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financial accounting an introduction

Questions and Answers of Financial Accounting An Introduction

3. What do we call the total market value of all goods and services produced within an economy?
2. When a specific investment choice is made, what is lost as a result?
1. What do all the resources listed above have in common, apart from the fact that they are in limited supply?
Identify the need for and objective of accounting.
Identify different business entities
Demonstrate an understanding of the general business and accounting environment
Continuing to use the annual reports of a company that you obtained for Chapter 1, look for the evidence in each report of the existence of the directors, the auditors and the various regulatory
C4.2 Choose one or more accounting measurement principles from the following list that you could use to discuss the accounting aspects of each of the problems 1–5 and explain your ideas.l going
C4.1 Choose one or more characteristics from the following list that you could use to discuss the accounting aspects of each of the statements 1 to 5 and explain your ideas:l Relevance l
B4.3 [S]Discuss the extent to which the regulatory bodies explained in this chapter have, or ought to have, a particular concern for the needs of the following groups of users of financial
B4.2 [S]Explain any two accounting measurement principles, explaining how each affects current accounting practice.
B4.1 [S]Explain each of the following:(a) The IAS Regulation(b) The Financial Reporting Council(c) The Auditing Practices Board
A4.6 Explain how the monitoring of financial statements is carried out by each of the following: (Section 4.5)(a) the auditors; and(b) the Financial Reporting Review Panel.
A4.5 Explain the impact on financial statements of each of the following: (Section 4.5)(a) company law;(b) the International Accounting Standards Board; and(c) the UK tax law.
A4.4 Explain the responsibilities of directors of a company towards shareholders in relation to the financial statements of a company. (Section 4.5.2)
A4.3 Explain why companies should avoid overstatement of assets or understatement of liabilities. (Section 4.4)
A4.2 Explain the accounting measurement principles of each of the following: (Section 4.3)(a) going concern;(b) accruals;(c) consistency;(d) the concept of prudence.
A4.1 Explain what is meant by each of the following: (Section 4.2)(a) relevance;(b) reliability;(c) faithful representation;(d) neutrality;(e) prudence;(f) completeness;(g) comparability;(h)
Read David’s explanation again and compare it carefully with the financial statements. It is quite likely that you will not understand everything immediately because the purpose of this book as a
Look back through this section and, for each subheading, make a note of whether you were previously aware that such regulation existed. In each case, irrespective of your previous state of knowledge,
Ask yourself what will happen to profit in the accounting equation if the amount of an asset is increased while the liabilities and the capital contributed remain the same. Then ask yourself what
Take a piece of paper having two wide columns. Head the left-hand column ‘My thoughts on measurement in accounting’ and head the right-hand column ‘What the book tells me about measurement’.
Look back to Figure 4.1. Is there any aspect of that diagram which came as no surprise to you? Is there any aspect of that diagram which was a surprise to you? Having read the explanations in this
Explain how and why financial reporting is regulated or influenced by external authorities.
2 Why is it more likely that the industries listed for attention could face more ‘challenges’ in recognising revenues and in expensing costs?The Financial Reporting Review Panel Press notice: The
1 Is it a good idea for the Financial Reporting Review Panel to focus on particular industry sectors in monitoring the quality of financial reporting?The Financial Reporting Review Panel Press
1 Which activities are the main contributors to the profit of the Home Retail Group?We are the UK’s leading home and general merchandise retailer.Argos and Homebase are two of the UK’s leading
1 What are the proportions of raw materials, work in progress and finished goods inventories?This case extracts information from the annual report of Cadbury plc to show how the company explains its
1 What do we learn about the group’s policy of paying suppliers?The Group’s policy is to agree terms of transactions, including payment terms, with suppliers and, provided that suppliers perform
1 Why is there a provision when the decommissioning will take place so far into the future?The group makes full provision for the future cost of decommissioning oil and natural gas production
1 What reason did the group give for choosing to measure the revaluation of its property assets?Revaluation of tangible non-current assets Significant accounting policies (extract)c) Tangible assets
2 What does the four-year summary tell us about the group?We are the UK’s leading home and general merchandise retailer.Argos and Homebase are two of the UK’s leading retail brands, with large
2 How does the company deal with the volatile prices of cocoa and sugar?This case extracts information from the annual report of Cadbury plc to show how the company explains its management of current
2 How significant is the amount of trade payables in the current liabilities?The Group’s policy is to agree terms of transactions, including payment terms, with suppliers and, provided that
2 What are the significant uncertainties in estimating the amounts of the provisions?The group makes full provision for the future cost of decommissioning oil and natural gas production facilities
2 How significant was the magnitude of the revaluation and how was it reported?Revaluation of tangible non-current assets Significant accounting policies (extract)c) Tangible assets In 2008, Portugal
A6.3 [S] The following transactions relate to Toy Manufacturers Company during the month of June.a) Calculate the profit on sale.(b) Explain the effect of each transaction on the accounting
A6.4 [S] The following list of transactions relates to the business of Peter Gold, furniture supplier, during the month of April. Analyse each transaction to show the two aspects of the transaction
B11.1 [S]The Washing Machine Repair Company gives a warranty of no-cost rectification of unsatisfactory repairs. It has turnover from repair contracts recorded as:Based on previous experience the
A9.10 [S] The Sycamore Company has inventories which include the following four items:What amount should be reported as total inventory in respect of these three items? Description Purchase cost
B9.1 [S]During its first month of operations, a business made purchases and sales as shown in the table below:All sales were made at £2 each.Required Calculate the profit for the month and the stock
B9.2 [S]A company has a stock of goods consisting of four different groups of items. The cost and net realisable value of each group is shown in the table belowRequired Calculate the amount to be
B12.3 [S]The following is a summarised statement of financial position (balance sheet) of Nithsdale Ltd.The company is considering three possible changes to its capital structure:(a) issue for cash
C10.1 [S]The following file of papers was found in a cupboard of the general office of Green Ltd at the end of the accounting year. Explain how each would be treated in the financial statements and
C12.1 Set out below is a summary of the accounting records of Titan Ltd at 31 December Year 1:The summary of the accounting records includes all transactions which have been entered in the ledger
C9.2 It is the policy of Seaton Ltd to make provision for doubtful debts at a rate of 10% per annum on all debtor balances at the end of the year, after deducting any known bad debts at the same
Understand terminology used with regard to companies
Know what we mean by the term "company"
Recognise the characteristics of a company
Understand the basic principles and procedures for forming a company
Understand what is meant by the term "shareholders" and the rights of the shareholders
Discuss how a company obtains capital
Record the transactions which are specific to companies
Describe how a company issues share capital
Understand the importance of share buy-backs
Understand when retained income and reserves arise
Recognise income tax and capital gains tax
Discuss secondary tax on companies and dividend tax
Know what happens when a company declares a dividend
Present the annual financial statements of a simple company in terms of generally accepted accounting practice.
What does it mean when the company's name ends with the letters "plc", such as Old Mutual plc? It is the abbreviation for public liability company, and has the same meaning as Ltd for companies
What should Judy's decision be? Should she register Handbags for Africa as a private or a public company?
They are binding between a company and each shareholder.
They are binding between or among the shareholders of the company.
They are binding between the company and each director.
They are binding between the company and each prescribed officer of the company.
When can a company repay shareholders their initial capital investment before liquidation if the shares are not redeemable shares?
1. Is Landy Suppliers a public or private company? Motivate your answer.
2. What is the authorised share capital of Landy Suppliers Ltd?
3. What is the par value of each ordinary share?
4. Who are the subscribers to the memorandum?
5. Calculate how much money Landy Suppliers Ltd would have received from the subscribers to the memorandum.
6. After the shares were allotted to the subscribers to the memorandum, what was the balance of shares that could be offered to other parties?
7. How many shares were offered to the public?
8. At what price were the shares offered to the public?
9. How many shares were subscribed for by the public?
10. Calculate how much money Landy Suppliers Ltd would have received from the public.
11. Of the amount received from the public, can you calculate what amount represents share premium and what amount represents ordinary share capital?
12. The underwriter for the issue of shares to the public by Landy Suppliers Ltd is Sharks Merchant Bank. What role does an underwriter play?
13. If the public had not subscribed for any shares, how many shares would the underwriter have had to purchase?
14. What is the total amount that the underwriter would have paid for the shares, assuming that the public had not taken up any of the shares?
15. The public subscribed for 77 000 ordinary shares. How many shares are liable to be purchased by Sharks Merchant Bank?
16. Calculate the amount that Landy Suppliers Ltd will receive from Sharks Merchant Bank.
What factors should she take into consideration in deciding between setting up a partnership or a separate legal entity?
How should the profits be shared between her and her cousin?
How would the recording of transactions of a partnership or a separate legal entity differ from those of a sole proprietor?
How would the Statement of comprehensive income and Statement of financial position of a partnership or a separate legal entity differ from those of a sole proprietor?
Understand the relationship between the owners and the partnership
Understand the reasoning behind the owners' equity format of a partnership
Understand that the underlying concepts of accounting do not change if the type of business entity changes
Record the transactions and complete the Statement of comprehensive income and statement of financial position of a partnership
Understand what are the major differences between introducing a partner to an existing business as opposed to opening a new business
Understand the process that is followed when a partnership is liquidated
Record equity in a close corporation
Understand the members' interest in a close corporation.
1. The partnership paid Joseph cash for his share of the equity.
2. Joseph has taken a vehicle with a carrying amount of R40 000 as part payment; the remainder of the amount owing has been paid in cash (remember that as the assets have been revalued to fair value,
3. The partnership needs the cash on hand to purchase a new piece of land. It has been decided that the amount owing to Joseph will be treated as a loan and he will be paid out over the next 12
The owners are separate from the close corporation and have limited liability.
The format of the Capital account is different from those of a sole proprietor and a partnership; members' accounts are grouped together and collectively known as"members' contributions".

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