Questions and Answers of Financial And Management Accounting

Explain how segmental information is useful to the analysis of corporate performance.
What is the objective of the operating and financial review? (Section 14.2.1)
Why is there no prescribed format for the OFR? (Section 14.2.2)
What are the main principles set by the ASB for the OFR? (Section 14.2.2)
What are the main elements of the disclosure framework for the OFR? (Section 14.2.3)
What are key performance indicators (KPIs)? (Section 14.2.4)
What are the particular requirements of the OFR Regulation that must be reported in an OFR? (Section 14.2.5)
What are the responsibilities of the directors and auditors in relation to the OFR?(Section 14.2.6)
What is the purpose of a highlights statement? (Section 14.3.1)
How does a five-year summary of historical results help investors? (Section 14.3.2)
How does segmental information help the users of financial statements? (Section 14.4.1)
Which items are reported on a segmental basis? (Section 14.4.1)
How are segments identified? (Section 14.4.3)
Why is off-balance-sheet finance a problem in accounting? (Section 14.5)
What principles are recommended by the UK ASB for determining whether assets and liabilities should be reported on the statement of financial position (balance sheet)?(Section 14.5.2)
What is a special purpose entity? (Section 14.5.3)
What is corporate social responsibility? (Section 14.6)
What is the Global Reporting Initiative? (Section 14.6.3)
What accounting issues arise in relation to carbon trading? (Section 14.6.4)
What is meant by corporate governance? (Section 14.7)
What is the Combined Code? (Section 14.7.1)
How does financial reporting help to improve corporate governance? (Section 14.7)
Why has it been found impossible to write a definitive guide on the meaning of ‘a true and fair view’? (Section 14.8)
What are the limitations of historical cost accounting? (Section 14.9.2)
Why is it desirable to remeasure assets and liabilities subsequent to acquisition?(Section 14.9.3)
Explain what is meant by entry price and exit price. (Section 14.9.4)
Explain what is meant by fair value. (Section 14.9.6)
Should accounting standards focus primarily on the needs of users? (Section 14.10)
How does the discussion explain the company’s view on the cash invested in working capital?
Why might the company want to use cash flow to reduce net debt?
Explain why statements of cash flows are regarded as providing useful information.
Explain the meaning of cash and cash equivalents.
Explain the direct and the indirect forms of presentation of a statement of cash flows.
Prepare a statement of cash flows using the direct and the indirect method.
What is the definition of ‘cash’? (Section 15.2)
What is the definition of ‘cash equivalent’? (Section 15.2)
What is meant by the ‘direct method’ of calculating operating cash flow? (Section 15.3.1)
What is meant by the ‘indirect method’ of calculating operating cash flow?(Section 15.3.2)
Why is depreciation ‘added back’ to operating profit in the indirect method of calculating operating cash flow? (Section 15.3.2)
What is the effect on cash flow of an increase in inventory levels? (Section 15.3.2)
What is the effect on cash flow of an increase in trade receivables (debtors)?(Section 15.3.2)
What is the effect on cash flow of an increase in trade payables (creditors)?(Section 15.3.2)
What are the relative benefits of the direct method compared to the indirect method?(Section 15.3.3)
What are the three main sections of a statement of cash flows? (Section 15.4)
What kinds of items in a profit and loss account do not involve a flow of cash?(Section 15.4)
What happens to cash flow when working capital increases? (Section 15.4)
How is taxation paid calculated from the taxation payable and the taxation liability at the start and end of the period? (Section 15.4)
How is the cash paid for additions to fixed assets if we know the opening and closing balances and there are no disposals? (Section 15.4)
Explain how the proceeds of sale of a non-current asset differ from the net book value.(Section 15.4)
Explain how the cash proceeds of a share issue are calculated from knowledge of the share capital and the share premium reserve. (Section 15.4)
Explain how cash received from customers is calculated if we know the sales of the period and the receivables (debtors) at the start and end of the period. (Section 15.5)
Explain how the purchases of goods or materials is calculated if we know the cost of goods sold and the inventory (stock) at the start and end of the period. (Section 15.5)
Explain how the cash paid to suppliers is calculated if we know the purchases and the payables (creditors) at the start and end of the period. (Section 15.5)
Imagine you are working as a management accountant in a company that is planning a project to establish a wind farm to generate renewable electricity. What kind of work might you contribute to the
Imagine you are working as a management accountant in a company which is unprofitable because its labour costs are higher than those of its competitors. How might you contribute to improving the
Explain how the definition of ‘accounting’ represents the subject of management accounting.
Explain the needs of internal users of accounting information.
Describe the management functions of planning, decision making and control and show how these are related within a business activity.
Describe the roles of management accounting in directing attention, keeping the score and solving problems.
Analyse simple cases where management accounting may contribute to making judgements and decisions.
Understand that the terminology of management accounting is less well defined than that of financial accounting,
Define ‘management accounting’. (Section 16.1)
Explain why management decisions will normally require more than a management accounting input. (Section 16.1.1)
What is meant by a ‘contingency theory’ of management accounting? (Section 16.1.2)
Why is management accounting required to take on an outward-looking role of contributing to business strategy by identifying, measuring and communicating financial information about a wider business
Explain the needs of internal users for management accounting information. (Section 16.2)
Explain, giving a suitable example in each case, what is meant by the management functions of:(a) planning; (Section 16.3.1)(b) decision making; (Section 16.3.2) and(c) control. (Section 16.3.3)
Explain, giving a suitable example in each case, how management accounting may serve the purposes of:(a) directing attention; (Section 16.4.1)(b) keeping the score; (Section 16.4.2) and(c) solving
Describe, and explain each stage of, the cycle of profit planning and control.(Section 16.4.3)
In the chapter there are four case studies where Fiona McTaggart explains what she is able to offer in four situations, using her management accounting experience. Her advice is primarily
Suggest reasons for the lack of an agreed set of standard words in the language of management accounting. (Section 16.6)
What are the costs of being a milk processor (the person who collects milk from the farms and puts it into bottles and cartons for sale by the supermarkets)?
How do the dairy farmers react to price pressure in an attempt to cover their fixed costs?
Define ‘cost’.
Explain the need for cost classification.
Define ‘activity’ and ‘output’.
Explain and distinguish fixed costs and variable costs.
Explain and distinguish direct costs and indirect costs.
Explain and distinguish product costs and period costs.
Explain how cost classification can be developed to be relevant to the circumstances of planning, decision making and control.
Explain and devise a cost coding system.
Explain how costs may be selected and reported for the type of activity required(cost unit, cost centre, profit centre or investment centre).
Explain what is meant by ‘cost’. (Section 17.1)
Explain the meaning of ‘activity’ and ‘output’. (Section 17.3)
For each of the following cost classification terms, give a definition and give one example of how the definition applies in practice to a person providing car repairs from a rented garage:(a)
Classify each of the following as being primarily a fixed cost or a variable cost, and, if necessary, explain why you think such a classification would be difficult without more information being
What are the component costs of the total cost of production? (Section 17.5)
State the cost headings which are combined to give each of the following: (Section 17.6)(a) prime cost;(b) production overhead cost;(c) total product cost.
Explain how cost classification must be matched to the purpose of planning, decision making or control. (Section 17.7)
How does cost classification vary to meet particular circumstances? (Section 17.7.4)
Explain the importance of an unambiguous system of cost coding. (Section 17.8)
What are:(a) a cost centre; (Section 17.9.1)(b) a profit centre; (Section 17.9.2) and(c) an investment centre? (Section 17.9.3)
What is the role of the purchasing manager?
What are the indirect costs of purchasing that should be added to the direct costs in order to estimate the full cost of materials and services?
State the main components of total product cost.
Explain the process of controlling and recording costs of materials.
Explain the process of controlling and recording costs of labour.
Explain the traditional approach to allocating and apportioning production overheads to products.
Explain how cost drivers may be used to allocate overhead costs in activitybased costing.
Contrast the traditional and activity-based methods of dealing with overhead costs

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