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financial accounting an introduction

Questions and Answers of Financial Accounting An Introduction

Define a budget. How is a budget different from a forecast?AppendixLO1
What were the five uses of budgets that were identified in the chapter?AppendixLO1
What do budgets have to do with control?AppendixLO1
What is a budget committee? What purpose does it serve?AppendixLO1
Prolog Ltd is a small wholesaler of high-specification personal computers. It has in recent months been selling 50 machines a month at a price of £2,000 each. These machines cost£1,600 each. A new
A nursing home, which is linked to a large hospital, has been examining its budgetary control procedures, with particular reference to overhead costs.The level of activity in the facility is measured
Linpet Ltd is to be incorporated on 1 June. The opening statement of financial position (balance sheet) of the business will then be as follows:£Assets Cash at bank 60,000 Share capital£1 ordinary
Lewisham Ltd manufactures one product line – the Zenith. Sales of Zeniths over the next few months are planned to be as follows:1 Demand Units July 180,000 August 240,000 September 200,000 October
Daniel Chu Ltd, a new business, will start production on 1 April, but sales will not start until 1 May. Planned sales for the next nine months are as follows:494 CHAPTER 12 Budgeti ng Sales Units May
Brown and Jeffreys, a West Midlands business, makes one standard product for use in the motor trade. The product, known as the Fuel Miser, for which the business holds the patent, when fitted to the
Discuss the role and limitations of budgets for performance evaluation and control.AppendixLO1
Undertake variance analysis and discuss possible reasons for the variances calculated.AppendixLO1
Discuss the issues that should be taken into account when designing an effective system of budgetary control.AppendixLO1
Explain the nature, role and limitations of standard costing.AppendixLO1
Explain what is meant by feedforward control and distinguish it from feedback control.AppendixLO1
What is meant by a variance? What is the point in analysing variances?AppendixLO1
What is the point in flexing the budget in the context of variance analysis? Does flexing imply that differences between budget and actual in the volume of output are ignored in variance
Should all variances be investigated to find their cause? Explain your answer.AppendixLO1
You have recently overheard the following remarks:(a) ‘When calculating variances, we in effect ignore differences of volume of output, between original budget and actual, by flexing the budget. If
Antonio plc makes Product X, the standard costs of which are:£Sales revenue 31 Direct labour (1 hour) (11)Direct materials (1 kg) (10)Fixed overheads (3)Standard profit 7 The budgeted output for
Bradley-Allen Ltd makes one standard product. Its budgeted operating statement for May is as follows:£ £Sales (volume and revenue): 800 units 64,000 Direct materials: Type A (12,000)Type B
Brive plc has the following standards for its only product:Selling price: £110/unit Direct labour: 1 hour at £10.50/hour Direct material: 3 kg at £14.00/kg Fixed overheads: £27.00/unit, based on
Explain the nature and importance of investment decision making.AppendixLO1
Identify the four main investment appraisal methods found in practice.AppendixLO1
Discuss the strengths and weaknesses of various techniques for dealing with risk in investment appraisal.AppendixLO1
Explain the methods used to monitor and control investment projects.AppendixLO1
Why is the net present value method of investment appraisal considered to be theoretically superior to other methods that are found in practice?AppendixLO1
The payback method has been criticised for not taking the time value of money into account. Could this limitation be overcome? If so, would this method then be preferable to the NPV method?AppendixLO1
Research indicates that the IRR method is extremely popular even though it has shortcomings when compared to the NPV method. Why might managers prefer to use IRR rather than NPV when carrying out
Why are cash flows rather than profit flows used in the IRR, NPV and PP methods of investment appraisal?AppendixLO1
The directors of Mylo Ltd are currently considering two mutually exclusive investment projects.Both projects are concerned with the purchase of new plant. The following data are available for each
Dirk plc has recently created a new male fragrance ‘Sirocco’ at a total cost of £0.4 million. The company is now considering producing the fragrance, which will require an immediate outlay for
Newton Electronics Ltd has incurred expenditure of £5 million over the past three years researching and developing a miniature hearing aid. The hearing aid is now fully developed. The directors are
C. George (Controls) Ltd manufactures a thermostat that can be used in a range of kitchen appliances. The manufacturing process is, at present, semi-automated. The equipment used cost £540,000 and
The accountant of your business has recently been taken ill through overwork. In his absence his assistant has prepared some calculations of the profitability of a project, which are to be discussed
simtex ltd has invested £120,000 to date in developing a new type of shaving foam. The shaving foam is now ready for production and it has been estimated that the new product will sell 160,000 cans
Identify the main sources of finance available to a business and explain the advantages and disadvantages of each.AppendixLO1
Outline the ways in which share capital may be issued.AppendixLO1
Explain the role and nature of the Stock Exchange.AppendixLO1
Discuss the ways in which smaller businesses may seek to raise finance.AppendixLO1
What are the potential disadvantages of raising finance through a sale-and-leaseback arrangement?AppendixLO1
Why might a business that has a Stock Exchange listing revert to being unlisted?AppendixLO1
Distinguish between an offer for sale and a public issue of shares.AppendixLO1
Distinguish between invoice discounting and factoring.AppendixLO1
Answer all parts of this question.Required:Provide reasons why a business may decide to:(a) L ease rather than buy an asset which is to be held for long-term use.(b) U se retained earning to finance
H. Brown (Portsmouth) Ltd produces a range of central heating systems for sale to builders’merchants. As a result of increasing demand for the business’s products, the directors have decided to
Devonian plc has the following equity as at 30 November Year 4:£m Ordinary shares 25p fully paid 50.0 General reserve 22.5 Retained earnings 25.5 98.0 The business has no long-term
Raphael Ltd is a small engineering business that has annual sales revenue of £2.4 million, all of which is on credit. In recent years, the business has experienced credit control problems. The
Russell Ltd installs and services heating and ventilation systems for commercial premises. The business’s most recent statement of financial position and income statement are as follows:Statement
Carpets Direct plc wishes to increase the number of its retail outlets in the south of England.The board of directors has decided to finance this expansion programme by raising the funds from
Gainsborough Fashions Ltd operates a small chain of fashion shops in North Wales. In recent months the business has been under pressure from its suppliers to reduce the average credit period taken
Identify and discuss the characteristics that make accounting information useful.AppendixLO1
What is the convention of consistency? Does this convention help users in making a more valid comparison between businesses?AppendixLO1
‘Depreciation is a process of allocation and not valuation.’ What do you think is meant by this statement?AppendixLO1
‘Although the income statement is a record of past achievement, the calculations required for certain expenses involve estimates of the future.’ What does this statement mean? Can you think of
explain the main accounting conventions underpinning the income statement.AppendixLO1
discuss the main recognition and measurement issues that must be considered when preparing the income statement;AppendixLO1
prepare an income statement from relevant financial information and interpret the information that it contains;AppendixLO1
discuss the nature and purpose of the income statement;AppendixLO1
‘An asset is similar to an expense.’ Do you agree?AppendixLO1
You have heard the following statements made. Comment critically on them.(a) ‘Equity only increases or decreases as a result of the owners putting more cash into the business or taking some
Fill in the values (a) to (f ) in the following table on the assumption that there were no opening balances involved.Relating to period At end of period Paid/Received Expense/revenue Prepaid
Spratley Ltd is a builders’ merchant. On 1 September the business had, as part of its inventories, 20 tonnes of sand at a cost of £18 per tonne and, therefore, at a total cost of £360. During the
‘An asset is similar to an expense.’ Do you agree?AppendixLO1
What is the convention of consistency? Does this convention help users in making a more valid comparison between businesses?AppendixLO1
‘Depreciation is a process of allocation and not valuation.’ What do you think is meant by this statement?AppendixLO1
‘Although the income statement is a record of past achievement, the calculations required for certain expenses involve estimates of the future.’ What does this statement mean? Can you think of
The owner of a business is confused and comes to you for help. The financial statements for the business, prepared by an accountant, for the last reporting period revealed a profit of
The following is a list of the assets and claims of Crafty Engineering Ltd at 30 June last year:£000 Trade payables 86 Motor vehicles 38 Long-term borrowing from Industrial Finance Co. 260 Equipment
The following is a list of assets and claims of a manufacturing business at a particular point in time:£Short-term borrowing 22,000 Property 245,000 Inventories of raw materials 18,000 Trade
Explain the nature and purpose of the three major financial statements.AppendixLO1
Financial accounting statements tend to reflect past events. In view of this, how can they be of any assistance to a user in making a decision when decisions, by their very nature, can only be made
Management accounting has been described as ‘the eyes and ears of management’. What do you think this expression means?AppendixLO1
Identify the main users of accounting information for a university. For what purposes would different user groups need information? Is there a major difference in the ways in which accounting
What is the purpose of producing accounting information?AppendixLO1
Explain the purpose of a business and describe how businesses are organised and structured.AppendixLO1
Explain the nature and roles of accounting and finance.AppendixLO1
Identify the main users of financial information and discuss their needs.AppendixLO1
Prepare a simple statement of financial position and interpret the information that it contains.AppendixLO1
Discuss the accounting conventions underpinning the statement of financial position.AppendixLO1
On 1 March, Joe Conday started a new business. During March he carried out the following transactions:1 March Deposited £20,000 in a newly-opened bank account.2 March Bought fixtures and fittings
While on holiday in Bridlington, Helen had her credit cards and purse stolen from the beach while she was swimming. She was left with only £40, which she had kept in her hotel room, but she had
The equity of Paul’s business belongs to him because he is the sole owner of the business. Can you explain how the figure for equity by Thursday evening has arisen? You will need to look back at
In recent years there have been attempts to place a value on the ‘human assets’ of a business in order to derive a figure that can be included on the statement of financial position. Do you think
What is meant by the accounting equation? How does the form of this equation differ between the two statement of financial position layouts mentioned in the chapter?AppendixLO1
‘The statement of financial position shows how much a business is worth.’ Do you agree with this statement? Explain the reasons for your response.AppendixLO1
An accountant prepared a statement of financial position for a business. In this statement, the equity of the owner was shown next to the liabilities. This confused the owner, who argued: ‘My
Discuss the uses and limitations of the statement of financial position for decision-making purposes.AppendixLO1
The following is the statement of financial position of TT and Co. (see Self-assessment question 3.1 on page 117) at the end of its first year of trading:Exerci ses 123 Statement of financial
The following is the income statement for Nikov and Co. for the year ended 31 December 2011, along with information relating to the preceding year.Income statement for the year ended 31 December 2011
On Thursday, the fourth day of his business venture, Paul, the street trader in wrapping paper(see earlier in the chapter, pages 41 to 44), bought more inventories for £53 cash. During the day he
It has been suggested that too much information might be as bad as too little information for users of annual reports. Explain.AppendixLO1
‘A business review should not be prepared by accountants but should be prepared by the board of directors.’ Why should this be the case?AppendixLO1
What problems does a user of segmental financial statements face when seeking to make comparisons between businesses?AppendixLO1
The size of annual financial reports published by limited companies has increased steadily over the years. Can you think of any reasons, apart from the increasing volume of accounting regulation, why
‘Searching for an agreed framework of principles for accounting rules is likely to be a journey without an ending’. Discuss.AppendixLO1
Discuss the threat posed by creative accounting and describe the main methods used to distort the fair presentation of position and performance.AppendixLO1
explain the purpose of two additional reports, segmental reports and the business review, and describe their main features.AppendixLO1
Prepare a statement of financial position, statement of comprehensive income and statement of changes in equity, in accordance with International Financial Reporting Standards.AppendixLO1
What problems are likely to be encountered when preparing summary financial statements for shareholders?AppendixLO1

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