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business
business accounting

Questions and Answers of Business Accounting

Explain why goodwill is only shown within consolidated financial statements.
Agro Ltd acquired 80% of Seeds Ltd for £500,000 on 1 July 2012. Seed Ltd’s net assets include property, plant and equipment, inventory and trade receivables with a total book value of £200,000 at
On 1 August 2011 Major Ltd paid £1.50 per share to acquire 40,000 of the £1 ordinary shares of Minor Ltd. At this date, the share capital and reserves of Minor Ltd were:The statements of financial
Why do parent companies need to prepare consolidated financial statements?
What are the main issues that need to be considered when deciding whether a parent controls another entity?
Using the definition of control provided by IFRS 10 and the following information, assess whether Giant Ltd has control over Tiny Ltd.Giant Ltd acquires 48% of the voting rights of Tiny Ltd by
Work through the five steps to calculate the figures you need for the consolidated statement of financial position for Giga Ltd.
Use your five workings to prepare a consolidated statement of financial position for Giga Ltd.
Prepare a consolidated statement of financial position for Giga Ltd that reflects the post-acquisition events or transactions.
Prepare the consolidated statement of comprehensive income for the year ending 30 April 2012 for Giga Ltd.
Use the equity method to integrate Assist Ltd in the consolidated statements of comprehensive income and financial position of Invest Pic for the year ended 31 March 2012.
Decide whether the above joint arrangement should be accounted for as a joint venture or a joint operation.
Prepare the financial statements of Air Pic to show its share of the income, expenses, assets and liabilities from the joint operation for the year ended 31 January 2012.
Explain the purpose of ratio analysis and describe its limitations as a tool for evaluating the financial statements of a business.
The following extracts are taken from the financial statements of Adams Ltd and Eve Ltd.Required (a) Calculate the main profitability ratios for both companies.(b) Suggest reasons for any differences
The following information is taken from Ted Baker’s Report and Accounts 2005/06 about 18 months before the recession began.Required Analyse the financial statements by calculating the following
The following abridged information is taken from Ted Baker’s Report and Accounts 2007/08 about 6 months before the recession began.Required Imagine that you work for a firm of investment analysts.
Now imagine that you work for the bank that provides short-term finance to Ted Baker PLC. Your manager asks you to conduct a financial analysis to help the bank monitor the lending risks and
Calculate Ted Baker’s dividend per share for ordinary shareholders for 2010/11 and 2009/10.
Calculate Ted Baker’s dividend yield for 2010/11 and 2009/10.
Calculate Ted Baker’s earnings per share for ordinary shareholders for 2010/11 and 2009/10.
Calculate Ted Baker’s P/E ratio for 2010/11 and 2009/10.
Calculate Ted Baker’s ROE for 2010/11 and 2009/10.
Calculate Ted Baker’s ROCE for 2010/11 and 2009/10.
Calculate Ted Baker’s capital turnover for 2010/11 and 2009/10.
Calculate Ted Baker’s operating profit margin for 2010/11 and 2009/10.
Which of the following methods would you suggest Ted Baker’s directors should use to try to improve the capital turnover?(a) Decrease the sales volume.(b) Increase the sales volume.(c) Reduce the
Calculate Ted Baker’s gross profit margin for 2010/11 and 2009/10.
Calculate Ted Baker’s current ratio and acid test for 2010/11 and 2009/10.
Calculate Ted Baker’s inventory holding period for 2010/11 and 2009/10.
Calculate Ted Baker’s trade receivables collection period for 2010/11 and 2009/10.
Calculate Ted Baker’s trade payables payment period for 2010/11 and 2009/10.
Calculate Ted Baker’s interest cover for 2010/11 and 2009/10.
Calculate Ted Baker’s debt/equity ratio for 2010/11 and 2009/10.
Explain why professional accountancy bodies issue codes of ethics for their members.
Define the term ‘corporate governance’ and explain its importance to investors.
Define the term ‘corporate social responsibility’ and explain why a company has a responsibility to society.
Obtain a copy of the annual report and accounts for two public limited companies and compare the information they disclose on corporate governance. Write a summary analysing the differences in the
Select one public limited company and analyse the data provided on corporate governance and on corporate social responsibility. Interpret your findings from the perspective of:(a) a present or
What are the advantages and disadvantages of the IFAC Code of Ethics for professional accountants?
Is there is an ethical issue for you in this scenario?
The IFAC Code of Ethics states that ‘a professional accountant shall not knowingly be associated with reports, returns, communications or other information where the professional accountant
How likely is it that you will associate yourself with this client’s income statement if he insists on increasing the revenue?
What are the problems with incorporating the UK Code in company law?
What are the advantages of allowing a premium-listed company to select which parts of the UK Code to apply?
Why do you think there is no EU code on corporate governance?
Identify two UK companies that you consider follow and abide by CSR principles.
You may recall doing this activity in Chapter 2.Imagine you have £200 cash that you use to buy a computer from another student. You are a bit of an opportunist and see a chance to make some money.
The information is the same as in the previous activity. You have £200 that you use to buy a computer. You advertise the computer, which costs £10, and sell it for £300. You have no other business
Do you consider that the company’s financial performance was satisfactory? Draw up a list of questions you would like to ask Sarah to find out whether she thinks the first 6 months were a financial
(a) What was the revenue for the period?(b) How many boxes of unsold candles did Candlewick Ltd have at the end of June and what was the total cost of that closing inventory?
A garden centre purchased 100 plants at £2 each with a view to selling them at £2.40 each. At the end of the year 20 plants remained unsold. Because the plants are no longer in flower, the business
List the items that you think caused the difference between the cash and the profit by comparing the items in the cash flow statement with the items in the profit and loss account.
Imagine that £500 of inventory was stolen during the year, so that the figure for closing inventory is overstated in the statement of comprehensive income. What impact would it have if the true
Total purchases during the year ending 31 December 2012 were £113,400, and at the end of the year the annual stocktake showed that Candlewick Ltd had 50 boxes of candles in stock which had cost £15
What do you consider it would be fair to charge as an expense in the statement of comprehensive income for the use of the equipment for the year ending 31 December 2012?
The trial balance at 31 December 2012 shows that revenue for the year was £173,200, which comprises cash sales of £63,750 and credit sales of £109,450. Trade receivables were £27,500. If
Using the relevant items listed in the trial balance and taking account of every item of additional information provided for the post trial balance adjustments, prepare a statement of comprehensive
Insert the missing figures in the following examples, remembering that some items will be added and others will be subtracted: (a) (b) (c) (d) (e) E Opening inventory Purchases 100 ? 1,020 ?
Salma Ibrahim set up a company called Uplights Ltd and opened a lighting shop on 1 January 2012. Her brother is studying for his accountancy exams and helps her by doing the bookkeeping and managing
On 1 July 2011 Mark Farmer opened a shop called Miphone Ltd. The trial balance for the first year is shown below:Additional information at 30 June 2012;■ Inventory is valued at £890.■
Kavita Patel owns a business called Beauty Box Ltd, which started trading on 1 July 2010. At the end of the second year of trading, her accountant provides the following trial balance from the
Describe the general purpose of the statement of financial position. In addition, explain the terms asset, liahility and equity as defined by the Conceptual Framework for Financial Reporting (lASB,
Insert the missing figures in the following examples, remembering that some items will be added and others will be subtracted. 4 (a) (b) E 36 34 (d) (e) Non-current assets. 12,400 22,800 42.200 ?
Salma Ibrahim set up a company called Uplights Ltd and opened a lighting shop on 1 January 2012. Her brother is studying for his accountancy exams and helps her by doing the bookkeeping and managing
On 1 July 2011 Mark Farmer opened a shop called Miphone Ltd. The trial balance for the first year is shown below.Additional information at 30 June 2012:■ Inventory is valued at £890.■
Kavita Patel owns a business called Beauty Box Ltd, which started trading on 1 July 2010. At the end of the second year of trading, her accountant provides the following trial balance from the
A business has capital of £20,000 and assets of £20,000. It then borrows £10,000 from the bank to finance the purchase of some new office equipment. How does this affect the accounting equation?
We will now move on to 7 January, which is the end of the first week of trading. The business has made cash sales of 10 boxes of candles at £20 each and credit sales of 20 boxes of candles at £20
Using the following pro forma, prepare a draft statement of financial position for Candlewick Ltd at 30 June 2012: Candlewick Ltd Draft statement of financial position at 30 June 2012 ASSETS
Using the following formula, calculate the allowance for depreciation for the year ending 31 December 2012: Cost Residual value Useful life
Prepare a statement of comprehensive income for Candlewick Ltd for the year ending 31 December 2012 and a statement of financial position at 31 December 2012 using all the items listed in the trial
Describe the advantages and disadvantages of the money measurement concept and explain why students studying business and management should learn about accounting.
Define the term accounting and explain the difference between the two main branches of accounting.
Explain the concept of limited liability and the advantages of a company over an unincorporated business.
Compare and contrast the advantages and disadvantages of public and private companies.
Describe the two underlying assumptions that underpin financial accounting and reporting, providing examples to illustrate your explanations.
What sort of financial matters do you think partners ought to agree before forming an unincorporated partnership?
To help you identify the similarities and differences between the two types of business organization, decide whether the following characteristics apply to a sole proprietor, an unincorporated
What are the advantages of a private company over a public company?
A business buys 5 litres of paint, 20 metres of timber and employs a carpenter for 2 days to build shelves in an office. Paint costs £4 per litre, timber costs £2.50 per metre and the carpenter
For some years, Sally Lunn has owned and managed a small coffee shop which is a limited company. List the various external parties who might find financial information about the business useful and
A financial accountant can give advice on the following matters (tick the appropriate box): (a) How to arrange financial affairs so that the least amount of tax is incurred (b) The best way to borrow
Imagine you are a manager and decide whether you would require the following information for planning, controlling or decision making:(a) The amount claimed for taxi fares by staff last month.(b) The
What other advantages do you consider management accounting information offers to managers? Draw up a list of the ways in which management accounting information can be used by managers under the
Consider any financial information you currently receive and classify it according to whether it helps you in controlling, planning or decision making. The information can be financial information
Here is a list of the responsibilities of Sally Lunn, who is the owner-manager of a small coffee shop:■ ordering and controlling inventories of food and drink to sell in the shop■ supervising two
Classify the following accounting activities {tick the appropriate box): Financial Management (a) Auditing the accounting systems and records of a business (b) Managing the tax affairs of a business
A company bought a machine for the production department at the beginning of the year for £3,000. It is estimated that the machine will contribute to the profits of the business for the next 10
During the month of August your friend, who buys and sells cars, sold a vehicle for £7,500 that he had purchased at the beginning of the month for only £6,000. He paid cash for the car, but has not
In addition to the equity gap, there are a number of other reasons why smaller entities may have difficulty in accessing finance when they need it. Draw up a list of other possible explanations.
Classify the following sources of finance into debt finance, asset-based finance and equity finance by ticking the appropriate box: (a) Share capital (b) Debenture (c) Hire purchase (d) Invoice
Imagine you have £200 cash that you use to buy a computer from another student. You are a bit of an opportunist and see a chance to make some money. You decide to advertise the computer for sale,
Using the same example, imagine that this time you agreed to sell the computer on credit, but a few days later you receive a letter from your telephone service provider that you will be disconnected
The following cash flow forecast has been partially completed using the predicted figures for purchases and revenue that we calculated above. Calculate the subtotals for cash inflows and outflows and
Sarah has decided she needs to look for external finance to ensure the company is solvent for the first 6 months. How much cash does the business need to borrow to ensure there is no cash deficit in
Sarah must revise her plans for the next 6 months. Suggest what actions she might take.
Define finance and explain why students studying business or management should learn about the management of money.
Explain the theory of the finance gap.
Describe the potential sources of long-term finance available to a sole proprietor or traditional partnership.

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