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business
financial accounting theory

Questions and Answers of Financial Accounting Theory

Explain what is meant by a budget variance.
What is the formula for calculating:(a) direct material price variance,(b) direct material usage variance,(c) wage rate variance,(d) labour efficiency variance?
What problems are involved in setting overhead cost standards?
Distinguish between fixed and flexible budgeting.
What is the formula for calculating:(a) variable overhead expenditure variance,(b) variable overhead efficiency variance,(c) fixed overhead expenditure variance,(d) fixed overhead volume variance?
State three variances that can be applied to the analysis of sales.
Comment briefly on the problems that are implied in the investigation of variances.
What do you understand by managed costs?
Explain the problems implied in the control of managed costs.
Examine the process of budgetary control as applied to managed costs.
Discuss the problems associated with the control of administrative costs.
Review the problems of controlling research and development costs.
Indicate some of the considerations implied in the control of marketing costs.
Review three bases on which marketing costs may be analysed.
State what you understand by ‘managerial style’.
What is meant by ‘organization culture’?
List the objectives of performance evaluation.
Explain ‘Theory X’.
Contrast ‘Theory X’ with ‘Theory Y’.
Comment on possible managerial reactions to budgets.
Describe three possible levels of cost performance.
Define ‘management by objectives’.
What do you understand by ‘contingency theory’?
Contrast the objectives of the strategist with those of the traditional management accountant.
Identify the four postures which are necessary for strategic planning to be successful.
Define value-added and non-value-added. Give examples of each.
Describe in general terms the steps taken in competitor analysis.
What kinds of questions does profitability analysis address?
Explain what is meant by ‘market-led accounting’.
Identify four non-financial measures of importance. Why are they important?
The following information relates to the operations of the East Lancashire Trading Company for the three-year period ended 31 December 20X2:Required:From the foregoing information, calculate the
Evaluate the usefulness of financial ratio analysis in assessing the financial state of an enterprise. Use the case below to illustrate your answer.Case A summary of the results of Sandygate
Jack and jill each carry on business as wholesalers of the same product. Their respective accounts for the year ended 31 December 20X0 are as follows:(a) All sales are on credit.(b) The amounts of
You are financial adviser to a retailing company, Us Ltd. You obtain the accounts of its main competitor operating in the same market, Them Ltd, and extract the comparison shown below:Upon analysing
Set out below are the balance sheets for Macro plc and Micro plc as at 31 December 20X0.Macro plc bought its holding of 400,000 ordinary shares in Micro plc when the latter’s reserves stood at
Consider the following draft data relating to the year ended 31 December 20X0 of Royal plc and Butler plc.Royal plc acquired 50 per cent of the ordinary share capital of Butler plc on 1 January 20X0
On 3 July 20X0 Expo plc acquired 95 per cent of the issued share capital of Sition Ltd.The terms of the merger were as follows:For every 10 shares held in Sition, the shareholder received 8 shares in
How do accountants define capital?
Compare the accountants’ definition of capital with the definition used by economists.
Discuss the significance of the concept of ‘capital maintenance’.
Explain briefly the different concepts of capital maintenance that have been postulated.
Identify which of these concepts of capital maintenance would be most appropriate to the following two groups of decision makers, with brief explanations of your reasons:(a) corporate
Explain briefly how accountants measure business income.
Review the various purposes for which businesses require income measurement.
Explain what you understand as ‘value’.
Valuation is a process by which value is established. However, since there are different approaches to valuation, it follows that there are different values.’ Comment on this statement.
In the light of Question 9, consider the significance of alternative values to the measurement of capital and income.Question 9Valuation is a process by which value is established. However, since
Analyse the effects of the cost convention on the measurement of accounting income.
Analyse the effects of the cost convention on accounting valuations.
Discuss the modifications that could be made to historic cost accounting that would improve the quality of accounting information for financial reporting purposes.
Explain the significance of the realization convention with respect to accounting infor- mation. Are accountants justified in their commitment to the realization convention?
Explain the essential differences between the accounting and economic approaches to income measurement.
Comment briefly on Hicks’s definition of income.
Comment briefly on Alexander’s definition of business income.
Explain briefly the relation between income and value in the measurement of economic income.
Explain the difference between ‘ex-ante’ and ‘ex-post’ income. What are the implications of these two approaches for the measurement of economic income?
Comment briefly on the difficulties that could be found in applying economic concepts of income and value to accounting measurements.
Review briefly the possible effects of changes in price levels on accounting data.
State what is meant by current purchasing power accounting.
Describe how you would convert money measurements recorded at historic cost into their current purchasing power equivalent in calculating periodic profit or loss.
Describe how you would convert money measurements accumulated on balance sheets into their current purchasing power equivalent for preparing a year-end balance sheet.
State the objectives of current value accounting, and explain its different forms.
Explain the significance of the distinction made under replacement cost accounting between current operating profit and losses and holding gains and losses.
Comment briefly on the concept of ‘value to the business’, used in connection with cur- rent value accounting.
Why has financial reporting attracted criticism from a decision usefulness perspective?
What advantages could accrue from improved long-term disclosures?
What are the advantages of publishing company forecasts?
Examine the case for adopting net realizable value in financial reporting.
Discuss the advantages to the investor of quarterly reporting by public companies.
What do the findings of efficient market research show?
Analyse the main factors which should be considered when selecting a policy for depreciating fixed assets.
Explain the main provisions of FRS 15.
Lodgemoor Company acquired a machine on 1 July 20X0 for £48,000 and immediately spent a further £2,000 on its installation. The machine was estimated to have a useful life of eight years and a
Beale Company purchased a machine on 1 January 19X9, at an invoice price of £142,600. Transportation charges amounted to £2,000, and £3,400 was spent to install the machine. Costs of removing an
From the following information relating to the fixed assets of a business prepare the following accounts as they should appear in the ledger:(a) plant and machinery;(b) — motor vehicles;(c) plant
The year-end balance on the debtors account amounted to £100,000. Net sales for the year totalled £1,200,000. Explain how you would deal with the following information.(a) An analysis of the sales
A business maintains in its ledger a combined bad debts and provision for doubtful debts account. The provision was created in the accounts for the year ended 31 March 19X9 by calculating an amount
An airline company purchased and put into operation a jet aircraft on 1 February 19X7 for £7,000,000. The expectation then was that the aircraft would be flown for a total of 10,000 hours over a
A Mayberry Ltd, a company with a turnover of £30,000 per year, acquired a machine on 1 January 20X0 for £8,000. It was company policy to depreciate machinery on a straight-line basis at 20 per cent
Brannan own plant and equipment which is used on their construction sites. The depreciation policy of the company is to charge a full year’s depreciation in the year of acquisition but none in the
Jack Daw has prepared the following balance sheet as at 30 June 20X1:Daw asks you to audit his accounts and in the course of your examination you find the following:(a) A dividend of £100 has been
The balances in the books of account for John Reeve at 31 March 20X11 are given below:You are also given the following information:(a) On 31 March 20X1, the stock was valued at £40,000.(b)
The following trial balance was extracted from the books of T Bone as at 31 December 20X0.The following matters are to be taken into account:(a) Stock at 31 December 20X0 was £8,800.(b) Wages and
Matt Spode is a china wholesaler. A trial balance extracted from his books on 31 December 20X0 revealed the following balances:The following information was available at 31 December 20X0:(a) Stock at
The following trial balance was drawn up from the books of A Merchant at 31 December 20X0:Required:Prepare a profit and loss account for the year ending 31 December 20X0, and a balance sheet as at
Jackson owns a retail shop. From the few records he keeps the following information is avail- able for the beginning and end of 20X0:(a) Jackson tells you that during 20X0 he took from the till,
A businessman has no double-entry records of his transactions but has a cash book from which the following summary for the year ended 31 December 20X1 has been prepared:Draft a profit and loss
From the following information relating to Snailsby, a village shopkeeper who keeps no proper books of account, prepare accounts for the year ended 30 June 20X1.Of shop takings of £6,000 which were
On 30 June 20X1 the bank column of John Smith’s cash book showed a debit balance of £12,600. On examination of the cash book and bank statement the following was revealed:(a) Cheques amounting to
The following balances were extracted from the books of D Stowe at 31 December 20X0:The following matters are to be taken into account:(i) Stocks at 31 December 20X0 were £7,350.(ii) Depreciation of
The following trial balance was extracted from the books of Tim Russell at 31 December 20X0.The following additional information as at 31 December 20X0 is available:1 £588 of the carriage represents
Examine the problems of accounting for research and development expenditure, and explain the requirements of SSAP 13.
You are the Chief Accountant of a retailing company which Operates from a number of department stores throughout the country. You are approached early in 20X1 by a member of your staff who is
The summarized balance sheet of Demiwood Ltd for 31 December 20X0 is shown below.On 1 January 20X1 Demiwood Ltd bought out the McMaltby Company which was a private company with a summarized balance
A fire completely destroyed Arthur's timber yard and all his accounting records, during the night of 31 December 20X0.From duplicate bank statements and circularization of his debtors and creditors,
Viva Ltd does not keep records of stock movements. A physical stocktaking is made at the end of each quarter and priced at cost. This figure is used for compiling quarterly accounts. Draft accounts
Purchases and sales data for the first three years of a firm’s operation were as follows (purchases are listed in order of acquisition):Required:(a) Prepare a schedule showing the number of units
Z Ltd is engaged upon a contract the price of which is £250,000. At 31 December 20X0 the expenditure on the contract is as follows:The amount of work completed to date as certified by the architect
Builders Ltd commenced work on 1 July 20X0 on a contract the agreed price of which was £250,000. Expenditure incurred during the year to 30 June 20X1 was as follows:Wages £60,000; plant £17,500;
Rover Company leases certain heavy equipment from the London Leasing Company under an eight-year lease. The economic life of the equipment is ten years. No residual value will remain at the end of

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