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financial accounting an introduction

Questions and Answers of Financial Accounting An Introduction

explain the factors that have to be taken into account when managing each element of working capital.AppendixLO1
explain the importance of establishing policies for the control of working capital.AppendixLO1
discuss the purpose of working capital and the nature of the working capital cycle.AppendixLO1
discuss the crucial importance of cash to a business;AppendixLO1
explain the nature of the statement of cash flows and discuss how it can be helpful in identifying cash flow problems;AppendixLO1
prepare a statement of cash flows;AppendixLO1
interpret a statement of cash flows.AppendixLO1
The typical business outside the service sector has about 50 per cent more of its resources tied up in inventories than in cash, yet there is no call for a ‘statement of inventories flows’ to be
What is the difference between the direct and indirect methods of deducing cash generated from operations?AppendixLO1
Taking each of the categories of the statement of cash flows in turn, in which direction would you normally expect the cash flow to be? Explain your answer.(a) Cash flows from operating
What causes the profit for the reporting period not to equal the net cash inflow?AppendixLO1
How will each of the following events ultimately affect the amount of cash?(a) A n increase in the level of inventories(b) A rights issue of ordinary shares(c) A bonus issue of ordinary shares(d)
The following information has been taken from the financial statements of Juno plc for last year and the year before last:Year before last Last year£m £m Operating profit 156 187 Depreciation
Torrent plc’s income statement for the year ended 31 December 2011 and the statements of financial position as at 31 December 2010 and 2011 are as follows:Income statement for the year ended 31
Chen plc’s income statements for the years ended 31 December 2010 and 2011 and the statements of financial position as at 31 December 2010 and 2011 are as follows:Income statements for the years
The following are the financial statements for Nailsea plc for the years ended 30 June 2010 and 2011:Income statement for years ended 30 June 2010 2011£m £m Revenue 1,230 2,280 Operating expenses
The following financial statements for Blackstone plc are a slightly simplified set of published accounts. Blackstone plc is an engineering business that developed a new range of products in 2007.
Simplified financial statements for York plc are:Income statement for the year ended 30 September 2011£m Revenue 290.0 Cost of sales (215.0)Gross profit 75.0 Operating expenses (Note 1)
Identify the major categories of ratios that can be used for analysis purposes.AppendixLO1
Calculate key ratios for assessing the financial performance and position of a business and explain the significance of the ratios calculated.AppendixLO1
Discuss the use of ratios in helping to predict financial failure.AppendixLO1
Discuss the limitations of ratios as a tool of financial analysis.AppendixLO1
Some businesses operate on a low operating profit margin (for example, a supermarket chain).Does this mean that the return on capital employed from the business will also be low?AppendixLO1
What potential problems arise for the external analyst from the use of statement of financial position figures in the calculation of financial ratios?AppendixLO1
Is it responsible to publish Z-scores of businesses that are in financial difficulties? What are the potential problems of doing this?AppendixLO1
Identify and discuss three reasons why the P/E ratio of two businesses operating in the same industry may differ.AppendixLO1
Set out below are ratios relating to three different businesses. Each business operates within a different industrial sector.Ratio A plc B plc C plc Operating profit margin 3.6% 9.7% 6.8%Sales to
Amsterdam Ltd and Berlin Ltd are both engaged in retailing, but they seem to take a different approach to it according to the following information:Exercises Ex erci ses 293 Ratio Amsterdam Ltd
Conday and Co. Ltd has been in operation for three years and produces antique reproduction furniture for the export market. The most recent set of financial statements for the business is set out as
The directors of Helena Beauty Products Ltd have been presented with the following abridged financial statements:Helena Beauty Products Ltd Income statement for the year ended 30 September 2011
Threads Limited manufactures nuts and bolts, which are sold to industrial users. The abbreviated financial statements for 2011 and 2012 are as follows:Income statements for the year ended 30 June
Refer to the financial statements for Ali plc and Bhaskar plc (see Self-assessment question 7.1 on page 271).Required:(a) Calculate the Z score for each business using the Altman model set out on
Genesis Ltd was incorporated in 2009 and has grown rapidly over the past three years. The rapid rate of growth has created problems for the business, which the directors have found difficult to deal
Define and distinguish between relevant costs, outlay costs and opportunity costs.AppendixLO1
Identify and quantify the costs that are relevant to a particular decision.AppendixLO1
Use relevant costs to make decisions.AppendixLO1
Set out relevant cost analysis in a logical form so that the conclusion may be communicated to managers.AppendixLO1
To be relevant to a particular decision, a cost must have three attributes. What are they?AppendixLO1
Distinguish between a sunk cost and an opportunity cost.AppendixLO1
Define the word ‘cost’ in the context of management accounting.AppendixLO1
What is meant by the expression ‘committed cost’? How do committed costs arise?AppendixLO1
Lombard Ltd has been offered a contract for which there is available production capacity. The contract is for 20,000 identical items, manufactured by an intricate assembly operation, to be produced
To be relevant to a particular decision, a cost must have three attributes. What are they?AppendixLO1
Distinguish between a sunk cost and an opportunity cost.AppendixLO1
Define the word ‘cost’ in the context of management accounting.AppendixLO1
What is meant by the expression ‘committed cost’? How do committed costs arise?Review questions Ex ercis es 315 Required:Analyse the information and advise Lombard Ltd on the desirability of the
Andrews and Co. Ltd has been invited to tender for a contract. It is to produce 10,000 metres of an electrical cable in which the business specialises. The estimating department of the business has
SJ Services Ltd has been asked to quote a price for a special contract to render a service that will take the business one week to complete. Information relating to labour for the contract is as
A local education authority is faced with a predicted decline in the demand for school places in its area. It is believed that some schools will have to close in order to remove up to 800 places from
Rob Otics Ltd, a small business that specialises in manufacturing electronic-control equipment, has just received an inquiry from a potential customer for eight identical robotic units. These would
Distinguish between fixed cost and variable cost and use this distinction to explain the relationship between cost, volume and profit.AppendixLO1
Prepare a break-even chart and deduce the break-even point for some activity.AppendixLO1
Discuss the weaknesses of break-even analysis.AppendixLO1
Demonstrate the way in which marginal analysis can be used when making short-term decisions.AppendixLO1
Define the terms fixed cost and variable cost. Explain how an understanding of the distinction between fixed cost and variable cost can be useful to managers.AppendixLO1
What is meant by the BEP for an activity? How is the BEP calculated? Why is it useful to know the BEP?AppendixLO1
When we say that some business activity has high operating gearing, what do we mean? What are the implications for the business of high operating gearing?AppendixLO1
If there is a scarce resource that is restricting sales, how will the business maximise its profit?Explain the logic of the approach that you have identified for maximising profit.AppendixLO1
Motormusic Ltd makes a standard model of car radio, which it sells to car manufacturers for £60 each. Next year the business plans to make and sell 20,000 radios. The business’s costs are as
Lannion and Co. is engaged in providing and marketing a standard advice service. Summarised results for the past two months reveal the following:October November Sales (units of the service) 200 300
Gandhi Ltd renders a promotional service to small retailing businesses. There are three levels of service: the ‘Basic’, the ‘Standard’ and the ‘Comprehensive’. On the basis of past
The management of a business is concerned about its inability to obtain enough fully trained labour to enable it to meet its present budget projection.Service: Alpha Beta Gamma Total£000 £000 £000
A hotel group prepares financial statements on a quarterly basis. The senior management is reviewing the performance of one hotel and making plans for next year.The managers have in front of them the
A business makes three products, A, B and C. All three products require the use of two types of machine: cutting machines and assembling machines. Estimates for next year include the
Darmor Ltd has three products, which require the same production facilities. Information about the production cost for one unit of its products is as follows:Product X Y Z£ £ £Labour: Skilled 6 9
Deduce the full (absorption) cost of a cost unit in a single-product environment.AppendixLO1
Deduce the full (absorption) cost of a cost unit in a multi-product environment.AppendixLO1
Discuss the problems of deducing full (absorption) cost in practice.AppendixLO1
Discuss the usefulness of full (absorption) cost information to managers.AppendixLO1
What problem does the existence of work in progress cause in process costing?AppendixLO1
What is the point of distinguishing direct cost from indirect cost? Why is this not necessary in process costing environments?AppendixLO1
Are direct cost and variable cost the same thing? Explain your answer.AppendixLO1
It is sometimes claimed that the full cost of pursuing some objective represents the long-run break-even selling price. Why is this said and what does it mean?AppendixLO1
Consider this statement:In a job costing system, it is necessary to divide up the business into departments. Fixed costs(or overheads) will be collected for each department. Where a particular fixed
Bodgers Ltd, a business that provides a market research service, operates a job costing system.Towards the end of each financial year, the overhead recovery rate (the rate at which indirect cost will
What problem does the existence of work in progress cause in process costing?AppendixLO1
What is the point of distinguishing direct cost from indirect cost? Why is this not necessary in process costing environments?AppendixLO1
Are direct cost and variable cost the same thing? Explain your answer.AppendixLO1
It is sometimes claimed that the full cost of pursuing some objective represents the long-run break-even selling price. Why is this said and what does it mean?Review questions CHAPTER 402 10 Full co
Promptprint Ltd, a printing business, has received an enquiry from a potential customer for the quotation of a price for a job. The pricing policy of the business is based on the plans for the next
Many businesses charge overheads to jobs on a cost centre basis.Required:(a) What is the advantage that is claimed for charging overheads to jobs on a cost centre basis and why is it claimed?(b) What
Bookdon plc manufactures three products, X, Y and Z, in two product cost centres: a machine shop and a fitting section; it also has two service cost centres: a canteen and a machine maintenance
Discuss the nature and usefulness of activity-based costing.AppendixLO1
Explain how new developments such as total life-cycle costing and target costing can be used to control costs.AppendixLO1
Discuss the importance of non-financial measures of performance in managing a business and the way in which the balanced scorecard attempts to integrate financial and non-financial
Explain the term ‘shareholder value’ and describe the role of Eva ® in measuring and delivering shareholder value.AppendixLO1
How does activity-based costing differ from the traditional approach? What is the underlying difference in the philosophy of each of them?AppendixLO1
The use of activity-based costing in helping to deduce full costs has been criticised. What has tended to be the basis of this criticism?AppendixLO1
What are the four main areas on which the balanced scorecard is based?AppendixLO1
Derry and Co. is a large computer consultancy business that has a division specialising in robotics.Can you identify three non-financial measures that might be used to help assess the performance of
Aires plc was recently formed and issued 80 million £0.50 shares at nominal value and loan notes totalling £24 million. The business used the proceeds from the capital issues to purchase the
Comment critically on the following statements that you have overheard:(a) ‘The balanced scorecard is another name for the statement of financial position.’(b) ‘The financial area of the
Kaplan plc makes a range of suitcases of various sizes and shapes. There are 10 different models of suitcase produced by the business. To keep inventories of finished suitcases to a minimum, each
Badger Ltd (Badger) manufactures plastic building materials. After a recent analysis Badger has decided to classify its products into two varieties: Largeflo and Smallflo. There are several products
Pisces plc produced the following statement of financial position and income statement at the end of the third year of trading:Statement of financial position (balance sheet) as at the end of the
A business manufactures refrigerators for domestic use. There are three models: Lo, Mid and Hi. The models, their quality and their price are aimed at different markets.Product costs are computed
Define a budget and show how budgets, strategic objectives and strategic plans are related.AppendixLO1
Explain the budgeting process and the interlinking of the various budgets within the business.AppendixLO1
Indicate the uses of budgeting and construct various budgets, including the cash budget, from relevant data.AppendixLO1
Discuss the criticisms that are made of budgeting.AppendixLO1

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