators on financial reporting practices argue that financial statements produced under the historic cost convention do not provide relevant information to users of those statements in
(a) Give a brief summary of the current value replacement cost accounting system (entry values).(b) Give a brief summary of the current value net realisable value accounting system (exit values).(c)
Three unrelated companies, Tower plc (a public company), Book Ltd (a private company) and Holdings plc (a quoted investment company) have summarised balance sheets, as on 30 June 1985, as set out
The balance sheet of Omega as at 30 September 1992 contained the following balances and notes:Note 1 The share premium arose on the issue of shares on 1 October 1989.Note 2 The revaluation reserve
You are the Chief Accountant of JKL plc, a UK company that has three wholly-owned overseas subsidiaries.● Company A is located in Spain. The company assembles computer terminals from materials
Shott, a public limited company, set up a wholly owned foreign subsidiary company, Hammer, on 1 June 1999 with a share capital of 400 000 ordinary shares of 1 dinar. Shott transacts on a limited
Howard plc acquired 2 100 000 ordinary shares of Kroner 1 in Pau Ltd on 1 January 1985 when the reserves of Pau Ltd were Kr1 500 000 and the exchange rate was Kr10 to £1.Goodwill was eliminated
One of the frequent criticisms of SSAP 20, Foreign currency translation, is that exchange differences on net investments in foreign enterprises, and on borrowings which are a hedge, never pass
In November 1996 the Accounting Standards Board issued FRS 1 (Revised) – Cash Flow Statements. The appendix to FRS 1 contains a number of examples of cash flow statements drawn up in accordance
Pitted Prunes plc merged with Rosy Plums plc and changed its name to Pitted Rosy Plums plc in June 1987. The figures included in the accounts for the year ended 31 December 1987 included the results
In recent years several large listed companies have purchased their own ordinary shares.You are required to summarise:(a) the accounting requirements for a public listed company when it purchases its
H plc was established in 1996 to develop advanced computer software. The company was established with the financial backing of B Bank. B Bank invested £2 million in H plc’s share capital, buying 2
Capital plc carried on business in four product segments, namely aircraft design, hairdressing salons, import agencies and beauty products.The directors are now considering the dividend policy and
(a) What do you consider to be the main weaknesses of historical cost accounting when prices are rising? (10 marks)(b) State two ways in which firms have adopted different accounting policies for
In the ASC’s handbook, Accounting for the Effect of Changing Prices, accountants are faced with a choice of systems of accounting when dealing with the effects of inflation.Requirements (a) Briefly
(a) Explain the primary objective of current purchasing power accounting and outline the basic technique. (8 marks)(b) What do you consider are the advantages and disadvantages of current purchasing
(a) Provide a definition of the deprival value of an asset. (2 marks)(b) For a particular asset, suppose the three bases of valuation relevant to the calculation of its deprival value are (in
‘The recognition and correct treatment of holding gains in company financial statements are vital for a proper understanding of the position and performance of the business entity.’You are
It has been stated that: ‘Current cost accounts allow for the impact of specific price changes on the net operating assets and thus the operating capability of the business. The same tools of
You are a financial analyst specialising in the analysis of the profitability of organisations in the engineering sector. One such company is D Ltd. The directors of D Ltd have always been interested
(a) Identify and explain the main accounting issues in SSAP 24, Accounting for pension costs, for defined contribution schemes and defined benefit schemes. (7 marks)(b) Provide a numerical
Diverse plc has established a defined benefit pension scheme for all the company’s fulltime employees. The scheme receives contributions from the company and the participating employees. The scheme
You are the financial controller of C Ltd, a company which has recently established a pension scheme for its employees. It chose a defined benefit scheme rather than a defined contribution scheme.C
Court plc has a defined benefits pension scheme for all its employees. Based on actuarial advice the company has previously made contributions of £2 million per annum to the pension fund, being 10%
(a) Accounting for retirement benefits remains one of the most challenging areas in financial reporting. The values being reported are significant, and the estimation of these values is complex and
The introduction of FRS 3, Reporting Financial Performance, has resulted in a considerably expanded profit and loss account with related disclosures and a new primary statement.The standard is
Discuss whether the range of information provided by the implementation of FRS 3, Reporting financial performance, is helpful to users of published financial statements.
FRS 3, Reporting financial performance, significantly supplements the financial information required under statutory formats.Requirements(a) Discuss the effect of the following disclosures on
A Ltd is a company which specialises in the processing of canned beans and canned spaghetti for sale to retail shops. The canned beans are processed from beans bought in directly from UK farmers. The
Crail plc has the following matters outstanding before finalising its published financial statements for the year ended 30 April 2002.(1) The company sold its European business operations, excluding
Glamis plc manufactures, distributes and retails glassware. The following matters relate to its financial statements for the year ended 31 July 1998:(1) On 25 June 1998, one of the company’s
The Accounting Standards Board has published a Discussion Paper, Reporting Financial Performance: Proposals for Change. The proposals in the Discussion Paper build upon the strengths of, and are a

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