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business accounting

Questions and Answers of Business Accounting

Francesca Diva is planning to start a shoe shop called Dudes & Divas Ltd on 1 July 2012 with £25,000 she has inherited. She is going to be a sole proprietor and plans to open a small shop in the
Using your own bank statement, prepare a cash flow forecast for yourself for the next 6 months using a spreadsheet. When you have completed your forecast, reflect on the decisions you need to make
Phil Trigg is the owner of Trigg Electronics Ltd. He has negotiated with two manufacturers of electric circuit boards to carry out assembly work for them and anticipates assembling the following
Rex Wellworth started Wehworth Fencing Ltd with £50,000 he inherited from his uncle. On 1 June he opened a bank account for the business and paid in the capital he has invested in the business. On
Mrs Lawley owns a gift shop business called Lavender & Lace Ltd. On 4 July the company’s cash account looked like this:Required Write up the ledger accounts for Lavender & Lace Ltd to show
The following bank account shows transactions for Burton’s Books Ltd for the month of October.Required Balance the account at 31 October and show the balance c/f at 1 November. 1 October 12 October
The following account is that of O’Neill Ltd, a credit customer of Burtons Books Ltd.Required On 30 November O’Neill Ltd pays 50% of the amount due. Record this transaction and balance the
The following list of balances at 30 June 2012 is taken from the accounts of Hampton Health Food Ltd.Required Calculate the figure for purchases and prepare a trial balance at 30 June 2012 for
During the year ending 31 December 2012 Country Furniture Ltd achieved sales that were three times higher than total purchases. Trading expenses were 25% of total purchases. On 31 December 2012 the
Explain the advantages of a double-entry bookkeeping system and the purpose of a trial balance. In addition, describe the limitations of a trial balance, giving examples to illustrate your answer.
Design a flow diagram to illustrate the external and internal movement of source documents that are raised when a business purchases goods from a supplier on credit.
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?
Mulch Garden Design Ltd repays £1,500 of the loan to Louise on 3 January and on the same day returns £250 worth of faulty equipment to the supplier and receives a refund, which is paid into the
On 5 January Mulch Garden Design Ltd pays £50 for the cleaning of the premises. On 6 January the business lets its display gardens for a wedding reception and receives £350 in rent. Make the
The same principles are applied if one of the customers returns goods. Show how the transactions would be recorded in the ledger accounts if a customer returns £500 worth of goods to Kool Kate Ltd
On 20 July Pippa Merton pays £750 of the money she owed to Kool Kate Ltd. Show how this transaction will be recorded in the accounts.
Calculate the closing balances of the remaining accounts for Kool Kate Ltd from Chapter 3.These are the capital account, the sales account, the purchases account, the equipment account, the returns
A business purchased 100 items at £2 each with a view to selling them at £2.40 each. At the end of the year 20 items remained unsold. Due to a decline in demand, the business can now sell them for
On 31 December 2012, after the first 6 months of trading, Kool Kate Ltd has 180 items that cost £20 each and can be sold for £45 each, and 200 items that cost £14 each and can be sold for £16
If the trial balance balances, it does not necessarily mean that the figures are correct. What other mistakes could have been made in the recording of transactions that would not be revealed by a
Download a copy of the latest annual report and accounts for Ted Baker PLC from http://ww7.investorrelations.co.uk/tedbaker/ and look at the information disclosed.
What do you think are the main reasons for the development of different regulatory frameworks for financial reporting in different countries?
What are the advantages and disadvantages of filing abbreviated accounts?
What are the advantages and disadvantages of audit exemption?
What are the advantages and disadvantages of accounting standards?
What are the advantages and disadvantages of IFRSs?
What are the advantages and disadvantages of the IFRS for SME?
Describe the key elements of the regulatory framework for public and private companies in the UK.
Define the term financial reporting. In addition, explain the need for the regulation of financial reporting and the purpose of the regulatory framework.
Explain the acronym GAAP and outline the historical reasons why one country’s GAAP could develop differently from another.
Explain what an accounting standard is and discuss the advantages and disadvantages of IFRS. Draw conclusions from your analysis.
Search the ASB’s website (http://www.frc.org.uk/asb/) to get up-to-date information on the future of UK GAAP and find articles on the subject in the accountancy press (for example Accountancy Age,
What are the advantages of having a conceptual framework for financial reporting?
What do you think would be the effect on users if a large company did not supply full information about its financial position, financial performance and changes in financial position to the primary
Think about your bank statements or credit card statement and answer the following questions: (a) Is any item insignificant or irrelevant? (b) Does the information help you make spending or borrowing
In the following scenarios decide whether you should classify the item as an asset or a liability. (a) Your taxi business, Parker Cars Ltd, provides a warranty to all contract customers that their
Last year Joe Cash won £5 million in the national lottery, which he used to start up a business called Joe Cash Ltd. At the start of the year the business had £5 million capital and £5 million
Explain what a conceptual framework is and the advantages of having such a framework.
Describe the objective of general purpose financial reporting and the information needs of the three primary user groups identified in the lASB Framework (2010).
Explain the fundamental and enhancing qualitative characteristics of usefulness in the latest issue of the lASB Framework.
Define the three elements of financial position and the two elements of financial performance in the lASB Framework (2010).
Explain the general recognition criteria relating to the elements of financial statements and outline the four measurement methods mentioned in the latest issue of the lASB Framework. In addition,
Fitch and Wall have been in partnership for many years sharing profits and losses in the ratio 5 : 3 respectively. The following was their balance sheet as at 31 December 2002.On 1 January 2003, they
Three possible projects would each require an initial investment of£12,000. The expected net cash flows from each one areYears 1 2 3 4 5 £ £ £ £ £X 2,400 6,000 6,000 4,000 —Y 6,000 6,000
A company which can borrow and lend money freely at 10 per cent p.a. is considering undertaking one of two investments. Information relating to these investments is given below:Project A ΒCapital
A company has the following capital structure:££1 ordinary shares 100,000 6% £1 preference shares 20,000 Revenue reserves 50,000 10% debentures 50,000 £220,000 The debentures were originally
A company is considering two alternative investment proposals, A and B, which are tabulated over the page:A £Β£Initial investment 15,000 28,000 Net profit year 1 5,000 4,000 2 7,000 5,000 3 4,000
Explain the different methods by which risk may be incorporated into the evaluation of investment proposals, and indicate the relative strengths and weaknesses of each method.
Far East Ltd is a manufacturing company which uses a variety of machines for its production programme. One of the machines has now to be replaced and the management of the company are considering
Tn discounted cash flow appraisal of investment projects, future cash flows are discounted at the relevant cost of capital. 'What is meant by the term 'relevant cost of capital'? How is it computed?
Mrs Bland owns a small boarding house at a seaside resort. She takes up to 20 guests during the 'season' which lasts 14 weeks, and averages 15 guests per week who each pay £25 per week. The house,
A small company manufactures two products, selling 10,000 units of A and 30,000 units of B. The results in 1984 wereA Β£ £ £ £Sales 25,000 40,000 Materials 8,000 18,000 Labour 7,000 16,000
A business makes one standard product with the following revenue and expense profile:Selling price £20 per unit Direct labour £5 per unit Direct material £4 per unit Variable overhead £3 per unit
A business makes three products, X, Y and Z, and the revenues and expenses per unit areX Y Ζ£ £ £Sales 8 4 7 Material 1.5 0.3 1.8 Labour 2.5 1.5 0.8 Variable overhead 2.0 1.0 1.4 Fixed overhead
The Regent Co. Ltd is developing a new product called Scram, and has, to date, spent £50,000 on this project. Part of this development work has had a spin-off in material handling techniques which
You are the independent auditor for the Scoopa Co. When you had completed your audit for the preceding year, management asked your assistance in arriving at a decision whether to continue
The Senslit Co. Ltd manufactures a range of light-sensitive papers used in photographic processes. The paper, once manufactured, is stored in specially constructed crates lined with 'photon'. These
Define the term 'working capital'. Why does a business need working capital and what may be the consequences of having too much or too little?
What are the likely needs for working capital of the following:(i) A secondhand car dealer who buys for cash, and sells for cash or on hire purchase through a finance company. He employs two staff on
(a) For each of the following retail businesses, make an estimate of what a reasonable rate of stock turnover would be (using sales divided by year end stocks):(i) department stores,(ii) electrical
Two similar retail businesses both had a sales turnover of £300,000 in 1984. An extract from the 1984 balance sheet reveals:A Β£ £Stock 20,000 50,000 Debtors 12,000 3,000 Cash 3,000 4,000 35,000
What factors influence the total investment a business must make in stock? How should the business seek to optimize the level of that investment?
The level of investment in stock should not be determined without concurrently considering the level of investment in debtors.' Discuss.
Obtain the published accounts for three or four companies in different industries. Ascertain for each:(a) The total investment in working capital, and its components.(b) The ratio of current assets
'Ratio analysis is an aid but not a substitute for management.' Discuss.
Squeezie owns a retail shop and has recently asked you to prepare his accounts. From his records you are able to prepare the following trading account for the year ended 31 Decembe r 1984 and to
As accountant for Capone Enterprises Ltd, a firm of soft drink distributors, you have received the following information about the performance of competitors in the trade:Return on ownership capital
The following are the summarized trading and profit and loss accounts for the year 1984, and the balance sheets as at 31 December 1984, of A Ltd and Β Ltd:Trading and Profit and Loss A/csA Ltd Ltd A
Two retail firms, A and B, are of similar size and were capitalized for similar amounts. Firm A paid £100,000 for a freehold property; firm rented its property and invested £100,000 in a government
'The limited company has only one duty—to look after its shareholders.' Discuss.
'The corporate goal should be to obtain that level of profit which is compatible with its meeting its social responsibilities.' Discuss.
List as many major 'pressure groups' as you can, and consider to what extent their actions have caused modifications—through legislation or otherwise—in business behaviour.
'The failure of business to identify the costs and benefits of externalities is directly traceable to the accountant's search for objectivity.' Discuss.
Select any 5-10 company reports and analyse the extent to which there is awareness of 'social responsibilities'.
To what extent are accounting principles and conventions inconsistent or inadequate with a need for a company to report upon its success(or otherwise) in meeting its social responsibilities?
Prepare a statement of added value. To what extent do you consider that this statement assists in 'putting profit in perspective'?
How would you set about placing a monetary value on your worth?Doe s human asset accounting, in attempting to measure the worth of an employee to the business, reflect too narrow a view of worth?
Explain why CPP accounting is not considered to be the most appropriate way of accounting for inflation.
Saga Ltd (see question 10 above) wishes to adjust its historic accounts to reflect current costs in line with SSAP 16. Assuming that (coincidentally) the 'value to the business' of the assets is
What do you understand by the terms 'ex ante' and 'ex post' income? Using suitable data show how you would calculate and reconcile these two measurements. Why does accounting reject this economic
Discuss the theoretical and operational criticisms which are levelled at SSAP 16.
Acquire (or read in the library) four or five sets of accounts recently published by public limited companies, preferably choosing companies in different sectors of the economy. Compare the historic
Identify the distinguishing characteristics of direct costs. Apply your definitions to distinguish the following items of expenditure by a manufacturing business as either direct or indirect
What factors determine whether wages are treated as direct or indirect cost? Illustrate your answer with a suitable range of examples.
Bill Jones runs a small manufacturing company. At 31 December 1984.a trial balance extracted from his records was as follows:The following adjustments are to be taken into account:Required:Prepare
Outline the procedures which you consider should be followed for the ordering of materials and their subsequent receipt.
A firm of building contractors is engaged on repair work on many sites covering a wide geographical area, and the number of employees, although large in total, is small on any one site. Discuss the
A light engineering company calculates its production overhead absorption rate at the end of each month by dividing the total actual overheads incurred by the total numbers of units produced in that
Distinguish carefully between marginal and absorption costing. What are the advantages and disadvantages of both systems.
The following data relates to the XY Co. Ltd which produced a single product for the two years 1983 and 1984:Required:Tabulate the gross profit for each period under (a) a marginal costing system and
A company has three different groups of machines for which it wishes to establish machine rates. A budget for the year ending 31 December 1985 shows the following overhead:Additional information
A customer requests the production of a product from the company in question 9 above. The company estimates its direct labour and material costs will be £30 and £90, respectively. The job will pass
What benefits should accrue to a business from the installation of a budgetary control system?
The term 'budgetary control' may conjure up images of a dictatorial management which may either frighten or incense employees. How might management set about the task of reassuring employees that
For the LM Co. Ltd, who produce a standard type of product, you are required to prepare at 1 January 1985 for each of the three months January, February and March 1985:(a) a budget of sales;(b) a
Sizer Ltd has a budget target of 9,000 hours per period. However, as actual hours worked will tend to fluctuate a flexible budget is also to be produced for monitoring efficiency. The following
Next year's preliminary budget workings for Scrunchie, a breakfast cereal, the only product manufactured by H. F. Ltd, are shown below:T he existing plant and equipment is considerably under-utilized
Shown below are graphs reflecting factory cost of expense data over varying production levels. The vertical axis of each graph represents total pounds (£) of expenses and the horizontal axis
Ideal Manufacturing Co. has prepared the following forecasts. From this information prepare a cash budget for three months ended 31 December.Notes (i) The anticipated cash balance at 1 October will
Draw up a report for your managing director explaining the nature and purpose of a standard costing system, and the benefits which derive from its use.

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