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financial accounting an introduction

Questions and Answers of Financial Accounting An Introduction

Place a tick in one of the following grids to identify which of the four alternatives is the correct analysis of the side in which the items listed below will appear in a Trade receivables control
During October 2012, purchases, purchases returns and amounts paid to suppliers were £728,450, £11,200 and £682,500 respectively. As at 1 October a list of Trade payables ledger balances included
Which of the following statements relating to a Control account is correct?(i) A Control account is always written up on a memorandum basis(ii) A Control account may be part of the double-entry
Which of the following would be normal reason for a credit balance appearing in the Trade receivables ledger?(i) A customer may occasionally be also a supplier(ii) A customer could have returned some
Which of the following would be valid reasons for writing up Total or Control accounts?(i) It becomes possible to expedite the preparation of Trial Balances(ii) It could be part of the company’s
If the Trade receivables control account balance differs from the sum of individual receivable balances:(a) The Control account balance has to be the correct amount receivable from customers(b) The
As at 31 March 2012 the Trade receivables control account balance was reported as £296,400 and this did not agree with the sum of the individual customers’ balances. The following errors were
The sum of the debit balances extracted from the Trade receivables ledger is different from the debit balance carried down in the Trade receivables control account. Inquiries revealed the following
The sum of the individual customers’ balances as at 30 September 2012 was £492,800. This did not agree with the balance in the Receivable control account. The following errors have been
The Receivables control account balance, as at 30 June 2012, was £412,500. This did not agree with the sum of individual customers’ balances. The following errors have since been discovered:(a) A
If a Trial Balance balances when the Trade receivables control account balance is included in it and does not when the sum of the list of customers’ account balances is included, it would be
Which of the following errors will not cause the Trade receivables control account balance to disagree with the sum of the list of individual ledger balances?(i) A credit note for £900 issued to a
The difference in a Trial Balance was placed in a Suspense account and subsequently, upon correction of the following errors, the Suspense account balance was fully cleared:(a) £380, the weekly
Sheila, a cosmetics retailer, buys her supplies from Eumigs. As at 1 April Sheila owed Eumigs £29,450. She has received two invoices from Eumigs for purchases during April for £54,550 and £48,500.
Raymond, a dealer in motor spares, received a statement from his supplier Sedan plc requesting the balance to be paid as £179,500, whereas Raymond’s own Trade payables ledger shows that £98,440
Which of the following is an appropriate description of current assets?(a) Assets which are readily convertible into cash(b) Assets intended to be used or converted into cash within the next
Determine the amount of current assets and current liabilities that will result as at 31 December 2012 from all of the following adjustments:(i) Rent income account includes £3,600 received as rent
Which of the following would not be listed among current assets?(a) Trade receivables(b) Opening inventory(c) Closing inventory(d) Prepaid expenses
Which of the following would not be an appropriate description of working capital?(a) Current assets minus current liabilities(b) Capital employed in a business minus the amount tied up in
Simple Simon’s capital at commencement of the year was £234,500 and at the year-end was £258,400. Identify the profit he made in the year, in each of the following alternative scenarios:(a) He
Stated below are a list of accounting documents each identified by a letter stated in front. State in the grid on the right the appropriate identifying letter to name the document being described:(a)
On 1 January 2012 Paul borrowed £60,000 from his friend Peter agreeing to repay the amount in five equal instalments commencing from 1 January 2012. Ignore interest. How will the amount owed to
The City Emporium sells many different products. Though their turnover (sales) for the year was marginally better than that of the previous year, the gross profit ratio was significantly lower.
Sheila West commenced a retail outlet introducing as part of her capital Furniture £36,000, Motor vehicle £24,000, Inventory £48,000 and Cash £4,000. She has arranged with her bank that the
Lock, Stock and Barrel were in partnership sharing profits and losses in the ratio 3:2:1 respectively. Their Statement of financial position as at 31.3.2012 was prepared as shown. They decided to
Gerenia and Petunia, sharing profits in the ratio 2:1, respectively, have finalised their Statement of financial position on 30 June 2012 as stated in Activity 14.11. Their business is sold to
Refer back to the information stated in Activity 14.11. You are required to convert the books of the partnership into those of Foliage Ltd.Required: Set out the Statement of financial position
Lambert and Mirza were in partnership without any agreement. They admitted Newton to partnership on 1 October 2012. Profit of the partnership for the year ended 31 December 2012 was
Mary, Nelly and Olive are in partnership on the basis of an agreement which provides for equal sharing of profits after allowing Mary salary at £3,000 per month, but requires interest to be charged
Peter and Quintus were in partnership sharing profits in the ratio 3:2 respectively. They admitted Rufus for a fourth share of profit. What will be the new profit sharing ratio of all three partners
Red and Blue, partners, are finalising accounts annually on 31 December, and report their performance as shown. Crimson was admitted to a fourth share of partnership profits on 1 September 2012. What
Rose and Ivy, sharing profits in the ratio 2:1 respectively, and finalising annual accounts on 31 December, admit Liby for a fourth share of profit on 1 March 2012. Until Liby’s admission the
The Statement of financial position as at 30 June 2012, of Green and Amber, equal partners, appear as on the right. Current assets include £30,000 cash. Colourlights Ltd acquired the partnership on
The Statement of financial position as at 31 March 2012, of Sarah and Terry, sharing profits equally, reported their position as. Current assets included £30,000 cash. Expenses of dissolution
The Statement of financial position as at 31 March 2012, of Rose and Pink, equal partners, appears as shown. Current assets include £30,000 cash. Colours Ltd acquired the business on this date as a
Baker and Co’s had cash in hand of £455 and cash at bank of £7,540 on 1 July 2012 when the following transactions took place:(i) Paid £1,450 to Salt Ltd, a trade creditor, by cheque no 0475.(ii)
On 1 January 2012 a business had a capital of £300 and £350 non-current assets, £50 cash in hand and a bank overdraft of £100. The transactions in the month ended 31 January were as
The following items were identified in the course of bank reconciliation as at 31 May 2012:(i) The bank balance on that day as per the Cash Book was £46,400.(ii) Bank charges of £36 have been
Reward Bros’ Cash Book reported a bank balance on 14 September 2012 of £17,240 which did not match the balance reported in the bank statement. Inquiries revealed that:(i) Bank deposits totalling
Shown below is the Bank account in Bill Sach’s Cash Book and next to it the bank statement for the period ended 26 January 2012:Notes: S/O is standing order to pay rates. Dividends were
Rose Petal has identified a company to invest in and seeks your advice on whether she should invest in that company’s shares or debentures. How would you advise her?
The year-end Trial Balance extracted from the books of a business owned by Guy Morris included the ledger balances listed on the right. A third of the property cost relates to land which is not
The summarised Statements of income of two companies, Liverton and Everpool, for the year ended 31 May 2012 are shown. Liverton acquired 3,000,000 ordinary shares in Everpool for £3,500,000 on 1
Alpha acquired all of Beta’s equity for £780,000 on 1 July 2009 when:(i) Beta’s retained earnings were £125,000.(ii) Beta’s investments had a market value of £200,000.You are further
Following are the financial statements relating to Black, a limited liability company, and its subsidiary Bury.The following information is also available:(a) Black purchased its ordinary shares in
Alpha paid £520 to acquire 360 shares in Beta on 1 April 2009 when:(i) Beta’s retained earnings were £80 and(ii) Beta’s property had a market value which exceeded the book value by £100.(iii)
Though shares in Minor plc were quoted on this day at 145p each, Major plc paid £680,000 to acquire 400,000 ordinary shares of £1 each in Minor plc on 1 April 2010 when:(i) Minor’s retained loss
Alpha had acquired 70% of the equity in Beta on 1 April 2009 when Beta’s retained earnings were £400. Both companies have drafted their Statement of income as shown.You are informed as follows:(a)
The year-end Trial Balance of a business run by X, Y and Z as partners is shown. The partnership agreement provides that:■ X will receive a salary of £3,000 per month.■ Interest will be allowed
Sarah and Betty were in partnership sharing profits and losses in the ratio they contributed their capital, after allowing interest at 6% per annum on their fixed Capital account balances and
Tom, Dick and Harry are partners sharing profits in the ratio 2:1:1, respectively, after allowing Tom a salary of £3,000 per month and interest on capital account balances at 6% per annum. The
For a number of years you have been employed in a senior position by a firm of certified accountants. The two partners, Checke and Tikk, have now offered to take you into the firm as a junior partner
M and N were in partnership sharing profits in the ratio 2:1 respectively, until Q was admitted to a fourth share of profits on 1 July 2012. Goodwill was valued on that date at £120,000 but is not
Sun, Moon and Star are partners who make up their accounts to 31 December each year. Their agreement provides that interest is chargeable on their drawings at 6% per annum.■ Scenario 1: Sun draws
Sydney carried on a retail trade with a capital of £400,000 as at 1 July 2011, in premises owned by Carton, paying rent agreed at £5,000 per month. As from 1 January 2012 Carton was admitted to 40%
Blue and Green were in partnership, sharing profits in the ratio 2:1 respectively, after allowing 4% per annum interest on capital and paying Green a salary of £1,000 per month. Red worked as their
Penny and Sally have been sharing profits and losses in the ratio 3:2 respectively, after allowing Penny a salary of £2,000 per month and interest on partners’ fixed capitals at 6% per annum. They
A Little and B Sutton were two sole traders in the same line of business. On 1 June 2012 they decided to merge their businesses to form a partnership called Little Sutton. It was agreed that Little
Alpha and Beta, in partnership, and sharing profits in the ratio 3:2 respectively, drafted their Statement of financial position as set out on the left, and decided to dissolve their partnership. The
Alpha and Beta were in partnership sharing profits in the ratio 2:1 respectively, after allowing salary at £3,000 per month to Beta and interest on capital at 6% per annum. No interest is charged on
Alpha, Beta and Gamma were in partnership for many years sharing profits and losses in the ratio 5:3:2, respectively, and making up their accounts to 31 December each year. Alpha died on 31 December
Knight and Tower, sharing profits as 3:2, respectively, admit Rook to a sixth share of profit. Goodwill of the business on this date is valued at £180,000.Required: Set out the accounting
Ebb and Flow, who shared profits in the ratio 3:2, respectively, decided to terminate their partnership with effect from 31 March 2012 when their Statement of financial position was prepared as
Ebb and Flow, who shared profits in the ratio 3:2, respectively, prepared their Statement of financial position on 31.3.2012 as stated in Activity 14.8. Flow agreed to take over the bank overdraft as
Andrew, Berty and Clive, who carried on a partnership business, sharing profits in the ratio 2:2:1 respectively, have drafted their Statement of financial position as at 30 June 2012 as shown
George owns a car acquired for £24,000, using a loan of £6,000 from Finco Ltd. When he advertised the car for sale, John Smith agreed to buy it for £25,000.Required:(a) Account for the disposal of
After preparing their Statement of financial position as shown, Gerenia and Petunia sold their business, as a going concern, to Foliage Ltd, on the basis of the following valuations:■ Land and
Ridleys Novelties is a wholesaler, selling to retailers on one month’s credit and allowing them 4% cash discount if their remittance is received within a week of sale. The receipts from customers
Ridleys Novelties purchases its supplies on one month’s credit, on terms which allow 6% discount if payment is made within a week of purchase. Payments to suppliers in May 2012 were as stated on
When Alpha acquired the whole of Beta’s equity on 1 January 2011, Beta’s retained earnings were £100. The Statements of financial position of both companies, a year later, include the items
When preparing a Consolidated Statement of financial position any profit made by one member of the group against another should be eliminated unless it has been realised by disposal to someone
A parent owns two-thirds of the subsidiary’s equity. As at a year-end the subsidiary’s inventory includes goods sent to it by the parent invoiced at £360,000. Parent has purchased these goods
What is the amount of the unrealised profit to be eliminated if the parent’s year-end inventory includes at £540,000 goods invoiced to it by its 60% owned subsidiary at cost plus 25%? a £64,800 b
Subsidiary’s inventory at the year-end included £180,000 purchased from its parent. Further goods invoiced by the parent at £45,000 were in transit. The parent invoices the subsidiary at cost
When preparing a Consolidated Statement of financial position, the pre-acquisition portion of subsidiary’s retained earnings needs to be frozen by offsetting it from the cost of investments. Which
Any amount owed by one member of a group to another needs to be cancelled when preparing the Consolidated Statement of financial posiition. As at the year-end the parent’s receivable includes £90
As at the year-end the parent’s Statement of financial position reports rent receivable as an asset at £600 and this includes £150 due from the subsidiary. Subsidiary reports rent payable as
The parent paid £480 to acquire 75% of 300 ordinary shares issued by the subsidiary on 1 January 2012 when shares in the subsidiary were quoted at 180p per share and the equity and reserves of the
Which of the following statements is/are correct with regard to accounting for goodwill?(a) Goodwill needs to be written off as soon as it is identified(b) Goodwill is reported continuously as an
If the capital and reserves, including fair valuation gain of a subsidiary, is £5,400 and the parent acquires the whole of it for £4,000, the difference of £1,400 would be known as:(a) Goodwill(b)
How is a negative goodwill reported on the Consolidated Statement of financial position?(a) As a negative asset – i.e. shown on the asset side but as a deduction(b) As a reserve, which may
With regard to preparing a Consolidated Income statement which of the following statements are correct?(a) Only the group portion of subsidiary’s sales, cost of sales and expenses are included(b)
When preparing a Consolidated Statement of income, inter-company transactions are cancelled. Which one or more of the following would you say is the reason for this step?(a) That is how it is
Though a subsidiary is only partly owned, the whole of the subsidiary’s sales, cost of sales and expenses are aggregated with those of the parent to report the group’s income and expenses. Which
For identifying the group profit for the current year at which of the following points is the profit relating to non-controlling interest removed?(a) After identifying the gross profit(b) After
Alpha paid £300,000 on 1.1.2010 to acquire 80% of Beta. On that date Beta had in issue one hundred thousand ordinary shares of £1 each issued at 120p each, but quoted on this date at 145p. Identify
Alpha paid £750,000 to acquire 60% of equity in Beta on 1 January 2010. Beta’s Statement of financial position as at 31 December 2012 reports its Share capital as £500,000, Share premium as
As at 31 December 2012 the retained earnings reported in their own Statement of income by Alpha was £394,500 and by Beta £240,000. Identify the Consolidated Retained earnings as at 31 December 2012
Draft Statements of financial position are stated on the left. Alpha acquired 160 shares in Beta for £400 on 1 January 2008 when Beta’s retained earnings were £40, the fair valuation of its
Trading particulars of Alpha and its 75% controlled subsidiary Beta are shown. During the year Alpha sold goods to Beta for £90,000 and a third of these goods remain unsold with Beta by the yearend.
Trading particulars of Alpha and its 60% controlled subsidiary Beta are shown. During the year Alpha sold goods to Beta for £84,000 at cost plus a third. As at the year-end £16,000 of the goods
Jack and Jill are in business as partners without any formal agreement. Their Trial Balance as at the year-end appears as shown. During the year Jack’s drawings amounted to £35,000 and Jill’s to
In respect of the year ended 31 March 2012, partners Andy, Berty and Camron have been told that the partners’ entitlements are as stated.Required:(a) Identify the amount of the partnership profit
A, B and C carried on a business in partnership. They extracted their year-end Trial Balance as shown. You are informed as follows:(i) Goods costing £20,000 removed by partner A for personal use
The end portion of the individual Statements of income of Alpha and its subsidiary Beta are shown. Alpha acquired 75% of Beta three years earlier. Identify the amounts that should be reported on the
The individual Statements of financial position of the parent and the subsidiary, as at 31 December 2012, report their retained earnings as £540,000 and £297,000 respectively. The profit after tax
Individual Statements of income of Alpha and its 80% owned subsidiary Beta report the information shown. A fourth of the interest paid by Beta was received by Alpha. During the current year Beta has
Individual Statements of income of Alpha and its 80% owned subsidiary Beta report the information shown. A third of the interest paid by Beta was received by Alpha. During the current year Alpha has
Which of the following characteristics should exist to recognise a business as a partnership?(a) The business needs to be registered with the Registrar of Companies(b) The business needs to have more
With regard to a partnership agreement which of the following statements are correct?(a) Agreement may be an oral one(b) The agreement can be inferred from the manner of their past behaviour(c) The

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