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financial accounting and reporting

Questions and Answers of Financial Accounting And Reporting

11..‘It is essential that the information in financial statements has a prudent characteristic if the financial statements are to be objective.’ Discuss.
11..Explain the effect on the statement of financial position in Figure 1.13 if the non-current asset consisted of expenditure on industr y-specific machine tools rather than a lease.
11..‘While accountants may be free from bias in the measurement of economic information, they cannot be unbiased in identifying the economic information that they consider to be relevant.’Discuss.
11..‘Realised operating cash flows are only of use for internal management purposes and are irrelevant to investors.’ Discuss.
11..Explain why your decision in questi on 3 might be different if the business entity were a mediumsized limited company.
11..Discuss the extent to which you consider that accounts for a small businessperson who is carr ying on business as a sole trader should be prepared on a cash flow basis.
11.. Discuss Ijiri’s view in the context of cash flow accounting.
The following transactions ofthe Wade Company for June 1984 relate to goods acquired on credit terms :£June I Purchases from D. Owen 1750 3 Purchases from S. Smith 875 8 Returns to D. Owen 90 13
Further transactions for the Wade Company for July 1984, relating to goods acquired on credit terms were:£July 3 Purchases from S. Smith 460 7 Payment to S. Smith 825 7 Discount received from S.
The following list of balances was extracted from the records of the Terra Nova Company for the year ended 30 June 1984:Land and buildings, at cost Plant and machinery, at cost Accumulated
G. Allan commenced business on I January 1982. At the end of the first year of operations trade debtors amounted to £17420, including an account for £350 which was considered to be a bad debt. In
The Balance Sheet of Tinsley Traders at 31 July 1983 was as follows:Fixed assets:Land and buildings Plant and equipment Less accumulated depreciation Current assets:Stock Trade debtors Prepaid rates
To what extent do you agree with the view that the historic cost basis of asset valuation is more objective than other bases?
Explain the classificat ion of economic goo ds used by A. L. Th om as. giving two examples of each type of good.
Why is the distinction between different catego ries o f non-monetary goo ds so imp ort ant to accounting inco me measurement?
' Deprecia tion is a process of allocation not of valuatio n: Explain whether yo u agree with the abo ve sta teme nt.
Distin guish between the econ om ic and the techn ical life of a fixed asset.
Draw up brief guide lines to distinguish between revenu e and ca pital expenditur es.----------For each of the following qu estion s circle the lett er alon gside the best choice from among the
A motor vehicle purchased at a cost of £6400 has an estima ted useful life of 4 years and second-ha nd value at the end of that time of £ 1200. Depreciation is provided using the sum-of-the-yea rs
An asset bought at a cost of £24 000 is depreciated using the straight-line meth od over 6 years, assum ing a resale value of £3000 at the end of that time . At the end of the third year of useful
The accounting records of Ramage Products for the year ended 31 December 1983 revealed the following:I. 1.83 31.12.83 Trade creditors £ 7450 £8360 Stock of goods £ II 380 £9 260 Payment made to
Closing stock of unsold goods was estimated at £5600 for ABC Traders at the end oftheir 1983 accounting year. Assuming that the actual level was £5150, the effect of the error is to :(a) overstate
The following information was extracted from the accounting records of Brin Traders for 1984:March April May£ £ £Sales to customers 20000 25000 30000 Purchases 15000 22000 19000 Operating expenses
Trial balances for Rocky Products at the beginning and end ofthe 1983 accounting year are as follows:January 1 December 31£000 £000 Land 120 120 Buildings (net) 60 58 Equipment (net) 45 48 Stock of
Prepare a diagram illustrating the flow of accounting information for a tr ading organisation from the point of recognition of a credit sale to the payment of the account by the debtor.Include in
Explain whether you agree with the distinction adopted in the current chapter between the recording of cash discounts and trade discounts.
Summarise the major arguments for and against the recognition of an annual provision for discounts allowable on outstanding trade debtors.
The inclusion of prepaid expenses as current assets appears to be an exception to the conservatism or prudence concept. Wh at other examples of such exceptions can you identify? To what extent is the
Sales returns amounting to £ 156 were posted in error to the wrong side of the sales ledger control account. The required adjustment to the control account to correct the error is:(a) debit £
A payment of £720 to a supplier has been incorrectly posted to the sales ledger control account. The effect of this error is:(a) to overstate debtors' balances by £720 and understate creditors'
A customer whose account was written off as a bad debt has recently paid a cheque for £400 in settlement of the account. A suitable journal entry to record the payment is:(a) debit cash, credit bad
Trade debtors of Oxford Products at 31 December 1983 amounted to £15 600.A debtors' balance of £300 is to be written off as a bad debt, while the provision for doubtful debts which currently stands
Fixit Garages sto ck a supply of spare parts for which accounting records are maintained on a periodic inventory valuation basis . Stock levels at the beginning and end of the recent financi al year
A deb it balance on a suppliers' account has been wrongly included in the closing list of debtors' balances. The effect of this error is:(a) an overstatement of the list of debtors in relation to the
James James has a plumber's business which he wishes to sell. A prospective buyer has asked him for up to date accounts and James asks you , as his accountant, to prepare a Profit and Loss Account
A caravan was acquired at a cost of £ 12 500 by a bu ilding firm for use as an on -site rest roo m. Cos t of eq uipping the ca rava n with various fittings cam e to £ 1350, including an amount of
To what extent do you agree with the different accounting treatments adopted for intangible as opposed to tangible fixed assets?
Describe the accounting treatment of gains and losses on revaluation of fixed assets.
Explain the arguments for and against making depreciation provisions on fixed assets which have risen in value.
Outline general guidelines for determining whether expenditure on repairs should be treated as capital rather than revenue expenditures.
Describe the different accounting treatments recommended for long-term investments and explain the relative merits of each.
Describe the possible accounting treatments of investment grants. Explain which method(s) satisfy: (a) the prudence concept; (b) the accruals concept.For each of the following questions circle the
A fixed asset originally acquired at a cost of £48000 is depreciated over eight years on a reducing (double-declining) balance basis. At the end of Year 3 the asset was revalued at £18000. The
The summarised Balance Sheet of Midas Products at 30 June 1984was as follows:Fixed assets Goodwill Current assets Owners' interest Current liabilities£46000 20000 18500£84500 67000 17500£84500
The cost of rede corating office premises, undertaken every four years, should be:(a) expensed in the period pa id;(b) expensed in the period incurred;(c) added to the cost of premises and
A fixed asset was originally bought for £22000 and depreciated on a straight-line basis over five years, assuming a disposal value of £2000 for the asset at the end of that time . At the beginning
The cost of a new delivery van acquired by a firm on I March 1984 was £5200 , payable £1200 in cash, £400 on the trade-in of an old van , and £3600 by 12 monthly instalments beginning on I April
The Balance Sheet of Dann Products at 31 December 1982 revealed the following information:Plant and equipment, at cost Less accumulated depreciation Net book value£103000 53700 49300 The equipment
Distinguish tangible from intangible assets.
What is meant by the expression 'maintenance of owner's wealth'? Why is this considered to be an important element in the determination of business income?
An asset was bought for £7500 in May 1982 with an estim ated useful life of five year s and salvage value of £ 1500 at the end of that time . Depreciation is to be allocated on the straight-line
Equipment purchased on I Januar y 1981 for £40000 was sold on 31 December 1983 for £21000. Depreciati on had been charged on a double-declining balance basis, on the assumption of an estima ted
Plant and equipment originally acquired at a cost of £80 000 had a written-down book value of £45 000 at the end of Year 2 using the reducing balance method.The equipment was estimated to have no
Bolderson Products have recently built an exten sion to their factory on waste ground which had cost £41 000.Old buildings standing on the waste ground were demolished at a cost of £5000. The
A luxury villa has recently been acquired by Luxury Services for hire to holiday parties. The cost of acquisition was £110 000 and included £ I0000 for 10 years use of private beach facilities and
Plant and equipment which cost £16 000 has an estimated useful life of four years and salvage value of £1000 at the end of that time. Calc ulate the annual depre ciation expense and Balance Sheet
Production equ ipment bought at a cost of £37000 has an estimated useful life of five year s and a scrap value of £2000 at the end of that time. Estimated pattern of usage over the five year s is
Equipment purchased for £20000 is to be depre ciated using the doubl e-declin ing balance method, assuming a useful life of five years and salvage value of £2000 at the end of that time.(a) Ca
An asset bought for £20000 with an estimated useful life of four years and anticipated costs of disposal of £4000 at the end of that time, is depreciated on a straight line basis.(a) Ca lculate the
What are the characteristics of an asset market that is (a) complete and (b) perfect?To what extent do such markets require complete certainty about future events?
Define economic income . Explain why this concept is not used for the measurement of business income .
Explain the relative benefits that would accrue to external users of financial accounting statements by the use of each of the following assets bases? (a)replacement cost; (b) realisable value.
Identify which of the following items should be treated as revenue items and which should be capitalised. Give your reasons for each:(a) Cost of a new shop sign;(b) Respraying a delivery van;(c)
The following trial balance was extracted from the records of Kite Company at the year end.Kite Company Trial Balance as at 31 December 1983 Cash Stock of goods for resale Prepaid insurance Shop
Identify for each of the following, three uses of accounting information:(a) a shop-keeper ,(b) a self-employed plumber,(c) a manufacturer,(d) central government.
Distinguish between the three major approaches to the determination of a unifying theory of accounting . Identify also the major characteristics and merits of each approach.
Explain what is generally meant by the expression 'the economic consequences of financial reporting'. To what extent may consideration of these economic consequences conflict with the achievement of
Compare the relative merits of historic cost and other potential valuation bases, for the provision of financial accounting information to the following user groups: (a) investors, (b) creditors ,
Summarise the reasons for the adoption of an historic cost basis of valuation in financial reporting. To what extent do these reasons still remain valid?
Describe the four fundamental accounting principles identified in SSAP 2.Explain whether you agree with the inclusion of consistency as a fundamental principle rather than merely a desirable
How compatible is the prudence concept with the desirable attribute of neutrality in financial reporting?
Distinguish inductive from deductive approaches to theory formulation.
Categorise each of the following according to their effect on assets, liabilities, revenues and expenses:(a) purchase of flour by a bakery;(b) payment of employees' wages;(c) opening a bank loan
Which of the following involves an expense?(a) the cost of building new office premises;(b) the rent paid on shop premises;(c) the purchase of goods for resale;(d) the payment to a supplier for goods
Explain the functions of the following financial statements: (a) an Income Statement; (b) a Balance Sheet.
To what extent is a Balance Sheet prepared on an historic cost basis, a residual statement summarising outstanding balances?
Distinguish between: (a) revenue and receipt; (b) cost and expense.
Identify the major limitations of the definition given for the overall objective of financial reporting at the end of Chapter 2.
To what extent does the introduction of a notion of social welfare into the objectives of financial reporting contradict the desirable attribute of objectivity or neutrality?
What are the advantages/disadvantages of limited liability status to the following groups?(a) Shareholders.(b) Creditors.(c) The public at large.
What are the functions of an external auditor?
To what extent has the voluntary disclosure of accounting information been insufficient to satisfy the needs of external users?
For what reasons would the internal management of a business wish to place restrictions on the amount of financial disclosure to external groups?
Identi fy the types of accounting record s and inform ation that would assist each of the following gro ups of internal users in the perform ance of their task:(a) the stock contro ller;(b)
Explain what is meant by the expression 'reporting on the stewardship role'.What should this report ing function involve?
Describe the seven gro ups which the Corporate Report identifies as having a reaso nable right to corporate info rmation. Specify briefly the major acco unting information requ irement s of each gro
To what extent do you agree with those who argue that business organisations have a duty to report on their actions to the public at large? What limitations, if any, should be placed on that duty?
For what purpose have various committees sought to identi fy the objectives of financial reporting? Describe the var ious categories of reporting objectives which have been ident ified.
To what extent may the inform ation requirement s of the following pair s of user groups conflict?(a) Existing and potent ial shareholders;(b) Shareholders and employees;(c) Shareholders and
Describe what is meant by the expression 'co nceptual framework for acco unting'. What are the functions of a concept ual framework?
Identify the desirable characteristics of financial statements and explain the significance of each.
What effect do the following transactions have on owners ' interest?(a) Introduction of cash by owner :(b) Purchase of equipment on credit terms:(c) Purchase of goods for cash :(d) Payment of wages
The effect of payment for goods received previously on credit terms is:(a) decrease in total assets and increase in liabilities;(b) increase in total assets and increase in liabilities;(c) decrease
It has been argued that the primary advantage of double-entry book-keeping is the creation of 'order from chaos'. To what extent do you agree with this statement?
Outline each stage in the flow of accounting information for a wholesaling organisation, relating to the purchase of goods from a manufacturer.
Does the recording of a credit entry generally indicate a favourable event and a debit entry an unfavourable one?
Indicate whether each of the following is true or false:(a) an increase in an asset account is recorded by a credit entry;(b) a decrease in a liability account is recorded by a credit entry;(c) an
Give examples of transactions which achieve each of the following:(a) an increase in assets and owners' interest;(b) a decrease in liabilities and assets;(c) an increase in expenses and a decrease in
When goods are purchased on credit terms, the appropriate entry is:(a) none;(b) debit expense account, credit cash;(c) debit stock account, credit cash;(d) debit stock account, credit trade creditors.
ABC Company sold goods which had originally cost £400. The selling price was£1000, of which £400 was collected immediately, and £600 remained outstanding at the Balance Sheet date . The effect of

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