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financial accounting an introduction

Questions and Answers of Financial Accounting An Introduction

A7.4 Name the primary financial statements and explain the purpose of each. (Section 7.3.1)
A7.3 What is the role of the IASB? (Section 7.2.2)
A7.2 What is the IAS Regulation? (Section 7.2.1)
A7.1 What is a Directive? (Section 7.2.1)
Obtain the interim report and the annual report of a major listed company. Compare the interim report with the annual report. What are the information items in the interim report? How do they compare
P pays cash of £8m for an investment in net assets of S Ltd having a net book value(equal to fair value) of £6m. Explain how this transaction will affect the balance sheet of P plc as the parent
P plc pays cash of £6m for an investment in net assets of S Ltd having a net book value(equal to fair value) of £6m. Explain how this transaction will affect the balance sheet of P plc as the
Check your understanding of the terms: parent, subsidiary, control, acquisition. Write down a definition of each and then look back through this section to test your definition against that in the
Read again the format for the balance sheet. How many of the items there came as no surprise to you? How many looked unfamiliar? Make a note of these and check that you find out about them in later
Write down three items of accompanying information about a company which you feel would be useful in the annual report of a company. Exchange lists with other members of the group and establish the
From your general interest reading, or perhaps from your study of law, make a list of other areas of activity in which the UK law is harmonised with that of other countries in the EU.
S11.2 Prepare bookkeeping records for the information in question B11.2
S11.1 Prepare bookkeeping records for the information in question B11.1.
C11.2(Refer also to Chapter 10, section 10.3.2, on Contingent liabilities.)Explain why each of the following is reported as a contingent liability but not recognised as a provision in the statement
C11.1 Explain why each of the following is recognised as a provision in the statement of financial position(balance sheet) of a telecommunications company:(a) On 15 December Year 2, the Group
B11.2 [S]General Engineering Ltd receives a government grant for £60,000 towards employee training costs to be incurred evenly over the next three years. Explain how this transaction will be
A11.7 [S] On reviewing the financial statements, the company accountant discovers that there has been no provision made for urgent repairs to external doors and window frames, already identified as
A11.6 [S] On reviewing the financial statements, the company accountant discovers that a grant of £60,000 towards expenditure of the current year plus two further years has been reported entirely as
A11.5 Explain what is meant by each of the following terms: (Section 11.6)(a) loan stock;(b) debenture;(c) bond;(d) maturity date; and(e) convertible loan stock.
A11.4 Is it justifiable to report deferred income under the category of liability? (Section 11.5)
A11.3 Explain how deferred income is recorded. (Section 11.5)
A11.2 Give three examples of situations which may lead to provisions. (Section 11.4)
A11.1 Explain why a provision may be required. (Section 11.4)
A three-year loan of £100,000 will be repaid at the end of three years as £133,100.No interest is payable during the three-year period. The interest included in the loan repayment arrangement is
A financial weekly magazine contains the following sentence:Telecoms plc this week raised cash by selling $1m bonds with five-year and ten-year maturities.Explain each part of the sentence.
Test your understanding of the previous section by analysing the following information and entering it in a spreadsheet to show analysis of the impact of the information on the accounting
Define a non-current (long-term) liability.
S10.4 Prepare bookkeeping records for the information in question C10.1.
S10.3 Prepare bookkeeping records for the information in question B10.3.
S10.2 Prepare bookkeeping records for the information in question B10.2.
S10.1 Prepare bookkeeping records for the information in question B10.1.
Before you read further, attempt to write down the debit and credit entries for: each of the three invoices received; the payments of those three invoices; and the estimated amount due for payment at
Turn to the annual report of a listed company which you have used for activities in previous chapters. Find every item of information about current liabilities. (Start with the financial statements
B10.3 [S]The accountant of Brown Ltd has calculated that the company should report in its profit and loss account a tax charge of £8,000 based on the taxable profit of the period. Of this
B10.2 [S]Plastics Ltd pays rent for a warehouse used for storage. The quarterly charge for security guard services is £800. The security firm sends an invoice on 31 March, 30 June, 30 September and
B10.1 [S]White Ltd commenced trading on 1 July Year 3 and draws up its accounts for the year ended 30 June Year 4. During its first year of trading the company pays total telephone expenses of
A10.11 [S] On reviewing the financial statements, the company accountant discovers that an invoice for the rent of £4,000 owed to its landlord has been recorded incorrectly as rent receivable of
A10.10 [S] On reviewing the financial statements, the company accountant discovers that a payment of £21,000 made to a supplier has been omitted from the cash book and other internal accounting
A10.9 [S] On reviewing the financial statements, the company accountant discovers that a supplier’s invoice for an amount of £10,000 has been omitted from the accounting records. The goods to
A10.8 Explain what is meant by the matching concept. (Section 10.7)
A10.7 What is meant by an accrual? How is it recorded? (Section 10.7)
A10.6 How are the current liabilities for (a) bank overdraft and (b) trade creditors measured?(Section 10.6)
A10.5 What information do users of financial statements need to have concerning current liabilities of a company? (Section 10.4)
A10.4 What is a contingent liability? (Section 10.3.2)
A10.3 What is the effect of understatement of liabilities? (Section 10.3.1)
A10.2 What is the distinction between a long-term liability and a current liability? (Section 10.2)
A10.1 What is the definition of a liability? (Section 10.2)
Write down the documentation you would expect to see as evidence of the money amount of the following liabilities:l bank overdraft;l amount owing to a trade supplier.Now read the next sections and
Consider the four examples of contingent liability given at the start of this section. Based on the definition, explain why each is a contingent liability.
Look back to Table 2.3, which analyses some common types of liability. Set up on a blank sheet a similar table with four columns and headings for: type of liability; obligation;transfer of economic
Explain how liabilities for taxation arise in companies.
Explain the terms ‘accruals’ and ‘matching concept’ and show how they are applied to expenses of the period.
Explain the features of current liabilities and the approach to measurement and recording.
Explain how the information presented in a company’s statement of financial position (balance sheet) and notes, in relation to liabilities, meets the needs of users.
Explain the conditions for recognition of liabilities.
Define a liability and explain the distinguishing feature of current liabilities.
S9.3 Record the transactions of question B9.5 in ledger accounts for L6 Expense of insurance and L7 Prepayment.
S9.2 Record the transactions of question B9.4 in ledger accounts for L1 Receivables(debtors), L2 Provision for doubtful debts, L3 Cash and L4 Profit and loss account.
S9.1 Record the transactions of question B9.3 in ledger accounts for L1 Receivables(debtors), L2 Provision for doubtful debts, L3 Cash and L4 Profit and loss account.
Turn to the annual report of a listed company which you have used for activities in previous chapters. Find every item of information about current assets. (Start with the financial statements and
C9.1 A fire destroyed a company’s detailed stock records and much of the merchandise held in stock. The company accountant was able to discover that stock at the beginning of the period was
B9.5 On 1 December Year 1 a company paid £2,400 as an insurance premium to give accident cover for the 12 months ahead. The accounting year-end is 31 December.Required Prepare an accounting equation
B9.4 The Bed Company continues trading during Year 4. The statement of financial position (balance sheet) at the end of Year 4, in its first draft, showed receivables (debtors) as £4,850 and the
B9.3 At the end of Year 3 the Bed Company has a statement of financial position (balance sheet)comprising £3,000 receivables (debtors), £8,000 other assets and £11,000 ownership interest,
A9.12 [S] On reviewing the financial statements, the company accountant discovers that an amount of £154,000 owed by a customer will be irrecoverable because the customer has fled the country. What
A9.11 [S] On reviewing the company’s financial statements, the company accountant discovers that items of year-end inventory of goods which cost £18,000 have been omitted from the record. What
A9.9 Why are there problems with revenue recognition? (Section 9.11.2)
A9.8 What is meant by ‘revenue recognition’? (Section 9.11)
A9.7 What is a prepayment? (Section 9.10)
A9.6 How is a provision for doubtful debts decided upon? (Section 9.9)
A9.5 What is meant by FIFO, LIFO and the average cost method of pricing issues of goods?(Section 9.8.3)
A9.4 What information do users need about current assets? (Section 9.5)
A9.3 What are the features of raw materials, work in progress and finished goods which justify their recognition in a balance sheet? (Section 9.4.1)
A9.2 What is the working capital cycle? (Section 9.3)
A9.1 What is the definition of a current asset? (Section 9.2)
Look back to Table 9.1 and write your own table of data for goods received, unit price, price paid and goods issued to production. Create calculations of cost of goods sold, using the various models
This section has covered in some detail the characteristics of various groups of current assets. Before reading the next section, write down what information you would expect to see, in respect of
Using the definition provided, explain why each item in the foregoing list may be classed as a current asset. Could a plot of land ever be treated as a current asset?
S8.2 Write a short commentary on each ledger account prepared in S1, to enable a nonaccountant to understand their purpose and content.
S8.1 Prepare ledger accounts to report the transactions and events of questions C8.1 and C8.2.
Turn to the annual report of a listed company which you have used for activities in previous chapters. Find every item of information about non-current (fixed) assets. (Start with the financial
C8.3 [S]The Souvenir Company purchased, on 1 January Year 1, a machine producing embossed souvenir badges. The machine cost £16,000 and was estimated to have a five-year life with a residual value
C8.2 [S]The biscuit machine in question C8.1 was sold at the end of Year 4 for a price of £3,000.Required(a) Prepare the spreadsheet for Year 4 analysing the transactions and events of the year.(b)
C8.1 [S]The Biscuit Manufacturing Company commenced business on 1 January Year 1 with capital of £22,000 contributed by the owner. It immediately paid cash for a biscuit machine costing£22,000. It
B8.6 On 1 January Year 1, Company A purchased a bus costing £70,000. It was estimated to have a useful life of three years and a residual value of £4,000. It was sold for £8,000 on the last day of
B8.5 Explain how the accounting equation spreadsheet of your answer to question B8.4 would alter if the building had been sold for £250,000.
B8.4 Angela’s Employment Agency sells the building for £285,000 on the final day of December Year 3. Record the transactions and events of Year 3 in an accounting equation spreadsheet. (See Table
B8.3 Assume that fee income and costs are the same in Year 2 as in Year 1. Record the transactions and events of Year 2 in an accounting equation spreadsheet. Prepare the statement of financial
B8.2 On 1 January Year 1, Angela’s Employment Agency was formed. The owner contributed £300,000 in cash which was immediately used to purchase a building. It is estimated to have a 20-year life
B8.1 [S]On reviewing the financial statements of a company, the company’s accountant discovers that expenditure of £8,000 on repair to factory equipment has been incorrectly recorded as a part of
A8.15 What is meant by impairment? (Section 8.8.7)
A8.14 [S] What are the matters of judgement relating to non-current (fixed) assets which users of financial statements should think about carefully when evaluating financial statements?
A8.13 How should the cost of a non-current (fixed) asset be decided? (Section 8.2.2)
A8.12 Why is depreciation said to cause an allocation problem in accounting? (Section 8.8.6)
A8.11 Why does the net book value of a non-current (fixed) asset not always equal the proceeds of sale? (Section 8.8.5)
A8.10 How does depreciation help to retain cash in a business for asset replacement?(Section 8.7.5)
A8.9 How is reducing-balance depreciation calculated? (Section 8.7.3)
A8.8 What is the formula for calculating straight-line depreciation? (Section 8.7.2)
A8.7 What information is needed to calculate annual depreciation? (Section 8.7.1)
A8.6 What is meant by accumulated depreciation (also called aggregate depreciation)?(Section 8.7)

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