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financial accounting an introduction

Questions and Answers of Financial Accounting An Introduction

● What other resources (such as expertise, work space and so on) are required for successful completion of the project?
● How much finance is required?
● Does the project align with the overall objectives of the business?
Qingdao Manufacturing Ltd is considering two competing projects. Details are as follows:● Project A has a 0.9 probability of producing a negative NPV of £200,000 and a 0.1 probability of producing
The accountant has informed you that the fixed costs include depreciation of £20,000 a year on the new equipment. They also include an allocation of £10,000 for fixed overheads.A separate study has
Earlier in the chapter we discussed the theoretical limitations of the PP method. How do you explain the fact that it still seems to be a popular method of investment appraisal among businesses?
(d) State, with reasons, whether or not the business should continue to operate the factory until the end of the lease period.
(c) What other factors might the directors take into account before making a final decision on the timing of the factory closure?
(b) Calculate the net present value of continuing operations until the end of the lease period, rather than closing immediately.
equipment could be sold for £220,000. The working capital at the factory is £420,000, and could be liquidated for that amount immediately, if required. Alternatively, the working capital can be
We should recall that, when we discounted the cash flows of the Billingsgate Battery Company machine investment opportunity at 20 per cent, we found that the NPV was a positive figure of £24,190
● Explain the methods used to review and control capital expenditure projects.
● Discuss the strengths and weaknesses of various techniques for dealing with risk in investment appraisal.
● Identify, discuss and apply the four main investment appraisal methods found in practice.
(c) Calculate, for each material, the cumulative variances and comment briefly on the results.Variances: periods one to six Period UK500 UK800£ £1 301 F 298 F 2 251 A 203 F 3 102 F 52 A 4 202 A 98
(b) The following comment was made by the production manager:‘I knew at the beginning of period six that UK194 would be cheaper than the standard cost specification, so I used rather more of it
Mowbray Ltd makes and sells one product, the standard costs of which are as follows:£Direct materials (3 kg at £2.50/kg) 7.50 Direct labour (15 minutes at £9.00/hr) 2.25 Fixed overheads 3.60 13.35
(b) Explain how the statement in (a) might be helpful to managers.
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 16,000
(d) ‘Most businesses do not have feedforward controls of any type, just feedback controls through budgets.’Required:Critically assess these remarks, explaining any technical terms.
(c) ‘Research evidence shows that the more demanding the target, the more motivated the manager.’
(b) ‘It is very valuable to calculate variances because they will tell you what went wrong.’
The budgeted output for March was 1,000 units of product X; the actual output was 1,100 units, which was sold for £34,950. There were no inventories at the start or end of March.The actual
(b) State which manager should be held accountable, in the first instance, for each variance calculated.Antonio plc makes product X, the standard costs of which are:£Sales revenue 31 Direct labour
Pilot Ltd makes a standard product, which is budgeted to sell at £5.00 a unit. It is made by taking a budgeted 0.5 kg of material, budgeted to cost £3.00 a kilogram, and working on it by hand by an
You have recently overheard the following remarks:(a) ‘A favourable direct labour rate variance can only be caused by staff working more efficiently than budgeted.’(b) ‘Selling more units than
13.4 Should all variances be investigated to find their cause? Explain your answer.
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 analysis?
What else does the senior management of Baxter Ltd need to know about the May sales volume variance?
Can you see any problems in comparing the various items (sales, raw materials and so on) for the budget and the actual performance of Baxter Ltd in order to draw conclusions as to which aspects were
● Explain the nature, role and limitations of standard costing.
● Discuss the issues that should be taken into account when designing an effective system of budgetary control.
● Undertake variance analysis and discuss possible reasons for the variances calculated.
● Discuss the role and limitations of budgets for performance evaluation and control.
A car rental firm is considering how long it should keep a car which cost £1000. It constructs the following cash forecast for the first five years of the car's life:Possible life (in years)o 234 5
Egg Eaters Ltd purchased a ship for £25,000 on I January 19XO, and decided to depreciate it at £2500 each year. At the end of 19X3, it was sold for £ 18,000. Show the entries for these
Elkington Traders Ltd purchases a machine for £2000, and estimates its optimal life to be five years and residual value to be £400. It is estimated that the sales, less expenses(other than
Explain how the usage method of depreciation could take account of repair costs for a fixed asset so that there is an appropriate expense in the profit statement during the life of an asset.
What are the arguments for and against an organisation such as the Government or the accounting profession specifYing the depreciation basis to be used by all firms.
When measuring the depreciation of a fixed asset what accounting concepts are important and why?
Edgar purchased a car in kit form for £200 and proceeded to assemble it himself. The following information was obtained:(a) £50 of special tools had to be purchased to construct the car.(b) His
The Ealing Co. Ltd installs a new machine in its factory. The following are some of the costs incurr~d by the firm during the first year of operation of the machine; should any of these be treated as
How would you prove that the following are assets of a firm: a ship, a lorry, an oil field, a good name, a patent, good employee relations.
What do you understand by the following terminology:Fixed asset Original cost Depreciation Accumulated depreciation Depreciation provision Residual value Net book value Sale of fixed asset account
Explain how and why you would collect the following data about a firm to assist in the preparation of its financial statements:(a) wages paid(b) rent paid and owing(c) the useful life of a van(d)
Explain any problems which may arise in a small transport firm in classifying the following expenses into functional areas:(a) petrol for lorries and cars from the firms pumps(b) insurance(c)
You are responsible for an accounting system which processes the following volume of data on a daily basis:1000 cheques received£5000 received in cash in 30 tills 300 cheques paid to suppliers 5000
Using the data from Question 3.2 prepare the T accounts, trial balance, profit (and loss) account and profit statement and balance sheet.
Many firms use computers to process and record accounting data. Is the analysis of transactions into 'debit' and 'credit' still meaningful and useful?
Examine the advantages and disadvantages of the use ofT accounts for the processing of accounting data.
What do you understand by the following terminology?Double-entry book-keeping Ledger T account Temporary account Debit Profit (and loss) account Credit Total account Balance Trial balance Information
'The owners' equity concept is redundant in the analysis of the accounts of nationalised industries and local authorities'. Do you agree?
'The entity concept delineates the area of the firm's responsibility too narrowly. The accounts of a firm should reflect the firm's social responsibilities by having both an owners' equity and social
What criteria determine the format of the balance sheet and profit statement?
An accountant values a firm at two points in time:Vo £1000 VI £1500 What assumptions are necessary to calculate the profit for the period? If you were informed that £300 new capital was introduced
Should a company be required to have a minimum amount of capital?
Crab Ltd is already in business and has prepared its balance sheet and profit statement for 19X 1. The following data has not been reflected in these statements. Explain what effect there would be on
The following are transactions relating to Crow, a wholesaler, during] anuary 19X 1 :(a) Commences business with £400 of his own cash, and £600 borrowed at an interest rate of 3% per quarter.(b)
What do you understand by the following terminology?Owners' equity Duality Accounting information Capital Retained profit Distribution Dividend Depreciation Long-term liability Working capital
Explain what you think are the chief weaknesses in the accounting concepts as described in Chapter 2.
Value the following for balance sheet purposes by applying the accounting concepts:(a) Land bought for £10,000. The company has had an offer of £20,000 but it doesn't wish to sell as the land is
Discuss the four approaches to valuation suggested in Chapter I in the context of the accounting concepts in Chapter 2.
Give examples of situations where the accounting concepts referred to in Chapter 2 might be in conflict with each other.
Is it possible to give a true or a fair view of a company's position using accounting information?
What is the role of the professional accounting organisation?
Which of the justifications for the existence of an agreed conceptual framework do you find most convincing?
What do you understand by the following terminology?Conceptual framework Matching (or accruals)Auditing Consistency Generally accepted accounting principles Conservatism True and fair view
The Anderson Company in 1.8 has been in business for two years only. It started on 1 July 19X 1 with £4000 cash borrowed from the bank. At 30 June 19X2 it had inventory £2000, debtors £3000,
Prepare a balance sheet from the following information, which is for the Anderson Company as at 30 June 19X3.Creditors Debtors Inventory Bank overdraft Machinery Buildings£5000 6000 4000 2000 5000
Why are accounting statements produced annually or at more regular intervals? What problems arise because of the necessity for such regular reporting?
Four alternative approaches to valuation are suggested in Chapter 1. Discuss how these might be applied to: a private car, a company car, a field, an automated production line, a computer, a
A firm borrows £10,000 on 1 January. DuringJanuary it buys goods for £6000 and then sells half of them for £5000. All transactions are in cash and the firm has no other assets and liabilities.
Draw a diagram which illustrates that value is a stock, and profit a flow, concept.
What, in your view, constitutes a healthy company?
List the different individuals or groups who might be interested in accounting information. What different aspects might they be interested in?
What do you understand by the following terminology?Value Selling price Balance sheet Accountability Future utility Profit statement Present value Deprival value Net worth Profit Opportunity cost
S12.1 (a) Using the information provided in question C12.1, prepare a spreadsheet containing a trial balance, adjustment and resulting figures for income statement (profit and loss account) and
B12.5 [S]Suppose the factory building in question B12.4 was valued by the professional expert at£240,000. What effect would this information have on the reported financial statements?
B12.4 [S]Fragrance plc has owned a factory building for many years. The building is recorded in the statement of financial position (balance sheet) at £250,000, being historical cost of £300,000
B12.2 [S]Explain the effect on the accounting equation of the following transactions and decisions regarding dividends:(a) The company pays a dividend of £20,000 during the accounting period.(b) The
B12.1 [S]Explain the effect on the accounting equation of each of the following transactions:(a) At the start of Year 1, Bright Ltd issues 200,000 shares at nominal value 25 pence per share,
A12.12 What is meant by:(a) offer for sale; (section 12.8.1)(b) capitalisation issue; and (section 12.8.2)(c) rights issue? (section 12.8.3)Explain the effect of each of the above on the statement of
A12.11 How do the directors report their recommended dividend for the financial period, to be agreed at the shareholders’ meeting? (Section 12.7)
A12.10 What is the purpose of the reconciliation of movements in equity? (Section 12.6.5)
A12.9 What is the purpose of the statement of total recognised income and expenses?(Section 12.6.4)
A12.8 Where may the reader of the annual report find out about the effect of movements in foreign exchange rates? (Section 12.3.6)
A12.7 Why may the revaluation of a non-current (fixed) asset not be reported in the profit and loss account? (Section 12.3.5)
A12.6 How is the revaluation of a non-current (fixed) asset reported? (Section 12.3.5)
A12.5 What is a share premium? How is it recorded? (Section 12.3.4)
A12.4 Why does the company not record the buying and selling of shares in its statement of financial position (balance sheet)? (Section 12.3.3)
A12.3 What is the effect on the accounting equation where new shares are issued for cash?(Section 12.3.1)
A12.2 What is the definition of ownership interest? (Section 12.2)
A12.1 Why may it be said that the ownership interest is the residual item in the accounting equation? (Section 12.1)
Look in the financial section of a newspaper for the list of recent issues of new shares.Obtain the address of one company from a trade directory and write politely to ask for a copy of the
For the analysis of each transaction you should look back to the previous sections where each type of transaction is dealt with in detail. Write down the effect of each transaction on the accounting
Look at the financial pages of a newspaper. Find the daily list of share prices. What information does the newspaper provide about shares in each company? Which of these items of information would
Explain the accounting treatment of dividends.
Explain the needs of users for information about the ownership interest in a company.
Explain and demonstrate how the ownership interest is presented in company accounts.
2 What major ratios are not shown in this summary? IFRS IFRS IFRS IFRS IFRS 2009 2008 2007* 2006 2005 '000 '000 '000 '000 '000 Consolidated income statement Revenue 214,805 208,122 185,989 176,626

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