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financial accounting for decision makers

Questions and Answers of Financial Accounting For Decision Makers

The following information was extracted from the financial statements of I. Ching(Booksellers) pic for the year to 31 December 2012:Required:Prepare a statement of comprehensive income for the year
Manet pic had the following share capital and reserves as at 1 January 2012:During the year to 31 December 2012, the company revalued property, plant and equip¬ment upwards by £30 million and made
What is the difference between the direct and indirect methods of deducing cash gener¬ated from operations? (D-2)
What causes the profit for the reporting period not to equal the net cash inflow? (D-5)
The following information has been taken from the financial statements of Juno pic for last year and the year before last:Required:What is the figure for cash generated from the operations for Juno
Chen pic’s income statements for the years ended 31 December 2011 and 2012 and the statements of financial position as at 31 December 2011 and 2012 are as follows:Included in ‘cost of sales’,
The following are the financial statements for Nailsea pic for the years ended 30 June 2011 and 2012:There were no disposals of non-current assets in either year. Dividends were paid in 2011 and 2012
On 1 January 2012, Markon pic took out a finance lease for new plant.-Details of the lease are as follows:The business has a year end date of 31 December. The minimum lease payments are the four
Consider the following:1 Under new legislation, a retail business will be obliged to fit handrails to the staircases used in its stores. The law will come into force six months after the end of its
Darco Instruments pic took out a finance lease for new plant on 1 June 2012. The lease period is four years and annual lease payments, which are payable in arrears, are for£3 million per year. The
The draft income statement for the most recent reporting period of Barchester United Football Club pic has reported a profit before tax of £48.8 million. An examination of the underlying records,
What is the purpose of producing accounting information? (p-1)
On Thursday, the fourth day of his business venture, Paul, the street trader in wrapping paper (see earlier in the chapter), bought more inventories for £53 cash. During the day he sold inventories
The equity of Paul’s business belongs to him because he is the sole owner of the business.Can you explain how the figure for equity by Thursday evening has arisen? You will need to look back at the
On 1 March, Joe Conday started a new business. During March he carried out the follow¬ing transactions:1 March Deposited £20,000 in a newly opened bank account.2 March Bought fixtures and fittings
The following is a list of the assets and claims of Crafty Engineering Ltd at 30 June last year:Required:(a) Prepare the statement of financial position of the business as at 30 June last year from
Comment on the following quote:‘Limited companies can set a limit on the amount of debts that they will meet. They tend to have reserves of cash as well as share capital, and they can use these
Iqbal Ltd started trading on 1 July 2011. During the first five years of trading, the following occurred:Required:Assume that the company paid the maximum legal dividend each year. Under normal
The following is a draft set of simplified financial statements for Pear Limited for the year ended 30 September 2015.The following information is available:1 Depreciation has not been charged on
Presented below is a draft set of financial statements for Chips Limited.The following additional information is available:1 Purchase invoices for goods received on 29 June 2016 amounting to £23,000
Rose Limited operates a small chain of retail shops that sell high-quality teas and coffees.Approximately half of sales are on credit. Abbreviated and unaudited financial statements are as
An accounting error, which was regarded as significant in nature and size, was not discovered until a later reporting period. How should it be dealt with?
Why are accounting rules needed when preparing financial statements?
Thor plc has the following events occurring between the end of the reporting period and the date the financial statements were authorised for issue:1 The discovery that, during the reporting period,
The following information was extracted from the financial statements of I. Ching (Booksellers) plc for the year to 31 May 2016:Required:Prepare a statement of comprehensive income for the year ended
Manet plc had the following share capital and reserves as at 1 June 2015:During the year to 31 May 2016, the company revalued property, plant and equipment upwards by £30 million and made a loss on
You have overheard the following statements:(a) ‘The role of independent auditors is to prepare the financial statements of the company.’(b) ‘International Accounting Standards (IASs) apply to
Torrent plc’s income statement for the year ended 31 December 2015 and the statements of financial position as at 31 December 2014 and 2015 are as follows:During 2015, the business spent £67
Chen plc’s income statements for the years ended 31 December 2014 and 2015 and the statements of financial position as at 31 December 2014 and 2015 are as follows:Included in ‘cost of sales’,
The following are the financial statements for Nailsea plc for the years ended 30 June 2014 and 2015:There were no disposals of non-current assets in either year. Dividends were paid in 2014 and 2015
The following financial statements for Blackstone plc are a slightly simplified set of published accounts. Blackstone plc is an engineering business that developed a new range of products in 2011.
Simplified financial statements for York plc are: Income statement for the year ended 30 September 2015 Revenue Cost of sales Gross profit Operating expenses (Note 1) Operating profit Interest
The statements of financial position of Axis plc as at 31 December 2014 and 2015 and the income statement for the year ended 31 December 2015 were as follows:1 During the year, plant (a non-current
What is a contingent asset? How do the disclosure requirements for a contingent asset differ from those for a contingent liability?
What is a contingent liability? What are the key differences between a contingent liability and a provision?
In the past, finance lease payments were treated as an expense in the period incurred.Critics claimed, however, that this treatment could be used for creative accounting purposes.Explain how this
Consider the following:1 A motor car manufacturer offers a three-year warranty on all cars that it produces. The warranty undertakes to make good any defects arising from the manufacturing process.On
On 1 January 2016, Markon plc took out a finance lease for new plant. Details of the lease are as follows:The business has a reporting-year-end date of 31 December. The minimum lease payments are the
Consider the following:1 Under new legislation, a retail business will be obliged to fit handrails to the staircases used in its stores. The law will come into force six months after the end of its
Darco Instruments plc took out a finance lease for new plant on 1 June 2015. The lease period is four years and annual lease payments, which are payable in arrears, are for £3 million per year. The
The draft income statement for the most recent reporting period of Barchester United Football Club plc has reported a profit before tax of £48.8 million. An examination of the underlying records,
Some businesses (for example, supermarket chains) operate on a low operating profit margin. Does this mean that the return on capital employed from the business will also be low?
I. Jiang (Western) Ltd has recently produced its financial statements for the current year.The directors are concerned that the return on capital employed (ROCE) has decreased from 14 per cent last
Conday and Co. Ltd has been in operation for three years and produces antique reproduction furniture for the export market. The most recent set of financial statements for the business is set out as
Threads Limited manufactures nuts and bolts, which are sold to industrial users. The abbreviated financial statements for 2015 and 2016 are as follows:Dividends were paid on ordinary shares of
Bradbury Ltd is a family-owned clothes manufacturer. For a number of years the chairman and managing director was David Bradbury. During his period of office, sales revenue had grown steadily at a
The financial statements for Harridges Ltd are given below for the two years ended 30 June 2014 and 2015. Harridges Limited operates a store in the centre of a small town.Dividends were paid on
Identify and discuss three factors that might influence the level of dividend per share a company decides to pay.
Identify and discuss three reasons why the P/E ratio of two businesses operating within the same industry may differ.
At the close of share trading on 24 April 2015, investment ratios for Next plc, the UK fashion and home furnishings retailer, and the averages for the ‘general retailers’ section, were as
Telford Industrial Services plc is a medium-sized business. Extracts from the business’s financial statements appear below.Required:Prepare a set of common-size statements of financial position and
Ali plc and Bhaskar plc both operate electrical stores throughout the UK. The financial statements of each business for the year ended 30 June 2016 are as follows:Ali plc paid a dividend of £135
Diversified Industries plc (DI) is a business that has interests in engineering, caravan manufacturing and a chain of shops selling car accessories. DI has recently been approached by the directors
One of the main suppliers to your business is Green Ltd, a family-owned business. It is the only available supplier of certain products and your business buys 60 per cent of Green Ltd’s output.
Russell Ltd installs and services heating and ventilation systems for commercial premises.The business’s most recent statement of financial position and income statement are as follows:The business
The following is the statement of financial position (in abbreviated form) of Projections Ltd as at the end of this year:The following plans have been made for next year:1 Revenue is expected to
Genesis Ltd was incorporated three years ago and has grown rapidly since then. The rapid rate of growth has created problems for the business, which the directors have found difficult to deal with.
What is an associate company and how should an associate company be recognised in the financial statements of a group of companies?
The summary statements of financial position for Apple Ltd and Pear Ltd are set out below.Apple Ltd purchased 150,000 shares in Pear Ltd at a price of £1.60 per share on 30 September (the above
Abridged financial statements for Harvest Limited and Wheat Limited as at 30 June this year are set out below. On 1 July last year Harvest Limited acquired 800,000 ordinary shares in Wheat Limited
A year ago Pod Ltd bought 225,000 £1 fully paid ordinary shares of Pea Ltd for a consideration of £500,000. Pea Ltd’s share capital and share premium were each the same as at today’s date.
The statements of financial position for Maxi Ltd and Mini Ltd are set out below.On 1 April last year, Maxi Ltd bought 1,500,000 shares of Mini Ltd for a total consideration of £5 million. At that
It has been suggested that too much information might be as bad as too little information for users of annual reports. Explain.
The following information has been taken from the accounts of Buttons Ltd for the year ended 30 September.During the year a dividend of £120,000 was announced and paid.Required:(a) Prepare a value
Refer to your answer to Exercise 11.4 above. Calculate ratios that you believe could be used to interpret the VAS for Buttons Ltd. Explain the purpose of each ratio.
Segmental information relating to Dali plc for the year to 31 December 2015 is shown below. Car Aircraft Boat parts parts parts Total Em Em m m Revenues from extemal customers 360 210 85 655
Alkrom plc, an oil trader, commenced trading on 1 January and had the following opening statement of financial position.On 1 January Alkrom plc acquired offices at a cost of £4m, and 320,000 barrels
Segmental information relating to Turner plc for the year to 30 April 2015 is shown below.Required:Analyse the performance of each of the three main business segments for the year and comment on your
Identify four ways in which the independence of an auditor of a large listed company may be strengthened.
Assume that the chairman of the board of directors of a large public listed company has asked you to develop a set of criteria against which the performance of a non-executive director could be
The newly appointed chairman of Vorak plc has been told that considerable tension and suspicion exists between the executive and non-executive directors on the board. The executive directors question
What, in economic principle, should be the determinant of what accounting information is produced? Should economics be the only issue here? (Consider who the users of accounting information are.)
On Thursday, the fourth day of his business venture, Paul, the street trader in wrapping paper (see earlier in the chapter, pages 32 to 35), bought more inventories for £53 cash.During the day he
The equity of Paul’s business belongs to him because he is the sole owner of the business.Can you explain how the figure for equity by Thursday evening has arisen? You will need to look back at the
The following is a list of assets and claims of a manufacturing business at a particular point in time:Required:Write out a statement of financial position in the standard format incorporating these
You have been talking to someone who had read a few chapters of an accounting text some years ago. During your conversation the person made the following statements:(a) The income statement shows how
The following is a list of the assets and claims of Crafty Engineering as at 30 June last year:Required:(a) Prepare the statement of financial position of the business as at 30 June last year from
The statement of financial position of a business at the start of the week is as follows:During the week the following transactions took place:(a) Sold inventories for £11,000 cash; these
‘An asset is similar to an expense.’ In what ways is this true or untrue?
Singh Enterprises, which started business on 1 January 2013, has a reporting period to 31 December and uses the straight-line method of depreciation. On 1 January 2013 the business bought a machine
The owner of a business is confused and comes to you for help. The financial statements for the business, prepared by an accountant, for the last reporting period revealed a profit of £50,000.
Spratley Ltd is a builders’ merchant. On 1 September the business had, as part of its inventories, 20 tonnes of sand at a cost of £18 per tonne and, therefore, at a total cost of £360.During the
The following is the statement of financial position of TT and Co. (see Self-Assessment Question 3.1 on page 104) at the end of its first year of trading:During 2016, the following transactions took
The following is the statement of financial position of WW Associates as at 31 December 2014:During 2015, the following transactions took place:1 The owners withdrew £23,000 of equity in cash.2
The following is the income statement for Nikov and Co. for the year ended 31 December 2015, along with information relating to the preceding year.Required:Analyse the performance of the business for
Compare and contrast the main features of ordinary shares with those of preference shares.
In what ways do loan notes differ from preference shares?
Serendipity is an Internet service provider that has a major investment in computer and telecoms equip¬ ment, which needs replacement on a regular basis. The company has recently evaluated a £5
April Co. receives payment from debtors for credit sales as follows:• 30% in the month of sale• 60% in the month following sale• 8% in the second month following the sale• 2% become bad debts
Creassos Ltd was formed in July 2000 with £20,000 of capital. £7,500 of this was used to purchase equipment. The owner budgeted for the following:Wages and other expenses are paid in cash. In
Highjinks Corporation's sales department has estimated revenue of £2,250,000 for your division. 60% of this will be achieved in the first half year and 40% in the remaining half year. Variable
Griffin Metals Co. has provided the following data.Anticipated volumes (assume production equals sales each quarter):The selling price is expected to be £300 per tonne for the first six months and
Mega Stores is a chain of 125 retail outlets selling clothing under the strong Mega brand. Its sales have increased from £185 million to £586 million over the last five years. The company's gross
Carsons is a retail store that has given the task of preparing its budget for next year to a trainee accountant. The budget is prepared in quarters. Table 16.15 is the profit budget report produced
Conrad Corporation has a budget to produce 2,000 units at a variable cost of £3 per unit, but actual production is 1,800 units with an actual cost of £3.20 per unit. Calculate the variance based on
Calculate the material price variance for Cracker Barrel based on the following information: Standard Actual Quantity purchased (units) 5,000 5,200 Price per unit 3.10 3.05
Gargantua pic has produced the following budget and actual information (Table 17.20).a. Prepare a traditional budget versus actual report using the above figures.b. Prepare a flexible budget for
White Cold Equipment (WCE) makes refrigeration equipment for the domestic market. It sells all its production wholesale to a large retail chain. WCE's budget versus actual report for a recent month
Cooper's Components uses an activity-based costing system for its product costing. For the last quarter, the following data relate to costs, output volume and cost drivers:a. If set-up costs are
The Whitton Co. has an opportunity to buy a computer now for £18,000 that will yield annual net cash inflows of £ 10,000 for the next three years, after which its resale value would be zero.

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