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business
business accounting

Questions and Answers of Business Accounting

Explain the term 'standard' as applied to standard costing. Is a standard cost what a product did, should, will, or might, cost?
What do you understand by the terms 'material price variance' and 'material usage variance', and give examples of their calculation? What action might be taken if there was an adverse material usage
A product incorporates two materials, A and B. The standards are A: Price £0.50 per kilo Usage 4 kilos per unit B: Price £1.80 per kilo Usage 1.5 kilos per unit During the month of December, 5,000
Salmon Electronics Ltd set the following standard costs per unit for 1984:Direct materials: Standard price per kilo £1.20 Standard usage per unit 5 kilos Direct labour: Standard wage rate per hour
The Numas Co. Ltd prepared the following overhead budget for 1984:1984 Budget (1) Output: 40,000 units (160,000 labour hours)(2) Variable overhead £400,000 (3) Fixed overhead £480,000 T he actual
The Nomis Co. Ltd sells four standard products. At the end of March 1984 the following data was available for that month:Product Budget Actual unit price quantity total value quantity £ (units) £
(i) 'Standards are neither good or bad per se, but are what people affected by them believe them to be.' Discuss the nature and purpose of standard costing in the light of this statement,(ii) The Zee
On the basis of a production/sales level of 10,000 units a month, the standard unit cost of a carton of Gimmet which sells for £12 is£Material: 12 kg at 50p 6.00 Labour: H hours at £1.60 2.40
Attempt a reasoned defence of historical cost accounting against the criticisms commonly levelled at it.
Th e valuation of assets can never be more than a subjective process, so that the measurement of profit can be no more than approximate /Discuss this statement, explaining in particular the link
It is possible to measure profit by calculating the change in capital between two dates. Why, therefore, do accountants consider a profit and loss account is necessary?
Critically discuss the major income concepts with which you are familiar.
Explain what you understand by 'deprival value'. Why is this concept of value considered to be the most appropriate basis for measuring profit?
Consider the following data relating to different points in time:TO Buy raw materials for £200.Tl Add labour for £40; items could now be sold for £300.T2 Put items in special package for £20;
There are three possible 'correct' values of an asset—net realizable value, net present value and replacement cost. Explain carefully in your own words the circumstances which may make any one of
On 1 January 1983 a company was formed with an issued capital of £100 fully paid up in cash. On 1 January 1983 it purchased for resale a 'widget'for £100, the estimated mark-up being 50 per cent.
(a) If I have capital £1,000 in the bank at the beginning and end of a year, surely I'm worse off if there's been a 20 per cent inflation.How will current replacement cost accounting reflect
The balance sheets of Saga Ltd at 31 December 1983 and 31 December 1984 were as follows:The profit and loss account for the year ended 31 December 1984 wasRequired:Prepare the CPP accounts for the
Depreciation accounting has alternatively been defined as (a) a process of allocation and (b) a process of valuation. Contrast and compare these alternative definitions.
'Depreciation provides for the replacement of assets.' Explain why this indicates a misunderstanding of the depreciation process.
A small retail business with a turnover of £20,000 p.a. has recently purchased the following items for use in the general office:Required:(a) Explain which (if any) of these items would be treated
Jack Jones buys a motor car for use in his business and receives the following invoice:Required:(a) Wha t would you regard as being the cost of this asset for the purposes of depreciation?(b) Define
A new machine has been bought for £5,000. It is expected to last for five years, and have a residual value of £500.(a) Calculate the charge against profits and balance sheet value for each of the
A.B. Ltd moved to purpose-built office accommodation in 1980. The new building, inclusive of all fixtures and fittings and ready for occupancy, cost £40,000. In 1984 various work was carried out on
Smith Ltd has the following fixed assets, according to its balance sheet dated 30 June 1984:The company revalues the freehold property every 5 years; provides 10 per cent p.a. reducing balance method
The following is a summary of a company's motor vehicle register, as at 1 January 1984:Depreciation has always been provided at 25 per cent p.a., straight line basis. A full year's depreciation has
During 1984, a manufacturer of garden requisites spent £40,000 on research and development. Investigation of this sum yielded the following information:(i) £20,000 had been spent in developing a
Ivor B. Gunn has just started in the retail business. His transactions in the first period of trading are as follows:(a) Calculate the closing stock and gross profit for this period, assuming (1)
Accountants generally value stock at 'the lower of cost and net realizable value'.(a) Define 'cost' as used in this statement.(b) Define 'net realizable value' as used in this statement.(c) Do you
It has been suggested that it would be better if all stocks were valued at current replacement cost:(a) What alteration would this necessitate in the accountants' usual policy as regards the timing
A business includes in its stock three major categories of goods: A, and C. At 31 December 1984, the following information is available:What value would you place on the closing stock in order to
P. Forte commences business on 1 January buying and selling pianos.He sells two standard types, upright and grand, and his transactions for the year are as follows:You observe that the cost to P.
Rawhide & Co. commenced trading on 1 April 1983. The manager has prepared the following accounts for the first year's operations:A friend has commented that these accounts do not observe 'the
You are preparing a company's accounts to 31 Decethber 1984 and are given the following information after you have prepared the draft accounts:(i) A customer is suing you for damages; your solicitor
(i) Flashman, a bully beef trader, started in business on 1 January 1984. During the year to 31 December 1984 he sold on credit some beef to Tom Brown valued at £50, but failed to receive payment as
The following trial balance was extracted from the books of Fletcher, a trader, as at 31 December 1984:The following matters are taken into account:(i) Stock-in-trade, 31 December 1984, £8,800.(ii)
The following is a list of ledger balances in the books of Jim, as at 31 March 1984:Required:(a) Prepare a trial balance.(b) Prepare a trading, profit and loss account for the year ended 31 March
John Do e has recently started a small garage business, and has come to you for advice on what financial records he should keep. 'Surely all I need is a cash book', he says. Explain to him the
John Do e Ltd maintains a single entry record system, and a partial analysis of the cash book yields the following data:Explain what further information you would need in order to establish the sales
Explain carefully the purposes of keeping control accounts.
The following information relates to a firm for the month of December:Total of individual balances at 31 Decembe r taken from the ledgers:Sales ledger £44,112 Purchase ledger £48,581 Required:(a)
'If I keep my bank account accurately, and the bank does its job properly, there should never be any difference between my records and the bank's.' Do you agree?
'Bank reconciliations are rather pointless; if I add and subtract the right things I am mathematically certain to reconcile the bank statement to the bank account.' Is this statement correct, and if
Hoddles' cash book on 30 June showed a balance due to his bank of£1,210 on his No. 1 account, and a balance of £706 overdrawn appeared on his bank statement. On investigation you find(i) Cheques
Two antique dealers, currently running separate businesses in the same town, are wondering whether to combine and form a partnership. They seek your help and advice in the matter, and ask you to
The two antique dealers, having carefully considered your advice, decide to form a partnership, and wish to draw up a written agreement.What are the main points the agreement should cover?
In the absence of agreement, the Partnership Act 1890 lays down the way in which profits are to be shared between the partners. In what circumstances would you consider these rules to be inequitable?
On 30 September 1984, Alexander and Arnold completed their first year of trading in partnership. They shared profits and losses in the ratio Alexander f, Arnold f, and were entitled to 5 per cent
The summarized balance sheet of A. Jones at 31 Decembe r 1983 was as follows:During the past five years the net profits had been £2,500, £2,000, £3,500, £4,000 and most recently £5,000. Mr Jones
Why is it necessary to establish a value for goodwill when admitting a new partner? Wha t are the methods for dealing with goodwill in the financial accounts, and what are their advantages and
A and Β are equal partners. Their balance sheet at 30 June 1983 isThey agree to admit C as a new partner with effect from 1 July 1983, sharing profits A:B:C,3:3:2 . Goodwill is valued at £16,000,
Explain carefully the main differences between a limited company and a partnership. What advantages do you see in turning a partnership into a limited company?
Obtain a recent copy of the Financial Times in which there is a company prospectus. Ascertain from it:(i) The objective of the company.(ii) The structure of the share capital.(iii) The type, number
Obtain, from a library, a copy of a company Memorandum and Articles of Association. From the Memorandum, identify the main purposes of the company. From the Articles, ascertain the powers and
Draw up a table distinguishing between ordinary shares, preference shares and debentures under the following headings:(i) Status of holders.(ii) Rights to dividend/interest.(iii) Voting rights.(iv)
Balance Sheet of A Ltd(a) What is the par value of (i) the ordinary share, and (ii) the preference share?(b) What dividend will the preference shareholder receive? Ar e the preference shares
A company which currently has a share capital consisting only of 100,000 £1 ordinary shares wishes to raise an additional £50,000 of capital. List the different ways in which the company might
An abridged balance sheet of Β Ltd shows the following:The company currently distributes all of its profits of £25,000 to its shareholders. It now wishes to raise an additional £80,000 by issuing
Using suitable data, explain why the market price of an ordinary share is likely to fluctuate more in a highly geared than in a low-geared company. Why would you prefer to be an ordinary shareholder
Distinguish carefully between a capital and revenue reserve; explain into which category each of the following falls, and how it may have arisen:(i) Share premium.(ii) Revaluation reserve.(iii)
A limited company issues the following capital:50,000 £1 ordinary shares at a premium of 20p per share.20,000 £1 5 % preference shares at a premium of 5p per share.30,000 10% debentures at a
The company in question 10 above pays and declares the following dividends and interest in 1984:Interim dividends paid 5 % ordinary 2\% preference Debentur e interest paid, 5%T he directors propose
The following list erf balances was extracted from the books of Newman P LC on the 31 December 1984:Notes:(i) Stock at 31 December 1984 £90,000.(ii) Provide tor depreciation of plant and machinery
Distinguish carefully between a bonus (or scrip) issue and a rights issue. In what circumstances may a company wish to make either type of issue?
The balance sheet of Menis PLC is as follows:T he company has normally paid a dividend of 30 per cent, the market price of the shares reflecting the shareholders' acceptance of an 8 per cent yield.
'Shareholders get something for nothing when a company issues bonus shares.' Do you agree?
Explain why the market price of a share may diverge from the par value of that share.
The balance sheet of Eaton PLC is as follows:The market price of the ordinary shares is £1.50, and the company proposes to make a rights issue of 1 for 2 at a price of £1.30 per share:(a) What is
Ask your library to supply you with some back copies of the Financial Times and find a company which has made a rights issue. Using EXTEL(or some similar source) discover what you can about the
Explain carefully the distinction between 'purchase' and 'redemption' of its own shares by a public company. What limitations and requirements are attached by the Companies Acts to this power?
What are the motives for seeking growth through the acquisition of other businesses?
What do you understand by the term 'holding company'?
The balance sheet of two companies, A and B, at 31 December 1984, was as follows:A had acquired 90 per cent of the equity of Β on 31 December 1984.Required:(a) Calculate the goodwill on
The balance sheet of Tarns PLC is as follows:he company proposes to redeem the preference shares at a premium of 10 per cent by finding the cash from alreadv available internal
Examine a series of job advertisements for accountants, and try to deduce what accounting is from the descriptions.
Find a number of different definitions of accounting, and consider the extent to which they coincide or diverge.
Normative accounting theories need to be 'generally acceptable' to be of use. Discuss the extent to which the criteria for acceptability can be in conflict.
Outline the major influences on the development of accounting practices from the earliest times to the present day.
To what extent should accounting information reflect the impact the business has on the social as well as the economic environment?
Accounting is not an end in itself, but aims to help people make decisions. What different groups may need accounting information, and for what purposes?
Accounting theory is variously described as setting out 'principles','postulates', 'concepts', 'rules' or 'practices'. Is there any difference between these terms, or is this just a matter of
'With inflation running in double figures, the accounting use of money and purchase price as a concept of value is so obviously misleading that it makes accounting quite useless.' D o you agree?
Make a list of your major possessions. Wha t value do you place on them? Explain and justify your basis of valuation. Ar e you 'better off now than you were a year ago? Explain and justify your
The use of 'historic cost' as a concept of value is sometimes defended on the grounds that it is objective. Can you think of some examples where this is not so, and, if so, is the defence justified?
Why does a balance sheet balance?
Define carefully the terms 'asset' and 'liability'. How clear-cut is the distinction between 'fixed' and 'current' assets? How would you categorize the following:(i) An investment in the shares of a
Prepare a series of sequential balance sheets from the following data:(i) M. Brown commences business with cash of £10,000 which he deposits in a business bank account and uses his car, valued
Obtain several sets of published company accounts. Examine the balance sheets and discover:(i) What types of assets are shown?(ii) Wha t is the basis of valuation of those assets?(iii) To what extent
What do you understand by the 'entity concept'? How do you reconcile the fact that records are kept from the viewpoint of the 'entity' with the fact that the business belongs to its proprietors?
If I own my own business, how can my capital invested in it be a liability?
To what extent does a balance sheet disclose what a business is worth?
What different groups of people may be interested in the balance sheet of a business? To what extent are their needs for information (a)similar and (b) different? Can all of the different needs be
(a) Draw up two balance sheets for lî)83 and 1984 from the following information, inserting the necessary 'missing' item:(b) Comparing the two balance sheets, what conclusions, if any, can you
Explain why a profit is represented by an equivalent increase in assets.
It is possible, after making appropriate adjustments, to measure profit by calculating the change in capital between two dates. Why then is it necessary to prepare an income statement (or profit and
Make a list of the main sectors of British industry and try to ascertain a typical 'production cycle' in each. How well does the accounting year match up with these cycles? What problems may any
Examine a numbe r of published company accounts and ascertain the date of the accounting year-ends. Can you find any explanation for the selection of a particular year-end date?
Define carefully the terms 'cost', 'expense' and 'expenditure'. Collect other definitions from alternative sources, and consider the extent to which they are in agreement.
'An expense is an expired asset'. Make a list of the main categories of assets and consider to what extent the statement is correct.
The following expenditure in the year to 31 December 1984i relates to motor vans owned by a small haulage company:On 31 Decembe r 1984, the stock of tyres amounted to £40, and petrol bills unpaid

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