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financial accounting

Questions and Answers of Financial Accounting

Compare revenue recognition under the percentage of completion and completed contract methods.
For each of the following expenses, state what the other side of the journal entry would be. If it is not an expense, write ‘no expense’. 1. Insurance expense (amount paid last
What conditions need to be met before income/revenue can be recognised?
Knowledge Ltd provides one-day training programs on accounting. It charges $5000 per day. The following events occurred during May 2019. a. Received $20 000 from accounts receivable for sales in
What conditions need to be met before expenses can be recognised?
An income statement shows profit and loss for the period and total changes in equity other than those resulting from transactions with owners as owners. Provide three examples of these changes in
Using the financial statements of any company you are interested in, write a comprehensive review of the company’s revenue and expense recognition policies. Cover such points as: 1. What the
You are told by a friend who builds upstairs extensions to houses that he estimates the profit on a job at the time of quoting, and recognises 10 per cent of profit each week based on the fact that
In each of the following independent cases, indicate when you think the company in question should recognise revenue. Support your decision with reference to the generally accepted criteria for
Explain why revenue is sometimes recognised at the point of sale. When would it be appropriate to recognise revenue at the time of production?
Describe the matching principle. How is it dealt with in the Framework?
Would a large write-down of inventory that has become obsolete be included as an expense? Why, or why not?
Gary Slapstick Promotions Ltd (GSP) acquired the rights to use the names of a number of football players on life-sized stuffed dolls it purchases from a toy manufacturer. The dolls are marketed
Given the following information, what is cash flow from operations? Cash from accounts receivable Cash sales Cash from issue of shares Payments to accounts payable Payments for wages Purchase of
What is the main benefit of providing separate disclosure of significant items?
Prepare a statement of cash flows for Sutherland Limited from the following cash account information. Cash, beginning of year Cash, end of year Borrowed from the bank Cash expenses Cash
The below items were taken from a listed company’s statement of cash flows. Classify each item as operating, investing or financing. For each item state whether cash is increasing or
Can a company have a good net profit and little cash generated from operations in the same year? If it can, how does this happen?
The following data are extracted from the financial statements of Flutes Ltd: Additional information: 1. All sales are made on credit; there is no allowance for doubtful debts 2. Sales
Classify each of the following as either operating, investing or financing cash flows. (i). Payment of wages (ii). Dividends paid (iii). Issue of shares (iv). Dividends
Why is cash generated from operations usually larger than net profit?
The following data are extracted from the financial statements of Hippolyta Ltd. Additional information: a. Proceeds from sale of equipment, $75 000 b. Net book value (cost less
The following data are extracted from the financial statements of Theseus Limited:Calculate all the cash flows revealed by the data provided above. Share capital Retained earnings Net
How can cash flow from operations be negative when net profit is positive?
The following information is taken from the accounts of Registration Ltd for the year ended 31 December 2019: 1. What was the amount of cash received from customers? 2. What was the amount
Briefly explain why managing cash flow is important for the success of a business.
Summarised cash flow statements for the year ended 30 June 2019.Comment on the cash flow of the three companies. Cash flow from operations Cash flow from investing Cash flow from financing Change in
Marlot Limited reported the following information on cash flow for the year 2019.1. Does Marlot Limited appear to be expanding or contracting its operations? 2. Describe the activities that
The income statement and balance sheet provide the following information for 2019.1. Calculate cash flows for operations using the indirect method. 2. Why are the reasons for the difference
Janali Limited prepares its statement of cash flows using the indirect method. Its balance sheet shows the following information: Additional information: a. Net profit for the year ended 30
An income statement and a comparative balance sheet for Borachio Ltd are as follows: The following additional information during the year was obtained from an examination of the ledger: a.
Which companies would Woolworths compare its financial performance with?
What information should you gather about a company before you start calculating ratios?
What ratios would you calculate to evaluate a company’s profitability?
How was Transport’s liquidity at the end of 2019? Is that an improvement over 2018?
The following is a summary of the information in the financial statements of ABC Ltd for the years 2018 and 2019. The manager of ABC Ltd has given the following information relating to the
What ratios would you calculate to evaluate a company’s activity or turnover?
In February 2018, newspaper reports referred to a retailer’s balance sheet including intangible assets such as brand names and goodwill of almost $1 billion as being much higher than market value.
Outline some of the main limitations of ratio analysis.
Use non-technical language to answer the following: a. What is financial leverage? b. Why is such leverage risky? c. How does the DuPont formula incorporate leverage?
Why does changing depreciation method (i.e. changing the depreciation numbers in the financial statements) change the debt-to-equity ratio?
Explain how the following are possible: a. Kylie Limited has a high current ratio, but has difficulty paying its bills. b. Jason Limited has a high quick ratio, but has difficulty paying
The following events took place at Freddie Choo Painting during 2019:a. On 1 January, Freddie bought a van for $30 000. He had a tool chest and side racks for ladders installed for a total cost of
An item of equipment was purchased on 1 July 2015 at a cost of $625 000. It was estimated to have a useful life of four years and a salvage value at the end of that period of $25 000. 1.
At the beginning of 2015, SD Corporation acquired machinery that cost $100 000 and had an anticipated useful life of 10 years. SD Corporation depreciated this machinery for 2015 and 2016, using the
The following transactions occurred in relation to the widget inventory of Hackack Ltd during the month of July.Calculate the COGS and gross profit for July, assuming a perpetual inventory system is
Do you expect that your university bookshop uses a perpetual or periodic inventory system? Why?
Granot Ltd uses the perpetual inventory method. At the beginning of the month, inventory costing $145 890 was on hand. Purchases for the month totalled $267 540 and cost of goods recorded as sold
Razzamatazz Ltd uses a perpetual inventory control system. The following data are available:1. Calculate the COGS expense for the year, based on the company’s perpetual inventory system. 2. If
Cricket Cards Ltd sells boxes of cricket cards. The following information relates to transactions concerning inventory for the year 1 January 2019 to 31 December 2019. (i). Assuming that a
How has technology influenced the choice of a periodic or perpetual inventory system?
Inventory is an asset that is commonly subject to fraud. In one famous case in the United States, managers used fictitious inventory purchases to perpetuate a massive inventory fraud. MiniScribe
How is COGS determined under both the perpetual and periodic inventory systems?
Compare the periodic and perpetual systems as a control device.
RUV commenced operations on 1 June 2019 selling one type of shirt. The company uses FIFO (first in, first out) and perpetual inventory control. The June inventory and sales records for the shirts
Frogmorton Fashions began the period with inventory costing $30 000. During the period, $125 000 of additional inventory was purchased. At the end of the period, a physical count showed that
How is inventory shortage detected under the perpetual and periodic inventory methods?
The BabyStyle Company is a retail firm buying and selling a single product: prams for babies. A system of perpetual inventory is employed. During the six months ended 30 June 2019 the inventory
What is included in the cost of inventory? Provide examples of what is not included in the cost of inventory?
The following data relates to Fay Ltd, a company that buys and sells only one product:1. Calculate the cost of ending inventory and the COGS, assuming:a. A perpetual system using the LIFO cost flow
What does the term ‘inventory cost flow assumption’ mean?
The following information is taken from the accounting records of Golden Ltd for the year ended 31 December 2019. Golden Ltd uses a perpetual inventory system.Determine the cost of ending inventory
The following transactions relate to a computer game sold by Wiley Louvres Ltd for the period 1 January to 31 December 2019: 1. Determine the cost of ending inventory as at 31 December 2019 and
Why is the valuation of inventory important to managers?
If management overstated the valuation of closing inventory, would it affect profit for the year?
Due to increased competition, assume a wine producer has to write down its premium red wines by $40 million. In a stock count it also finds many cases of white wine (valued at $3 million) which are
You put into service a $500 000 machine on 1 July 2016. It has an estimated useful life of five years and no value at the end of its useful life. (i). At 30 June 2019, what is the accumulated
Magnus Fabricators Ltd has just constructed a new factory building using company employees and equipment for most of the work. The company’s accountant has said: ‘Various costs must be
Without depreciation, the asset values in the balance sheet would not be appropriate.’ Discuss.
Explain to the general manager of Cold Lake Manufacturing Ltd, which opened for business at the beginning of this year, what depreciation expense is supposed to accomplish and the criteria you would
What judgements need to be made by managers and accountants in calculating depreciation?
A company sells a piece of equipment (cost $40 000 and accumulated depreciation $25 000) for $5000 cash. What would be the journal entry?
What different methods of depreciation are available? How do the methods affect profit for the year?
Lawnmowing Limited has purchased a group of new lawnmowers for $20 000. The owner expects the mowers to last five years and to have negligible resale value at that point. The business plan projects
How do gains and losses on disposal affect the financial statements?
Dombey & Son acquired a new machine on 1 January 2016 at a cost of $135 000. Freight and installation charges amounted to $25 000. The machine was expected to have a useful life of four years and
What is the purpose of an asset revaluation?
What is the impact on the profit for the year if a parcel of land is revalued upwards?
List five different types of intangibles.
What is goodwill? How is it valued in the balance sheet?
Provide three examples of deferred expenditure. Where would they appear in the financial statements?
On 1 January 2019, Yip Ltd acquired additional equipment at a cost of $120 000, less a trade discount of 25 per cent. The terms of payment were 2/10, n/30. Payment was made on 20 January 2019.
What determines whether development costs are capitalised or expensed?
Why record depreciation expense by debiting the expense and crediting accumulated depreciation? Why not just credit the asset cost so that the balance sheet shows just the remaining undepreciated
Under what circumstances would the following depreciation policies be appropriate?a. Straight-line (even periodic expenses over the asset’s life) b. Reducing balance (declining periodic
Extract from balance sheets at 30 June: Additional information: (i). Depreciation expense for the year is $130 000. (ii). Cash proceeds for disposal of equipment during the year
The merger between Northcorp and Carnation resulted in large losses for Northcorp resulting in a $642.5 million write-down of goodwill and a $240 million write-down of the value of the Carnation
Why is capitalising costs such as intangible assets a reasonable idea? Why is it not such a good idea?
If an asset is leased, it is not owned. How can accounting standards that require the creation of a balance sheet account for these leased assets be justified?
This depreciation business appears to involve a lot of guesswork. To calculate the annual charge you guess the life of the asset, its scrap value and expected pattern of reduction in value. You tell
State briefly the need for providing depreciation.
Reliance Ltd. Purchased a second hand machine for ₹ 56,000 on October 01, 2011 and spent ₹ 28,000 on its overhaul and installation before putting it to operation. It is expected that the machine
Explain basic factors affecting the amount of depreciation.
Rectify the following errors:(i) Credit sales to Mohan ₹ 7,000 were recorded as ₹ 7,200.(ii) Credit purchases from Rohan ₹ 9,000 were recorded as ₹ 9,900.(iii) Goods returned to Rakesh ₹
Rectify the following errors:(a) Salary paid ₹ 5,000 was debited to employee’s personal account.(b) Rent Paid ₹ 4,000 was posted to landlord’s personal account.(c) Goods withdrawn by
Rectify the following errors:(a) Credit Sales to Mohan ₹ 7,000 were recorded in purchases book.(b) Credit Purchases from Rohan ₹ 9,00 were recorded in sales book.(c) Goods returned to Rakesh ₹
Rectify the following errors:(a) Sales book overcast by ₹ 700.(b) Purchases book overcast by ₹ 500.(c) Sales return book overcast by ₹ 300.(d) Purchase return book overcast by ₹ 200.
Rectify the following errors:(a) Sales book undercast by ₹ 300.(b) Purchases book undercast by ₹ 400.(c) Return Inwards book undercast by ₹ 200.(d) Return outwards book undercast by ₹ 100.
Rectify the following errors and ascertain the amount of difference in trial balance by preparing suspense account:(a) Credit sales to Mohan ₹ 7,000 were not posted.(b) Credit purchases from Rohan
Rectify the following errors and ascertain the amount of difference in trial balance by preparing suspense account:(a) Credit sales to Mohan ₹ 7,000 were posted as ₹ 9,000.(b) Credit purchases

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