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financial accounting for decision makers

Questions and Answers of Financial Accounting For Decision Makers

Cirrus Company has calculated that the cost to make a component is made up of direct materials £120, direct labour £60, variable overhead £30 and fixed overhead of £25. Another company has
Bromide Partners provides three services: accounting, audit and tax: The total business overheads of £650,000 have been divided into two cost pools. The cost pools are:Partner hours are a measure of
Bendix Ltd is considering the alternatives of either purchasing component VX-1 from an outside supplier or producing the component itself. Production costs to Bendix are estimated at:An outside
Kazam Services begins the month with capital of £200,000 and the following assets and liabilities:The following transactions took place in the accounting records of the business during the last
Vibro PLC has fixed assets of £250,000, current assets of £125,000, long-term debt of £125,000 and creditors payable within 12 months of £75,000.• What is the working capital?• What is the
What is the impact of the following prepayment, accrual and provision transactions on profit, the Balance Sheet and cash flow?a_ A business has 24 motor vehicles that it leases in return for a
NOP plc has recently acquired a business, for which it paid £12 million. The assets of the business comprise:The Directors decide to amortise any goodwill over a period of 10 years.Calculate the
PUH Limited leases all of its assets. In its Balance Sheet, PUH shows a current liability of £750,000 and a long-term debt of £1,640,000 for lease commitments. What type of expenses will a user of
A business sells a non-current asset for less than its Balance Sheet value. Under IFRS, how will the difference between the asset value in the Balance Sheet and the amount received on the sale of the
A business sells a non-current asset for more than its Balance Sheet value. Under IFRS, how will the difference between the asset value in the Balance Sheet and the amount received on the sale of the
A manufacturing business has invoiced customers £5,875,000 including value added tax (VAT) of 17.5%. What sales value will be shown in the Income Statement?
The balance sheets of Jumbo plc and of Nipper plc, on the date that Jumbo plc bought the shares in Nipper plc, were as follows:Required:Assume that the balance sheet values of Nipper plc’s assets
The summary balance sheets for Apple Limited and Pear Limited 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 balance sheet
The balance sheets for Maxi Limited and Mini Limited are set out below.On 1 April last year, Maxi Limited bought 1,500,000 shares of Mini Limited for a total consideration of £5 m. At that date Mini
Can you think of any arguments against a listed public company having an audit committee?
Presented below is a draft set of simplified financial statements for Pear Limited for the year ended 30 September 2006.
Torrent plc's income statement for the year ended 31 December 2007 and the balance sheets as at 31 December 2006 and 2007 are as follows:During 2007, the business spent £67 million on additional
Chen plc's income statements for the years ended 31 December 2006 and 2007 and the balance sheets as at 31 December 2006 and 2007 are as follows:Required:Prepare a cash flow statement for the
The following are the financial statements for Nailsea plc for the years ended 30 June 2006 and 2007:There were no disposals of non-current assets in either year.Dividends were paid in 2006 and 2007
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 2005;
Simplified financial statements for York plc are as follows:Required:Prepare a cash flow statement for York plc for the year ended 30 September 2007. York plc Income statement for the year ended 30
The balance sheets of Axis plc as at 31 December 2006 and 2007 and the income statement for the year ended 31 December 2007 were as follows:During the year, plant (a non-current asset) costing £15 m
What problems might a business encounter when it attempts to minimise its operating cash cycle?
The directors of Helena Beauty Products Ltd have been presented with the following abridged financial statements:Required:Using six ratios, comment on the profitability (three ratios) and efficiency
Threads Limited manufactures nuts and bolts, which are sold to industrial users. The abbreviated financial statements for 2006 and 2007 are as follows:Required:(a) Calculate the following financial
Bradbury Ltd is a family-owned clothes manufacturer based in the south-west of England. For a number of years the chairman and managing director was David Bradbury. During his period of office, sales
The financial statements for Harridges Limited are given below for the two years ended 30 June 2006 and 2007. Harridges Limited operates a department store in the centre of a small town.Required:(a)
At the close of share trading on 16 March 2007, the market investor ratios for Next plc, the UK fashion and textiles 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 sized balance sheets and common size income
Required:(a) Calculate the Z-score for Ali plc and Bhaskar plc, using the Altman model set out.(b) Comment on the Z-scores for the two businesses and the validity of using this particular model to
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 and your business buys 60 per cent of the Green Ltd's output. Recently, Green Ltd
Genesis Ltd was incorporated in 2004 and has grown rapidly over the past three years. The rapid rate of growth has created problems for the business, which the directors have found difficult to deal
What does a group balance sheet show?
Identify the main users of accounting information for a university. Do these users, or the way in which they use accounting information, differ very much from the users of accounting information for
'Accounting reports should be understandable. As some users of accounting information have a poor knowledge of accounting, we should produce simplified financial reports to help them.' To what extent
An accountant prepared a balance sheet for a business. In the balance sheet, the capital of the owner was shown next to the liabilities. This confused the owner, who argued: 'My capital is my major
'The balance sheet shows how much a business is worth' Do you agree with this statement? Discuss.
What is meant by the balance sheet equation? How does the form of this equation differ between the horizontal and vertical balance sheet layout?
In recent years there have been attempts to place a value on the 'human assets' of a business in order to derive a figure that can be included on the balance sheet. Do you think humans should be
The following is the balance sheet of WW Associates as at 31 December 2005:During 2006, the following transactions took place:1 The owners withdrew capital in the form of cash of £23,000.2 Premises
The following is the income statement for Nikov and Co. for the year ended 31 December 2006, along with information relating to the preceding yearRequired:Analyse the performance of the business for
Iqbal Ltd started trading on 1 January 2002. During the first five years of trading, the following occurred: Year ended 31 December Trading profit (loss) Profit (loss) on sale of non-current assets
Da Silva plc's outline balance sheet as at a particular date was as follows:The following information is available:(a) Depreciation has not been charged on office equipment with a carrying amount of
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 2006 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 given
'An OFR should not be prepared by accountants but should be prepared by the board of directors.' Why should this be the case?
The following information was extracted from the financial statements of I. Ching (Booksellers) plc for the year to 31 December 2006:Required:Prepare an income statement for the year ended 31
Manet plc had the following share capital and reserves as at 30 June 2006:During the year to 30 June 2007, the company revalued its freehold land upwards by £30 m and made a loss on foreign exchange
The following is the segment reports of Tora plc, which manufactures and sells three main classes of product, for the year ended 31 December 2006. Revenue External sales Inter-segment sales Total
The following information has been extracted from the segmental report for 2006 for Carpetright plc, a leading carpet retailer. Segmental analysis The Group's primary reporting segment is geographic,
Singh Enterprises, which started business on 1 January 2019, has a reporting period to 31 December and uses the straight-line method of depreciation. On 1 January 2019, the business bought a machine
The following is the income statement for Nikov and Co. for the year ended 31 December 2021, along with information relating to the preceding year.Required:Analyse the performance of the business for
Iqbal Ltd started trading on 1 July 2016. During the first five years of trading, the following occurred:Required:Assume that the company paid the maximum legal dividend each year. Under normal
Manet plc had the following share capital and reserves as at 1 June 2020:During the year to 31 May 2021, the company revalued property, plant and equipment upwards by £30 million and made a loss on
Torrent plc’s income statement for the year ended 31 December 2021 and the statements of financial position as at 31 December 2020 and 2021 are as follows:During 2021, the business spent £67
Chen plc’s income statements for the years ended 31 December 2020 and 2021 and the statements of financial position as at 31 December 2020 and 2021 are as follows:Included in ‘cost of sales’,
The following are the financial statements for Nailsea plc for the years ended 30 June 2020 and 2021There were no disposals of non-current assets in either year. Dividends were paid in 2020 and 2021
The statements of financial position of Axis plc as at 31 December 2020 and 2021 and the income statement for the year ended 31 December 2021 were as follows:1 During the year, plant (a non-current
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 1 January 2022, 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 non-cancellable part of 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
The financial statements for Harridges Ltd are given below for the two years ended 30 June 2020 and 2021. Harridges Limited operates a department store in the centre of a small town.Dividends were
Identify and discuss three ratios that are likely to be affected by a business overtrading.
At the close of share trading on 12 February 2021, investment ratios for Next plc, the UK fashion and textiles retailer, and the averages for the ‘general retailers’ section, were as follows:
Ali plc and Bhaskar plc both operate electrical stores throughout the UK. The financial statements of each business for the year ended 30 June 2021 are as follows:Ali plc paid a dividend of £135
As with many businesses, Marks and Spencer plc (M&S), the retailer, has identified a number of key performance indicators (KPIs). Typical of such businesses, M&S publishes the results for
Quite often, when an existing company wishes to start a new venture, perhaps to produce a new product or render a new service, it will form a subsidiary company as a vehicle for the new venture. In
Alice plc owns 75 per cent of the ordinary shares of Baker plc. The outline income statements of the two companies for the year ended on 31 December are as followsRequired:Prepare the consolidated
Segmental information relating to Dali plc for the year to 31 December 2021 is shown below:Required:Analyse the performance of each of the three main business segments for the year and comment on
Segmental information relating to Turner plc for the year to 30 April 2021 is shown below:Required:Analyse the performance of each of the three main business segments for the year and comment on your
A large listed business wishes to improve its payroll accounting systems and is seeking outside help to do this. The external auditors are a large firm of accountants that has a consultancy arm. What
Identify five ways in which the independence of an auditor of a large listed company may be strengthened.Intermediate-level exercises
Accounting is sometimes described as ‘the language of business’. Why do you think this is the case? Is this an apt description of accounting?
The following is the statement of financial position of WW Associates as at 31 December 2017:1. The owners withdrew £23,000 of equity in cash.2. Premises were rented at an annual rental of £20,000.
‘Not-for-profit organisations are not interested in making a profit.’ Is this statement true? Does accounting and finance have a less important role to play in not-for-profit organisations than
The following is the income statement for Nikov and Co. for the year ended 31 December 2018, along with information relating to the preceding year.Required:Analyse the performance of the business for
While on holiday, Helen had her credit cards and purse stolen from the beach while she was swimming. She was left with only £40, which she had kept in her hotel room, but she had three days of her
The following is a draft set of simplified financial statements for Pear Limited for the year ended 30 September 2018:The following information is available:1. Depreciation has not been charged on
Rose Limited is a wholesaler and retailer of high-quality teas and coffees. Approximately half of sales are on credit. Abbreviated and unaudited financial statements are as follows:Since the
Iqbal Ltd started trading on 1 July 2013. During the first five years of trading, the following occurred:Required:Assume that the company paid the maximum legal dividend each year. Under normal
‘For a capital market to be efficient requires that there are certain individuals that have superior powers of prediction.’ Is this statement true?
Issues of new preference shares are extremely rare these days. Suggest reasons why this is the case.
The following information was extracted from the financial statements of I. Ching (Booksellers) plc for the year to 31 May 2018:Required:Prepare a statement of comprehensive income for the year ended
Chen plc’s income statements for the years ended 31 December 2017 and 2018 and the statements of financial position as at 31 December 2017 and 2018 are as follows:Included in ‘cost of sales’,
What are the potential benefits arising from developing a conceptual framework for accounting? What are the possible drawbacks?
Manet plc had the following share capital and reserves as at 1 June 2017:During the year to 31 May 2018, the company revalued property, plant and equipment upwards by £30 million and made a loss on
Torrent plc’s income statement for the year ended 31 December 2018 and the statements of financial position as at 31 December 2017 and 2018 are as follows:During 2018, the business spent £67
The following are the financial statements for Nailsea plc for the years ended 30 June 2017 and 2018:There were no disposals of non-current assets in either year. Dividends were paid in 2017 and 2018
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 2013.
What is the difference between the direct and indirect methods of deducing cash generated from operations? Can you see an advantage of using the indirect method rather than the direct method from the
IAS 7 carefully defines cash (and cash equivalents). Can you explain why the authors of this standard were so careful and precise in their definition?
The statements of financial position of Axis plc as at 31 December 2017 and 2018 and the income statement for the year ended 31 December 2018 were as follows:Notes:1. During the year, plant (a
The threshold for disclosure for contingent assets differs from that for contingent liabilities. Why is this the case? Can you see a problem with this difference in thresholds in the context of a
On 1 January 2019, 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 non-cancellable part of the
A provision is recognised when it is more likely than not (greater than 50 per cent chance) that an outflow of economic benefits will be needed to satisfy the obligation. This threshold established
‘The treatment of research and development expenditure set out in IAS 38 Intangible Assets reflects the tension between the prudence convention and the accruals convention in accounting.’ Explain.
Ondamin plc produced a draft income statement that revealed a profit before tax of £65.5million. Subsequent checking of the underlying records revealed the following:1. A licence costing £10
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,
In the past, operating 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

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