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business
financial accounting and reporting

Questions and Answers of Financial Accounting And Reporting

A company’s cost of sales in its statement of profit or loss for the year ended 31 October 20X5 is £105,066. Inventory at 31 October 20X4 is £6,430 and at 31 October 20X5 is£5,757. Accounts
A company’s rent expense in its statement of profit or loss is £35,100. Opening and closing prepayments are £8,460 and £9,000 respectively. What cash has the company paid for rent in the year?
A company’s corporation tax charge in its statement of profit or loss is £75,267. The liabilities for corporation tax at the end of the previous year and at the end of the current year are£34,609
Information about a company’s fixtures and fittings at 30 September in two successive years is as follows:20X1 20X0 £ £Cost 143,201 126,587 Accumulated depreciation 76,613 64,293 If the company
At 30 June 20X3 a company has issued £100,000 7% debentures. On 1 April 20X4 the company issues a further £50,000 of the same debentures.What is the interest expense for the year ended 30 June
The following information relates to the activities of Pilot plc: LO4 20X8 20X7 £000 £000 £000 £000 Non-current assets Freehold land at cost 780 700 Plant and equipment—cost 660 560 Less:
Falmouth plc has an authorised share capital of £2,000,000 divided into 3,000,000 equity shares of 50p and 500,000 12% redeemable preference shares of £1.The following trial balance has been
Birch plc manufactures alarm systems. Its trial balance at 31 March 20X9 showed the following balances: LO4£ £Freehold land and buildings Cost (land: £400,000) 1,120,000 Accumulated depreciation
The statements of financial position of Hemmingway plc at 30 June 20X4 and 20X3, and a summary of the statement of profit or loss for the year ended 30 June 20X4, are given as follows. LO4 Statements
Vodafone plc includes the following information in its 2015 annual report: LO4 Basis of preparation The consolidated financial statements are prepared in accordance with IFRS as issued by the
Understand how the evaluation of the performance of a company, as given by the statement of comprehensive income, has to take into account the effect of underpinning financial accounting principles,
Account for non-current assets held for sale and discontinued operations. LO6
Produce disclosures required for operating segments and understand how the information may be used in an analysis of performance. LO6
Understand the significance of the disclosures required for related party transactions. LO6
Understand the significance of revenue reporting to businesses and their users and the issues with this. LO6
Understand and apply the accounting methods for revenue recognition and measurement set out in financial reporting standard IFRS 15 Revenue from Contracts with Customers. LO6
On 1 January 20X3 Precision Manufacturing plc enters into a contact with a customer to provide a product which it will deliver on 31 December 20X4. The customer makes a down payment of £25,000 on 1
Grier plc sells computer software to Amos Ltd on 1 April 20X7 for £180,000, a price which includes the provision of a support service for 2 years. Grier plc sells this software to other customers
A company in the automotive sector builds: LO6 a standard vehicle, and a highly customised car for a specific customer.Discuss how the revenue from the sale of these cars should be recognised in
On 1 July 20X6 Pentose Construction plc entered into a contract to construct a bridge over a river. The agreed price of the bridge is £5 million and construction is expected to be completed on 30
Explain whether, in the following situations, the company is acting as a principal or an agent. LO6 Company A negotiates with major airlines to purchase tickets at reduced rates compared with the
A software developer enters into a contract with a customer to transfer a software licence, perform an installation service and provide unspecified software updates and technical support (online and
Triad plc has a 31 December year end. The company sells goods to a customer on 1 January 20X7 on the understanding that the customer will pay £5,000 immediately and will then pay two further
Hafford plc, a manufacturer, sells a product to a customer together with a warranty. The warranty provides assurance that the product complies with agreed-upon specifications and will operate as
On 1 July 20X5, Morse plc sells goods worth £800,000 to Lewis plc for £500,000. The sales agreement states that Morse plc is entitled to repurchase the goods on 30 June 20X8 for £500,000 plus
On 1 January 20X1 Cleaner Solutions plc enters into a 3-year contract to clean a customer’s offices on a weekly basis. The customer promises to pay £100,000 per year.The stand-alone selling price
In November 20X2, Crow plc, a company with a December year end, contracts with a customer to refurbish a three-storey building and install new elevators for total price of £5 million. The promised
Xian plc enters into a service contract to manage a customer’s information technology data centre for five years. The contract is renewable for subsequent one-year periods. The average customer
Priestly Bakers plc operates its retail outlets on a franchise basis. On 1 January 20X0 a new outlet was opened with a six-year franchise arrangement. The franchisee paid a fee of£600,000 for the
Rightstore plc is a retailer that operates a customer loyalty programme. For every pound that a customer spends in any of the company’s stores, they receive one point. Once a customer has accrued
Triangle plc is in the process of preparing its draft financial statements for the year to 31 March 20X2. LO6 On 1 April 20X1 Triangle sold maturing inventory that had a carrying value of £3 million
On 1 April 20X3, Bright Solutions plc, a company which provides industrial cleaning services, entered into an 18-month contract with a new customer. The contract price was agreed at £525,000 and
Wickhams plc specialises in bridge construction and has two contracts in progress at its year end, 31 March 20X8. Contract details extracted from the company’s costing records at 31 March 20X8 were
Just before the end of the financial year, a customer requested Murray plc to delay the delivery of 500,000 units of products until early the following year because, at the time, the customer did not
Appreciate the importance of appropriate regulation. LO9
Explain the main elements of the regulatory framework of financial reporting for all companies in the UK, both listed and unlisted, and describe who the bodies are that set the regulation. LO9
Understand what international financial reporting standards are, their importance, the processes by which they are produced, and to which companies they are applicable internationally. LO9
Discuss the concepts and principles that underpin international financial reporting standards. LO9
Discuss the work of the IASB in relation to the goal of achieving a set of high quality global financial reporting standards. LO9
High quality financial information is important to everyone. Of the various reasons that support this conclusion which ones seem most important to you and why? LO9
Explain why neutrality is a key ingredient of high quality financial reporting. How might nonneutral financial information be harmful to investors? Can financial information be both neutral and
Should usefulness in decision-making be the predominant objective of financial reporting or does stewardship (accountability) still have a role? LO9
How important are financial reporting standards in ensuring the quality of financial information in the marketplace? What other functions or roles must be carried out for the financial reporting
Discuss how the International Accounting Standards Board’s Conceptual Framework contributes to high quality corporate reporting. LO9
Critically evaluate whether the ‘substance over form’ concept, inherent in international financial reporting standards, results in financial statements that are fairly stated. LO9
The IASB’s Conceptual Framework sets out the concepts that underlie the preparation and presentation of financial statements that external users are likely to rely on when making economic decisions
Carduus plc is preparing its financial statements for the year ended 30 September 20X5 and a number of issues need to be resolved. LO9 Accounts receivable at 30 September 20X5 total £69 million.
Discuss whether the IASB’s proposals for measurement in the 2015 Exposure Draft of its Conceptual Framework for Financial Reporting are justified in relation to relevance, faithful representation
Haddon plc needs advice on how to value an asset and liability in accordance with IFRS 13 Fair Value Measurement. The company has an asset that is traded in different markets and Haddon currently
Understand who the main users of financial information are and the type of information they require to help them make decisions. LO9
Explain the characteristics of financial information which makes it useful. LO9
Carry out double-entry bookkeeping for simple transactions. LO9
Produce a trial balance from the nominal ledger. LO9
Draw up in good form from trial balance, including the main period-end adjustments, a statement of financial position and a statement of profit or loss for a sole trader and limited company, and, in
For a sole trader, identify which nominal ledger accounts will be affected by the following transactions, and state whether the accounts will be increased or decreased as a result of the transaction:
Enter the transactions given in Question 1 in the nominal ledger accounts of the business using double-entry bookkeeping, balance off the accounts and extract a trial balance. LO9
Draw up the statement of profit or loss for the year ended 30 June 20X4 and statement of financial position at that date for P. Glass’s business from the following trial balance. LO9 Dr Cr £
The trial balance of Lytax at 31 December 20X2 is as follows: LO9£ £Capital at 1 January 20X2 68,000 Five-year loan 15,000 Land and buildings 67,000 Plant and machinery 38,000 Fixtures and fittings
Porter Ltd is a company with total authorised share capital of £2,000,000 divided into£500,000 of 6% irredeemable preference share capital and £1,500,000 equity share capital.Porter’s trial
Falmouth plc has an authorised share capital of £2,000,000 divided into 3,000,000 equity shares of 50p and 500,000 12% redeemable preference shares of £1.The following trial balance has been
Which fund type would use the flow of economic resources measurement focus?1. General fund.2. Debt service fund.3. Special revenue fund.4. None of the above.
Which fund type would use the flow of current financial resources measurement focus?1. Private-purpose trust fund.2. Enterprise fund.3. Capital project fund.4. Internal service fund.
Which funds would use the availability criterion for recognizing revenues?1. Capital projects funds.2. Debt service funds.3. General Fund.4. All the above.
A special revenue fund would use which basis of accounting?1. Accrual.2. Modified accrual.3. Cash.4. Modified cash.
Proprietary funds recognize 1. Revenues and gains.2. Expenditures and losses.3. Expenses and losses.4. Botha. and c.
The general fund pays resources to a capital projects fund.These resources will not be repaid. This transaction is an example of an interfund 1. Transfer.2. Services provided and used transaction.3.
Which would be classified as other financing sources (uses)?1. Purchase of capital assets.2. Sale of capital assets.3. Payment of long-term debt.4. All the above.
The criteria for a transaction to be classified as a special item are which?1. Unusual in nature or infrequent in occurrence.2. Unusual in nature and infrequent in occurrence.3. Under the control of
Which fund type would report fund balance?1. Custodial fund.2. Debt service fund.3. Internal service fund.4. Private-purpose trust fund.
Which would not be reported as a component of net position of an enterprise fund?1. Unrestricted net position.2. Restricted net position.3. Net investment in capital assets.4. Designated net position.
What is the difference between an expenditure and expense?Give an example of a transaction that would be both an expense and an expenditure. Give an example of a transaction that would be an
What is the difference between revenues accounted for under the accrual method of accounting and those accounted for under the modified accrual method of accounting?
Income taxes are an example of which category of nonexchange transactions?1. Derived tax revenue.2. Imposed nonexchange revenue.3. Government-mandated nonexchange revenue.4. Voluntary nonexchange
Fines and forfeitures are an example of which category of nonexchange transactions?1. Derived tax revenue.2. Imposed nonexchange revenue.3. Government-mandated nonexchange revenue.4. Voluntary
Under the modified accrual basis of accounting, revenues are considered susceptible to accrual if they are 1. Measurable.2. Available.3. Earned.4. Both (a) and (b).
A city levies property taxes of $100,000, 1% of which is expected to prove uncollectible. How should the city record this transaction?1. Revenues of $99,000 and no expenditures or other financing
The county received a restricted grant from the state government to be used to train police officers. The county has met all eligibility requirements of the grant but will not expend the money until
A county debt service fund made principal payments of $200,000 and interest payments of $150,000 during the year. The accrued interest on the long-term debt was $10,000 at the beginning of the year
The purchases method of accounting is permitted for 1. Materials and supplies.2. Prepaid insurance.3. Leases.4. Botha. and b.
The special revenue fund purchased $500,000 of material and supplies during the year. At the beginning of the year, there was an inventory of materials and supplies on hand of $100,000. The ending
A city reports property tax revenue of $2 million for the year. What is included in this amount and does it include only taxes levied this year?
A county reports investment income of $500,000 for the year. What is included in this amount?
Explain the difference between the purchase method and the consumption method of accounting. For which items can the two methods be used?
Which would be reported as a component of net position of a proprietary fund?1. Retained earnings.2. Contributed capital.3. Net investment in capital assets.4. Permanently restricted net position.
Payments in lieu of taxes that are not payments for services from a government should be reported by an enterprise fund as which of the following?1. Transfers.2. Operating expenses.3. Nonoperating
An enterprise fund advance-refunds $3.2 million of old enterprise fund bonds by issuing new bonds for $3 million and paying that amount into a qualifying trust for that purpose. What should the
An enterprise fund issues $2 million of 6%, 10-year taxexempt bonds at the beginning of the year to finance the construction of a new water treatment plant. During the year, the enterprise fund
Which is a cash flow classification used in a proprietary fund statement of cash flows?1. Cash flow from capital and related financing activities.2. Cash flow from investing activities.3. Cash flow
The enterprise fund receives a capital grant from the federal government. How would this transaction be reported?1. Revenues.2. Other financing sources.3. Nonoperating revenues.4. Capital
An internal service fund used to account for risk financing activities would not include which in revenue?1. A reasonable provision for profit.2. Charges based on actuarial or other acceptable
An enterprise landfill fund estimates that its closure and postclosure costs are $300,000 at the end of the year. It also estimates that the landfill has 30% of its capacity left. The amount of
Explain how the reporting of an enterprise debt refunding differs from that of a business.
Explain some of the key differences between the statement of cash flows for a proprietary fund and that for a business.
A citizen establishes a $100,000 endowment fund with a county government. The earnings from the endowment are to be used to support study abroad for local high school students. Which type of fund
During the year, a government receives a $500,000 contribution to a private-purpose trust fund. The contribution should be reported in the statement of changes in net position as what?1. Revenues.2.
A pension (and other employee benefit) trust fund would report 1. Expenditures.2. Expenses.3. Deductions.4. Revenue.
Which financial statement is required for a private-purpose trust fund?1. Statement of revenues, expenses, and changes in net position.2. Statement of net position.3. Statement of cash flows.4. All
Which statement is required for a custodial fund?1. Statement of activities.2. Statement of changes in fiduciary net position.3. Statement of cash flows.4. None of the above.
A city government participates in a statewide pension trust fund. Which financial statement should the city report for its participation in the statewide pension trust fund?1. Statement of net
A city tax custodial fund holds $700,000 in cash at yearend.The cash belongs to the following entities:City general fund — $300,000 City special revenue fund — $100,000 School district —

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