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financial accounting an introduction

Questions and Answers of Financial Accounting An Introduction

B13.1 [S]The following financial statements relate to Hope plc:The directors have recommended a dividend of 36.7 pence per share in respect of Year 4, to be paid following approval at the next annual
B13.2 The following financial statements relate to Charity plc:Note: The directors have recommended a dividend of 11.4 pence per share in total in respect of Year 4, to be paid following approval at
1 How does the company engage with stakeholders?These processes [of governance] are supported by stakeholder engagement, which helps to ensure Vodafone is aware of the issues relevant to the business
2 How would the ‘performance’ information be viewed by different stakeholders?These processes [of governance] are supported by stakeholder engagement, which helps to ensure Vodafone is aware of
Read through the sections on the business review and the OFR again. How much of the information suggested for the business review or the OFR is extracted directly from the financial statements? How
Obtain the annual report of a listed company. Turn to the report on corporate governance.What does the company say about corporate governance and about compliance with the Combined Code? What do the
Looking back through Chapters 8 to 12, identify matters of accounting practice where more than one accounting policy is permitted. If you were an auditor, how would you decide whether one or other of
Look at the items you possess. These might include a house or a flat or a car, but equally well they could be a bicycle and some modest items of furniture. Whatever their nature, write down on a
A14.1 What is the objective of the operating and financial review? (Section 14.2.1)
A14.2 Why is there no prescribed format for the OFR? (Section 14.2.2)
A14.3 What are the main principles set by the ASB for the OFR? (Section 14.2.2)
A14.4 What are the main elements of the disclosure framework for the OFR? (Section 14.2.3)
A14.5 What are key performance indicators (KPIs)? (Section 14.2.4)
A14.6 What are the particular requirements of the OFR Regulation that must be reported in an OFR? (Section 14.2.5)
A14.7 What are the responsibilities of the directors and auditors in relation to the OFR?(Section 14.2.6)
A14.8 What is the purpose of a highlights statement? (Section 14.3.1)
A14.9 How does a five-year summary of historical results help investors? (Section 14.3.2)
A14.10 How does segmental information help the users of financial statements? (Section 14.4.1)
A14.11 Which items are reported on a segmental basis? (Section 14.4.1)
A14.12 How are segments identified? (Section 14.4.3)
A14.13 Why is off-balance-sheet finance a problem in accounting? (Section 14.5)
A14.14 What principles are recommended by the UK ASB for determining whether assets and liabilities should be reported on the statement of financial position (balance sheet)?(Section 14.5.2)
A14.15 What is a special purpose entity? (Section 14.5.3)
A14.16 What is corporate social responsibility? (Section 14.6)
A14.17 What is the Global Reporting Initiative? (Section 14.6.3)
A14.18 What accounting issues arise in relation to carbon trading? (Section 14.6.4)
A14.19 What is meant by corporate governance? (Section 14.7)
A14.20 What is the Combined Code? (Section 14.7.1)
A14.21 How does financial reporting help to improve corporate governance? (Section 14.7)
A14.22 Why has it been found impossible to write a definitive guide on the meaning of ‘a true and fair view’? (Section 14.8)
A14.23 What are the limitations of historical cost accounting? (Section 14.9.2)
A14.24 Why is it desirable to remeasure assets and liabilities subsequent to acquisition?(Section 14.9.3)
A14.25 Explain what is meant by entry price and exit price. (Section 14.9.4)
A14.26 Explain what is meant by fair value. (Section 14.9.6)
A14.27 Should accounting standards focus primarily on the needs of users? (Section 14.10)
B14.1 Suggest, with reasons, three KPIs for each of the following types of business, and explain why it is unlikely that two businesses will choose identical KPIs.(a) a private hospital(b) a car
C14.1 [S]Carry out a trend analysis on Safe and Sure plc, using the historical summary set out in Appendix I. Write a short report on the key features emerging from the trends.
C15.1 [S]The directors of Fruit Sales plc produced the following income statement (profit and loss account) for Year 2 and balance sheet at the end of Year 2.Further information 1 The dividend paid
Consider the following:Further information 1 The dividend paid during Year 2 was £25m. The retained earnings increased by £77m profit of the period and decreased by the amount of the dividend,
B15.6 The corporation tax charge in the income statement (profit and loss account) for Year 2 was£30m. The tax liability in the balance sheet at the start of Year 2 was £6m. The tax liability in
B15.5 The share capital account increased by £40m during Year 4. The share premium reserve increased by £20m. What amount of cash was raised by the issue of shares?
B15.4 A vehicle costing £20m and having accumulated depreciation of £12m was sold for £5m. How will this information be reported in the statement of cash flows?
B15.3 [S]The equipment at cost account at the start of Year 2 records a total of £34m. The equipment at cost account at the end of Year 2 records a total of £37m. An asset of original cost £5m was
B15.2 [S]Purchases on credit during Year 3 amount to £20m. The trade payables (creditors) at the start of Year 3 were £6m. The trade payables (creditors) at the end of Year 3 were £4m. What is the
B15.1 [S]Sales on credit during Year 2 amount to £120m. The trade receivables (debtors) at the start of Year 2 were £8. The trade receivables (debtors) at the end of Year 2 were £10. What is the
A15.19 Explain how the cash paid to suppliers is calculated if we know the purchases and the payables (creditors) at the start and end of the period. (Section 15.5)
A15.18 Explain how the purchases of goods or materials is calculated if we know the cost of goods sold and the inventory (stock) at the start and end of the period. (Section 15.5)
A15.17 Explain how cash received from customers is calculated if we know the sales of the period and the receivables (debtors) at the start and end of the period. (Section 15.5)
A15.16 Explain how the cash proceeds of a share issue are calculated from knowledge of the share capital and the share premium reserve. (Section 15.4)
A15.15 Explain how the proceeds of sale of a non-current asset differ from the net book value.(Section 15.4)
A15.14 How is the cash paid for additions to fixed assets if we know the opening and closing balances and there are no disposals? (Section 15.4)
A15.13 How is taxation paid calculated from the taxation payable and the taxation liability at the start and end of the period? (Section 15.4)
A15.12 What happens to cash flow when working capital increases? (Section 15.4)
A15.11 What kinds of items in a profit and loss account do not involve a flow of cash?(Section 15.4)
A15.10 What are the three main sections of a statement of cash flows? (Section 15.4)
A15.9 What are the relative benefits of the direct method compared to the indirect method?(Section 15.3.3)
A15.8 What is the effect on cash flow of an increase in trade payables (creditors)?(Section 15.3.2)
A15.7 What is the effect on cash flow of an increase in trade receivables (debtors)?(Section 15.3.2)
A15.6 What is the effect on cash flow of an increase in inventory levels? (Section 15.3.2)
A15.5 Why is depreciation ‘added back’ to operating profit in the indirect method of calculating operating cash flow? (Section 15.3.2)
A15.4 What is meant by the ‘indirect method’ of calculating operating cash flow?(Section 15.3.2)
A15.3 What is meant by the ‘direct method’ of calculating operating cash flow? (Section 15.3.1)
A15.2 What is the definition of ‘cash equivalent’? (Section 15.2)
A15.1 What is the definition of ‘cash’? (Section 15.2)
2 Why might the company want to use cash flow to reduce net debt?Chairman’s statement (extract)Operating cash flow was £43.0 million (2008: £30 million), representing 93% of adjusted operating
1 How does the discussion explain the company’s view on the cash invested in working capital?Chairman’s statement (extract)Operating cash flow was £43.0 million (2008: £30 million),
A13.8 What are the limitations of ratio analysis? (Section 13.6)
A13.7 Explain the use of the pyramid of ratios in analysis of performance. (Section 13.5)
A13.6 Why is financial gearing riskier for a company which has fluctuating profits? (Section 13.4.3)
A13.5 What is the view of investors on risk and return? (Section 13.4)
A13.4 Which ratios provide information on gearing? (Section 13.3.4)
A13.3 Which ratios provide information on liquidity and working capital? (Section 13.3.3)
A13.2 Which ratios provide information on management performance? (Section 13.3.2)
A13.1 Which ratios provide information on performance for investors? (Section 13.3.1)
Read again the sections of Chapters 3, 4 and 7 on statements of cash flows. What is the purpose of the statement of cash flows? What are the main headings? Which ratios may be used in conjunction
Use the ratios explained in section 13.6 to carry out a full analysis of the Year 2 column of the accounts of Peter (Television) plc. Prepare your analysis before you read Tables 13.3 to 13.6.When
Write down the name of each ratio given in this section. Close the book and test your knowledge by writing down the formula for each ratio. Then write one sentence for each ratio which explains its
3 In your group, take the list of qualitative characteristics listed at section 4.2 and use the financial statements as a means of illustrating how the company has met those characteristics.If you
2 Find the Operating and Financial Review (sometimes named the finance director’s review)and compare the cash flow discussion there with the FRS 1 presentation. Form a view on how readily the
1 Compare the financial statements with the formats and presentations shown in this chapter, and note any differences which you observe. Look at the notes to the accounts for items which are required
C7.1 [S]A listed company is of the view that shareholders might welcome a statement of highlights and supplementary information as a leaflet to be inserted in the annual report. Give advice on the
B7.4 [S]Could a cash flow statement be presented as the only financial statement reported by a company? Explain your view.
B7.3 [S]What features are likely to make a balance sheet helpful to users?
B7.2 [S]Write a note for financial analysts explaining how the published income statement (profit and loss account) provides a useful indication of the financial performance of a company.
B7.1 [S]Write a letter to the financial controller of a company advising on the factors which a company should take into consideration when deciding how to arrange information in financial statements.
A7.19 Apart from the annual report, what other documents do companies use to communicate financial statement information to investors, creditors and other users of financial statements?(Section 7.9)
A7.18 What is an associated company? (Section 7.8.5)
A7.17 Explain what is meant by goodwill on acquisition. (Section 7.8.4)
A7.16 Explain, using the accounting equation, the effect on the parent company’s balance sheet of a share issue in exchange for shares in the subsidiary company. (Section 7.8.1)
A7.15 Explain, using the accounting equation, the effect on the parent company’s balance sheet of a cash payment for an investment in a subsidiary company. (Section 7.8.1)
A7.14 Define the terms: (Section 7.7.1)(a) group;(b) parent company; and(c) subsidiary.
A7.13 Explain the purpose of consolidated financial statements. (Section 7.7)
A7.12 Explain why groups of companies are formed. (Section 7.7)
A7.11 Why does depreciation appear as a line item in the reconciliation of operating profit with cash flow? (Section 7.6.3)
A7.10 What are the main sections of a cash flow statement prepared according to IAS 7?(Section 7.6)
A7.9 What are the main headings to be found in most company income statements (profit and loss accounts)? (Section 7.5)
A7.8 In the Companies Act formats, what is the reason for the order of items under heading C: current assets? (Section 7.4)
A7.7 What are the main headings to be found in most company balance sheets? (Section 7.4)
A7.6 How do companies report: (Section 7.3.1)(a) financial position;(b) performance; and(c) changes in financial position?
A7.5 The following technical terms appear in this chapter. Check that you know the meaning of each. (If you cannot find them again in the text, they are defined at the end of the book.)(a) revenue(b)

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