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business
business accounting

Questions and Answers of Business Accounting

Look at your schedule in answer to 44.1(i) and answer the following:(a) What are the total costs at production levels of (i) 4,000 units; (ii) 7,000 units; (iii) 9,000 units;(iv) 5,500 units? You
Polemic Ltd manufacture and sell a single product. The following information is available for three financial years ending 30 September.Additional information:1. When the management of Polemic
From the schedule in 44.1(i), calculate the profit or loss that would be made at levels of (i) 3,000 units; (ii) 10,000 units; (iii) 4,000 units; (iv) 7,000 units; (v) 8,500 units Data from
From your break-even chart for 44.1(ii), calculate the profit or loss that will be made at levels of (i) 3,000 units; (ii) 10,000 units; (iii) 4,000 units; (iv) 7,000 units; (v) 8,500 units.Data
The relationship between income/cost/volume suggests that there are four ways by which profit can be increased. These are:1. Increase unit selling price.2. Decrease unit variable cost.3. Decrease
At the monthly senior management meeting of Hampshire plc on 1 May 19X0, various suggestions were made to improve the profit to be made by selling the firm’s single product in the last quarter of
Magwitch Limited’s finance director produced the following forecast break-even chart for the year ending 31 May 19X1:During the year the company produced and sold 20,000 units, and both revenue and
You are employed by Monarch Ltd which manufactures specialist hydraulic seals for the aircraft industry. The company has developed a new seal with the following budgeted data.The draft budget for the
(a) How far is it true to state that a company’s break-even point occurs where the contribution just equals the fixed costs?(b) A company’s detailed information of costs and sales has been
(a) If you were lent £17,000 for 64 days at 6 per cent, how much interest would you pay?(b) If a debt factor offered to discount a £4,000 bill of exchange at 12 per cent, and if the bill had an
What is the real rate of interest of discounting the bill of exchange in Question 45.1?Data from Question 45.1(a) If you were lent £17,000 for 64 days at 6 per cent, how much interest would you
Interest of £600 is charged and included in a loan of £4,200, i.e. the £4,200 received included the £600 interest charged. The loan has to be repaid at £1,050 per quarter over the next 12
If £5,000 is invested for four years at 7 per cent compound per annum, how much interest is earned over the five years?
If the interest on the investment in Question 45.4 had been compounded every six months, how much interest would have been earned over the four years?Data from Question 45.4If £5,000 is invested for
Shares bought on 1 January 20X4 for £2,500 were sold on 31 December 20X8 for £4,400. What was the rate of annual compound interest on the investment?
Should you accept an offer of £50,000 for your rights over the next 12 years to the £5,000 annual rent from shop premises you own and have leased to a local company? You could invest the £50,000
In relation to the rental income, what rate of interest does the offer made in Question 45.7 represent?Data from Question 45.7 Should you accept an offer of £50,000 for your rights over the next 12
A condition of an 8-year loan of £40,000 is that the borrower will pay equal annual amounts into a sinking fund so that it accumulates at the end of the 8 years to the amount of the loan. The
If the interest on the sinking fund in Question 45.9 were at 7 per cent, how much would the annual payments into it be?Data from Question 45.9A condition of an 8-year loan of £40,000 is that the
What is the implied interest rate if equipment can be leased for three years at £8,000 per annum and the cash price is £21,000?
The annual rental payments on a five-year lease are £11,000. If the rate of interest payable on borrowing for this purpose is 9 per cent, what is the capital value of the lease?
The following project costs have been estimated relating to the upgrading of some equipment; all the costs are being incurred solely because of the project:Ignoring tax, prepare a statement showing
If you had £5,000 to spend today and had the choice of investing it in a five year bond with a bank, or lending it to a friend who had just opened a restaurant and who offered you 10 per cent of the
Assume the company in Question 46.1 pays tax at 30 per cent, on 30 September each year, nine months after the end of its financial period. The company receives 20 per cent writing-down allowances on
Assuming an interest rate of 6 per cent, what is the net present value of the net of tax cash flows in Question 46.2 for 20X4, 20X5, 20X6 and 20X7?Data from Question 46.2Assume the company in
How could you address these deficiencies to ensure payback was effectively applied?
If two projects both require the same investment and one has an NPV of £100 and the other an NPV of £240, which should be selected? Would this always be the case?
The annual forecasted profit from a project is:Equipment with a four-year useful economic life and no residual value will be purchased on 1 September for £60,000. £30,000 additional working
If the interest rate is 7 per cent, what is the net present value of the net cash flows arising from the project in Question 46.4A?Data fromQuestion 46.4AThe annual forecasted profit from a project
What is the payback period on the following project cash flows? (Brackets indicate expenditure.) Year 81234 0 Net cash flows £ (15,000) 10,000 6,000 3,000 1,000
If retained, a machine would be depreciated £3,000 for each of the next five years, at which point it would be fully written-down and scrapped. The machine could be sold at any point in the next
Using a discount rate of 8 per cent, what is the net present value of the project in Question 46.7?Data from Question 46.7What is the payback period on the following project cash flows? (Brackets
What is the internal rate of return on the project in Question 46.7?Data from Question 46.7What is the payback period on the following project cash flows? (Brackets indicate expenditure.)
What is the annualised amount of the net benefits from the project in Question 46.7?Data from Question 46.7What is the payback period on the following project cash flows? (Brackets indicate
The annual profit forecast for a project is:The project requires that a new machine be purchased for £128,000. It will be depreciated using the straight line method over five years to a residual
What is the payback on a project requiring £40,000 initial investment that has a net cash inflow of £26,000 in year 1, £16,000 in year 2, and £10,000 in year 3?
Using a discount rate of 6 per cent, what is the net present value of the project in Question 46.11A?Data from Question 46.11What is the payback on a project requiring £40,000 initial investment
What is the annualised amount of the net benefits from the project in Question 46.11A?Data from Question 46.11What is the payback on a project requiring £40,000 initial investment that has a net
What is the internal rate of return on the project in Question 46.11A?Data from Question 46.11What is the payback on a project requiring £40,000 initial investment that has a net cash inflow of
Roadwheelers Ltd were considering buying an additional lorry but the company had not yet decided which particular lorry to purchase. The lorries had broadly similar technical specifications and each
Hirwaun Pig Iron Co. operate a single blast furnace producing pig iron. The present blast furnace is obsolete and the company is considering its replacement. The alternatives the company is
Moray Ferries Ltd own a single ship which provides a short sea ferry service for passengers, private vehicles and commercial traffic. The present ship is nearing the end of its useful life and the
The Rovers Football Club are languishing in the middle of the Premier Division of the Football League. The Club have suffered a loss of £200,000 in their last financial year and whilst receipts from
Compare the balanced scorecard to traditional financial-accounting-based performance measurement.
Compare and contrast the two forms of measure applied by the balanced scorecard.
What operational decisions would need to be taken in order to establish and maintain an effective stockholding and ordering system?
What is the supply chain?
In what way can distribution decisions have both a direct and indirect impact upon customer service?
What is meant by the term, ‘supply chain management’?
Why does supply chain management bring new challenges for accounting and accountants?
Why will those organisations that integrate their ERP systems with supply chain management benefit more than those that introduce only one or the other or these two concepts?
Richard Toms has agreed to purchase the business of Norman Soul with effect from 1 August 20X7. Soul’s budgeted working capital at 1 August 20X7 is as follows:In addition to paying Soul for the
What disadvantages you learnt about earlier in this book may arise if an organisation’s managers are not allowed to vary their activities from budget?
A company’s estimated pattern of costs and revenues for the first four months of 20X7 is as follows:1. One-quarter of the materials are paid for in the month of production and the remainder two
What is it that you learnt about earlier in this book which involved all the functional areas and departments across the organisation that needs to be ‘right’ if appropriate budgets are to be
F. Tain is opening his first boutique on 1 July 20X2. He is investing £30,000 as capital. His plans are as follows:(i) On 1 July 20X2 to buy and pay for premises £60,000; shop fixtures £4,000;
M. Lamb is going to set up a new business on 1 April 20X5. She estimates that her first six months in business will be as follows:(i) She will put £60,000 into a bank account for the business on 1
(a) What is meant by the terms:(i) Budget(ii) Operating budget(iii) Master budget?(b) The information below relates to the business of Madingley Ltd:The following is a schedule of the budgeted income
The following information has been extracted from the books of Issa Ltd for the financial year ended 31 December 20X0.The company had commenced the preparation of its budget for the year ending 31
The balance sheet of Pies and Cakes Ltd at 30 June 20X8 was expected to be as follows:The plans for the six months to 31 December 20X8 can be summarised as:(i) Production costs per unit will be:(ii)
The following information relates to the actual sales of Griffton Ltd during the last four months of its financial year.The budgeted information below relates to the next financial year commencing 1
Bedford Ltd is a manufacturing business with several production departments. Benjamin Kent, the manager of the machining department, submitted the following figures for the firm’s annual budget for
The summarised balance sheet of Newland Traders at 30 May 20X7 was as follows:Selling and materials prices at 30 May 20X7 provide for a gross profit at the rate of 25 per cent of sales.The creditors
Len Auck and Brian Land trade as partners in Auckland Manufacturing Company making components for minicomputers. To cope with increasing demand the partners intend to extend their manufacturing
Rimham plc prepares its budgets annually and as the accountant you are responsible for this task. The following standard data is available:Production overheads are absorbed on the direct labour hour
Think back to Activity 41.1. What message have you taken from these four statements:1. ‘Data which is provided for a particular purpose, and which is completely wrong for the purpose, is worse than
Calculate the materials variances from the following data. (i) Material A: (ii) Material B: (iii) Material C: (iv) Material D: (v) Material E: Standard price per tonne Standard usage per unit Actual
Define the terms:(i) Standard costing(ii) Standard cost(iii) Standard hours(iv) Variance
Calculate the materials variances from the following data. (i) Material T: (ii) Material U: (iii) Material V: (iv) Material W: (v) Material X: Standard price per metre Standard usage per unit Actual
When you prepare one of these variance diagrams, there are two simple rules you can use to identify the type (price or usage) and nature (favourable or adverse) of the variance. What are they?
Calculate the labour variances from the following data: Job J (ii) Job K (iii) Job L (iv) Job M (v) Job N (vi) Job O (vii) Job P (viii) Job
Calculate the labour variances from the following data: (i) Job a (ii) Job b (iii) Job c (iv) Job d (v) Job e (vi) Job
The company for which you are the accountant manufactures three related, but different, products. These are dishwashers, washing machines and refrigerators. Each product has a standard time per unit
Central Grid plc manufactures tungsten parts which pass through two processes, machining and polishing, before being transferred to finished goods. The management of the company have in operation a
Borrico Ltd manufacture a single product and they had recently introduced a system of budgeting and variance analysis. The following information is available for the month of July 20X1:Required:(a)
(a) How does a system of standard costing enable a business to operate on the principle of management by exception?(b) Some of the following materials and labour variances have been wrongly
Makers Ltd assembles computer games machines. Standard costs have been prepared as follows:The standard direct labour rate is £5 per hour.During May 20X5, 5,000 Gamesmasters were sold at £60 each
The following diagram reflects costs under a standard costing system. Assume that all the variances are unfavourable. State, with reasons, which rectangle(s) represent:(i) The standard cost(ii) The
What does this last statement remind you of from earlier chapters?
The following are the summarised balance sheets of P Ltd and S Ltd at 31 December 20X6.There were no additions or disposals of fixed assets by the group during the year.(b) P Limited acquired its
From the following balance sheets and further information you are to draw up a consolidated balance sheet as at 31 December 20X3.During the year Parent Ltd had sold to Subsidiary Ltd for £70,000 a
The revaluation upwards of the fixed assets by £2, and the consequent reduction of the goodwill figure by £2 brings the figures into line with how P views them. Where there are depreciation charges
From the following balance sheets and supplementary information you are to draw up a consolidated balance sheet as at 31 March 20X4.During the year Pop and Mom Ltd sold a fixed asset to Son Ltd. It
When Parental Times Ltd bought the shares of Siblings Ltd it valued the fixed assets at £120,000 instead of the figure of £90,000 as shown in the balance sheet of Siblings Ltd.Draw up a
When Parent Undertakings Ltd took control of Sons and Co Ltd it valued the fixed assets at 31.12.20X7 at £75,000 instead of £60,000 as shown.Draw up the consolidated balance sheet as at 31 December
From the following balance sheets, you are to draft a consolidated balance sheet for the group of Parent Ltd and its two subsidiaries, Sub 1 and Sub 2. Investment in Sub 1: 45,000 shares bought
Would P6 be considered the ultimate parent company of S12?
From the following balance sheets prepare a consolidated balance sheet for the group of Parenting Ltd, Sub A and Sub B. Parenting Ltd Balance Sheet as at 31 March 20X3 Investment in Sub A: 40,000
Why do you think wholly-owned subsidiaries are exempted from preparing consolidated financial statements?
On 1 April 20X1, Machinery Limited bought 80 per cent of the ordinary share capital of Components Limited. On 1 April 20X3, Machinery Limited was itself taken over by Sales Limited who purchased 75
Bryon Ltd has held 1,500,000 shares in Carlyle Ltd for many years. At the date of acquisition, the reserves of Carlyle Ltd amounted to £800,000. On 31 March 20X6 Carlyle Ltd bought 400,000 shares in
The following information relates to the Brodick group of companies for the year to 30 April 20X7:Additional information:(a) The issued share capital of the group was as follows:Brodick plc:
Why can’t we simply add together all of the separate profit and loss accounts to form the consolidated profit and loss account when the subsidiaries are partly owned and there are no intra-group
Why was the £2 unrealised profit in the stock held by S Ltd added to the consolidated figure for cost of sales in Working 2?
The following figures for the year to 30 April 20X6 have been extracted from the books and records of three companies which form a group:Profits are deemed to accrue evenly throughout the year.Other
You are presented with the following summarised information for Norbreck plc and its subsidiary, Bispham Ltd:Additional information:(a) Norbreck plc acquired 80 per cent of the shares in Bispham Ltd
The following are the trial balances of ATH Ltd, GLE Ltd, and FRN Ltd as at 31 December 20X8.ATH Ltd acquired the shares in FRN Ltd on 31 December 20X6, when the credit balance on the profit and loss
Explain the difference between the consolidated retained profits figure of £83 and the total of £109 found if you add together the retained profits of P2 Ltd and S2 Ltd.
Given a choice, why would most companies prefer to adopt acquisition accounting?
Relevant balance sheets as at 31 March 20X4 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

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