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financial accounting an introduction

Questions and Answers of Financial Accounting An Introduction

The profits of the close corporation do not automatically accrue to the members.
The salary, interest on capital contribution and profit distribution accruing to the mem-bers is recorded in the Short-term loan to members' account.
The undistributed profit remains in the close corporation as "retained earnings".
There are liquidity requirements that have to be met before profits can be distributed.
Describe the information reported in a statement of cash flows
Understand the major classifications on the statement of cash flows: operating, investing and financing activities
Prepare a statement of cash flows according to the direct and indirect methods
Do a basic analysis of the statement of cash flows of a business.
She can see whether her business generates cash from its operations.
She will be able to assess whether her business is able to pay interest on borrowed funds, and settle outstanding debt.
She will be able to assess whether the business is able to pay its short-term debts.
She can plan future cash expenditure based on the cash she has available and by deter-mining the source of the cash in her business.
She will have information about the cash effects on the business of decisions to buy or sell assets.
1. Prepare the ledger account for Stationery for the year ended 31 December X2.2. What amount will be recognised in the statement of comprehensive income for the year ended 31 December X2?
3. How much cash did the business spend on stationery during the year ended 31 December X2?
4. Briefly explain why the two amounts are different.
5. Which amount do you think will affect the statement of cash flows of the business?
1. Assuming that there is no closing stock, calculate the profit for Tiny Tots for the year.
2. Assuming that purchases, wages, telephone and sales were paid or received in cash, how much money would Tiny Tots have in the bank at the end of the year?
3. Why is the cash in the bank different from the profit figure?
4. If the business had closing inventory of R20 000, how would this influence the profit?
5. Would the closing inventory influence the amount of cash in the bank? Explain your answer.
6. Assume that all the sales are on credit and 40% of the debtors have not paid by year-end. How would this influence the profit? How would this influence the amount of cash in the bank at the end of
1. Prepare ONLY the investing activities section of the statement of cash flows for the year ended 30 June X2.
2. Prepare the note to the statement of cash flows reconciling the cash generated by operations to net income before tax.
3. What is the purpose of a statement of cash flows?
4. Discuss whether you think, the cash generated from operations OR the net profit before taxation as calculated in the statement of comprehensive income is a better indicator of a company's success.
1. Prepare the Cash flow from operations section of the Statement of cash flows of Gua-temalan Gifts Ltd for the year ended 30 June X4 insofar as the given information allows, using the direct
2. Calculate the amount of interest paid during the year ended 30 June X4.(2 marks)
3. Prepare the note reconciling net profit before interest and tax with cash generated from operations.(12 marks)
4. Calculate the dividend that a shareholder with 500 shares is entitled to for the year ended 30 June X4.(2 marks)
Explain the objectives of financial analysis
Compare different techniques for analysing and interpreting financial statements
Calculate key ratios for evaluating all aspects of a business, including performance and capital structure
Describe the results of the analysis, with suggestions for improvement or explanation of the causes
Consider the benefits and limitations of financial analysis.
How it is calculated?
What it measures?
How it is expressed?
What it reveals?
How the company’s performance could be improved?
Understand the difference between a non-profit organisation and a profit-orientated organisation
Understand and prepare the different forms of financial reports generally used by non-profit organisations, such as the Statement of Receipts and Payments and the Income and Expenditure statement
Understand what coupons are, why they are often used by clubs, and how to record the relevant transactions
Prepare Subscription Fee accounts for clubs
Prepare the financial statements of non-profit organisations and clubs.
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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