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financial accounting and reporting

Questions and Answers of Financial Accounting And Reporting

XYZ Company always pays its £24 000 annual rent in advance by equal quarterly instalments on 31 December, 31 March , 30 June and 30 September. The company's financial year end is 31 August. The
The closing stock of LMN Traders was £I0000 higher at the end of the year than at the commencement. Sales for the year were £250000 and purchases were£140000. As a result:(a) Cost of goods
Star Traders price their goods on the basis of 'cost plus 25 per cent'. The gross profit is therefore:(a) 25 per cent;(b) 20 per cent;(c) 33! per cent;(d) none of these.
A cash payment from a credit customer was incorrectly posted to sales revenue acco unt. To correct this error the required entry is:(a) Debit cash, credit sales revenue;(b) Credi t cash, debit sales
A payment of £400 was posted to the wrong side of the cash account. The trial balance will be overstated by(a) £200 in the total of debit balances;(b) £200 in the total of credit balances;(c)
Describe the purpose of:(a) Ledger accounts ;(b) Books of prime entry.
If the totals of debit and credit balances shown on a trial balance are equal does this prove the accuracy of the recording process?
The total assets of a business would be increased by:(a) purchase of equipment by means of a long-term loan;(b) cash received in satisfaction of customer's account;(c) sale of motor vehicle at its
An end-of-period adjustment for prepaid expenses would :(a) increase assets and owners interest;(b) increase liabilities and decrease assets;(c) decrease assets and liabilities;(d) decrease assets
Owners' interest would be increased by:(a) sale of goods on credit terms;(b) purchase of goods for cash;(c) repayment of a bank loan ;(d) none of these.
Arcadian Enterp rises operate an acco unting year to 31 December annually.Annu al propert y insurance is paid in advance on 30 April each year, with payments of £2100 made in 1983 and £2400 in
During their accounting year ended 30 Jun e 1983, Lever Products made payments for heat and lighting totalling £4200, including a payment of £900 for the three months ended 31 Jul y 1982.During the
Summarised Balance Sheets for Walsh Tr aders at the beginning and end of the 1983 acco unting year are as follows:Balance Sheet Fixed assets Current assets Owners' interest Current liabilities
The following information is available for the first year of operations of Rende!Traders:Capital introduced by owner Assets owned at end of year Liabilities at end of year Amount withdrawn by owner
(a) Using the following form of the accounting model Assets = Owners' interest + Liabillities analyse the following transactions for Olympic Products undertaken during the first month of
The summarised Balance Sheet of the Minerva Trading Company at 31 January 1984 was:Fixed assets Current assets:Stock Trade debtors Cash Owners' interest Current liabilities:Trade creditors Total
The assets and equities relating to the Apollo Company at 31 December 1983 are as follows:Trade creditors Owners' interest Buildings Land Prepaid expenses Cash Stock of goods Trade debtors £12420
Mr Brown is made redundant by his firm and given £1500 in compensation. He takes this money and decides to set himself up in business as a mobile grocer.The following day he borrows £500 from his
The following additional information is available for the second month of trading for Mr Brown (Problem 6 above) :(i) Cash purchases of goods amounted to £1300.(ii) Purchases of goods on credit
(a) Record the following transactions in journal entry form :for Paragon Products for July 1984:(i) Payment of £3600 in respect of three months rent;(ii) Purchase of office equipment for £6000,
On 30 June 1983 the accounting records of Adam Enterprises revealed the following:Long-term loan, 15% 80 Land, at cost 100 Buildings, at cost 80 Accumulated depreciation, buildings 40 Office
The summarised Profit and Loss Account of Baird Products for the year ended 31 March 1984 is as follows:£000 Sales 864 Cost of sales 709 155 Operating expenses 84 Profit before tax 71 The operating
Retained profits of Smith pic for the year ended 31 May 1984 amounted to £176000 after adjusting for the following :Depreciation £110 000 Amortisation of development expenditure £36000 Interest
The summarised Balance Sheet and Profit and Loss Accounts of Norse pic at 31 December 1983 and 1984 are given below:Balance sheet 1983 1984£000 £000 £000 £000 Freehold premises at cost 90 90
Notes to the accounts of MNO Electronics for 1984 revealed the following information: Cost Accum . depn£000 £000 Plant and equipment 1.7.83 167 94 Plant and equipment 30.6.84 175 93 Depreciation on
The following information was extracted from the Balance Sheet of PQR Products at 31 December 1983:Total debt to total assets Current ratio Fixed assets Current liabilities 50 per cent
The following information is available from the financial statements of ABC Enterprises at the end of the 1984 accounting year:Sales £480 000 Gross profit margin 20 per cent Stock turnover 12 times
For the XYZ Company, the ratio of sales to total assets in 1983 was 2.4 while operating profit on total assets was 6 per cent. Sales for 1983 totalled £ 120000.Operating profit for 1983 was:(a)
Explain the significance of the current ratio. Is it possible for this ratio to be too high?
Identify industries in which you would expect to observe the following characteristics:(a) low profit margins with high sales turnover ratios;(b) low sales turnover ratios with high profit
What are the alternative concepts of 'funds'? Explain which concepts the following groups would be most interested in: (a) trade creditors; (b) investors; (c)competitors.
Explain under what circumstances each of the following concepts of capital might be chosen as the denominator of a ratio measuring overall profitability. For each of the concepts of capital, identify
Using the following information together with the information provided in problem I, prepare a Statement of Sources and Applications of Funds for Norse pic for 1984, in accordance with the
Describe the merits and deficiencies of the following bases of comparison of financial ratios:(a) past performance;(b) industry average performance.
Identify the major advantages and limitations involved in the use of accounting ratios in the analysis of accounting information.
Explain whether you believe that the introduction by the 1981 Companies Act of required formats for financial statements was a progressive or retrogressive step .
What do you understand by the term 'accounting policies' ? Why is disclosure of accounting policies considered desirable?
Explain the advantages and disadvantages to the directors, and ultimately the owners, of a company of public disclosure of financial accounting information.
What information does the 1981Companies Act require companies to provide in financial statements (including the Directors' Report) relating to future events?
Give reasons why companies are required to disclose information relating to(a) political and charitable contributions;(b) directors' emoluments;(c) auditors' fees;(d) loans to employees;(e)
Distinguish between exceptional and extra-ordinary items and explain why the distinction is important.
(a) What disclosure requirements are placed on companies relating to: (i)turnover; (ii) profit before taxation?(b) Why are the disclosure requirements identified in (a) above considered to be
What information must a company disclose relating to the amount of indebtedness?
(a) Briefly outline the categories ofinformation currently disclosed in company accounts which would be of interest to the following groups: (i) investors;(ii) creditors (excluding suppliers); (iii)
The balances on the plant and machinery accounts of Sparkling Traders pic at I January 1983 were:Plant and machinery at cost 9850 accumulated depreciation 4760 Depreciation is charged on a reducing
The trial balance of Faroe pic at 30 June 1984 was as follows:Ordinary share capital account Share premium account Preference share capital account General reserve Freehold land and buildings
Thomas pic is a recently established company which manufactures and sells car accessories. The preliminary trial balance for the company at 31 December 1983, the end of the first year of operations
The following trial balance was prepared for Banyan pic at the close of the accounting year ended 31 May 1984:Ordinary share capital Share premium account General reserve Freehold land and build ings
The summarised Balance Sheet and Profit and Loss Account of Alba pic for 1984 are given below:Required (a) Compute each of the above ratios for Alba pic for 1984 (and 1983 where available).(b)
(a) From the information provided ir. the financial statements for Braemar Ltd for 1983 prepare a report to management covering each of the following:(i) asset utilisation;(ii) liquidity and
Ogura Ltd are reta ilers of oriental tea. Stock records for one of their brands revealed the following information for 1983:Stock 1.1.83 £52 500 Stock 31.12.83 £79200 Historic cost of goods sold
Acquisitions of plant and equipment by Tanaka Engineering pic together with movements in the specific index relating to the category of capital goods in which their acqui sitions fall, are as
(a) Explain what is meant by each of the following: (i) Subsidiary Company, (ii)Associated Company.
Distinguish between the following concepts of consolidation: (a) entity concept;(b) parent company concept; (c) proprietary concept.
'It may be argued that the creditors and shareholders of a holding company would be better served by receiving the separate financial statements relating to each of the major subsidiary companies
(a) Explain whether you agree that the definition of a holding company-subsidiary relationship is based on effective control.(b) To what extent do you believe that 'effective control' should be the
A Ltd owns 40 per cent of the equity interest in both B Ltd and C Ltd, while B Ltd owns 40 per cent of the equity interest in C Ltd.(a) Both B Ltd and C Ltd are subsidiaries of A Ltd;(b) Neither B
W Ltd has invested in X Ltd and Y Ltd while both X Ltd and Y Ltd have invested in Z Ltd . W Ltd wishes to maximise its equity interest in Z Ltd but without Z Ltd becoming the subsidiary of W. The
p Ltd acquired 80 per cent of the ordinary share capital of Q Ltd on 1 April 1984.Reported profits of QLtd for the accounting year ended 31 December 1984 were£160 000 after tax and ordinary dividend
Nibor Ltd acquired a controlling interest of 75 per cent of the equity capital in Nohj Ltd on 31 December 1984. Both companies produce accounts to 31 March.Profit and Loss Appropriation Accounts for
Ben Ltd is a wholly owned subsidiary of Bill Ltd . During the year ended 30 June 1985, Bill Ltd sold to Ben Ltd goods, which had originally cost £120000 at a mark-up of 50 per cent on original
Dun Ltd acquired a 75 per cent controlling equity interest in Blane Ltd on 31 December 1984 for £ 122000. Blane Ltd achieved a reported profit for the accounting year ended 30 June 1985 of £24 000
Revelstone Products has recently commenced business. Stock records for the first year of operations revealed the following movements in the stock of Product Z:Purchases: 3 January 1000 units at £5
Methuselah Ltd and Peter Pan Ltd are two companies operating in the mineral extraction industry. Methuselah Ltd is a well-established company while Peter Pan Ltd is a relative newcomer to the
Identify the major strengths and weaknesses of historic cost accounting.
Explain what is meant by each of the following:(a) general inflation;(b) stabilised accounting;(c) monetary items;(d) non-monetary items;(e) purchasing power gains and losses.
What is the significance of the 'value' attached to fixed assets under a stabilised accounting system?
Identify the major strengths and weaknesses, including the practical limitations,of stabilised accounting.
Distinguish between the following possible interpretations of the concept of'capital maintenance':(a) money capital maintenance;(b) purchasing power capital maintenance;(c) operating capital
Explain what is meant by the concept 'value to the business'. How does the adoption of the above concept as the valuation base to be adopted in accounting differ, if at all, from the adoption of a
Identify the major strengths and weaknesses of the adoption of a system of financial reporting based on the concept of:(a) 'value to the business' ;(b) replacement cost accounting.
'The use of specific indices to adjust historic cost data to a current cost basis eliminates any benefits obtainable from the adoption of a system of replacement cost accounting.'Explain what is
Explain which accounting base you would expect to find most supported by each of the following groups: (a) investors; (b) creditors; (c) employees ; (d) auditors;(e) government.
Distinguish between 'current cost operating profit' and 'current cost profit attributable to shareholders' as defined in SSAP 16.
Explain the nature and significance of each ofthe following adjustments required by SSAP 16: (a) depreciation; (b) cost ofsales; (c) monetary working capital; (d)gearing.
Distinguish between realised and unrealised holding gains and losses. Explain which, if any, should be included in current cost operating profit.Problems
Blane Ltd in the above Question (10) declared a final ordinary dividend for 1985 of £8000 . The folIowing adjustment must be made in respect of the above dividend to the cost of the investment in
Explain why United Kingdom legislation places requirements on companies to disclose financial accounting information to the public at large, when no such requirements are placed on unincorporated
Explain the following terms:(a) Attributable costs;(b) Contribution;(c) Break-even point;(d) Net realisable value.
The following information relates to the manufacture of widgits by Reliant Products in 1983:Opening stock: 600 units valued at £1200 Degree of completion, 40 per cent Production costs incurred:
Th e following information relates to the second and final stage in the production pro cess for Cawdor Engineering for 1983.Open ing stock : 1000 unit s valued at £5000 Degree of
Explain in which of the following types of business stocks might be capable of valuation on an individual basis:(a) Furniture retailer;(b) Motor-car assembly plant;(c) Jewellers' store;(d) Perfumery.
Describe the following:(a) Fifo stock valuation;(b) Lifo stock valuation;(c) Periodic versus perpetual stock valuation.
Compare the relative merits of the Fifo and Lifo systems of stock valuation.Explain the expected effects of each method on stock values and profits during periods in which prices are (a) rising and
Do you agree that recognition of attributable profit on long-term contracts appears to contradict the prudence concept? Identify other examples of accepted accounting treatments which appear to
The lower of cost or market value rule is applied to short-term investments.Stocks are not, however, valued on a lower of cost or current replacement price.Explain why these two treatments are
Outline the major business motives for holding cash resources and the dangers in holding excessive cash balances.
(a) Identify four possible forms in which misappropriation of business resources may occur either because of inadequate control, or lack of separation of accounting duties; (b) Explain procedures
When goods are purchased on credit terms rather than for cash , the appropriate entry is:(a) none;(b) debit stock, credit cash ;(c) debit cost of goods sold , credit cash ;(d) debit stock, credit
Stamp Traders adopt a periodic basis of stock valuation. Opening stocks plus purchases are recorded in a stock account at a figure of £ II 0000. Closing stocks are valued at a cost of £ 15000. The
The following information relates to Nibor Products for May 1984:Opening stocks consisted of 25 units at a cost of £5 each . Goods purchased during the month amounted to:40 units at £6 on 7 May, 55
The Scrimgeour Company manufactures and sells flag-poles. The unit selling price is fixed at £20 with variable costs of production of £8 per unit. Fixed production costs per period are £ 16000,
Lanark Enterprises began operations on I January 1982. The accounting records for the first two years of operations revealed the following:Sales revenues Variable manufacturing costs Fixed
Distinguish absorption from marginal cost. Explain the relative merits of these two bases of stock valuation.
Identify the relevant costs involved in a decision as to whether a journey from London to Edinburgh and return should be undertaken by car or train .
Describe the problems involved in the identification of unit cost for a firm which manufactures a number of products each of which must pass through more than one production process.
Explain the arguments for and against the use of current replacement cost as a basis for stock valuation.For each of the following circle the letter alongside the best choice from among the possible
Semi-complete goods on which costs to date amount to £100 per unit, will require a further £60 per unit to complete, plus £ 15 selling expenses per unit. Estimated unit selling price is £
Year end stock sheets had been incorrectly added resulting in the closing stock at 31 December 1983 being recorded as £ 12864 rather than £21 864.The effect of the error would be:(a) overstate
Malcolm Products manufacture widgits. The selling price of a widgit is £ 12 while the variable cost is £7 per unit. Fixed costs of production amount to £6000 . The number of units which need to be

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