Questions and Answers of Financial And Management Accounting

What is the effect on the accounting equation of purchasing direct and indirect materials?(Section 19.3.1)
List the items you would expect to find in a job cost record. (Section 19.2)
Define prime cost, production overhead cost and total product cost. (Section 19.1)
Explain how activity-based costing may be useful in calculatin
Compare profit using absorption costing with profit using marginal costing.
Analyse transactions involved in job costing, using the accounting equation.
Prepare a job-cost record showing direct material, direct labour, other direct costs and production overhead.
Explain the contents of a job-cost record.
Will each course have the same pattern of costs and revenues?
Why is a job costing approach suitable for estimating the cost of a course in flower arranging?
Why is there a provision when the decommissioning will take place so far into the future?What are the significant uncertainties in estimating the amounts of the provisions?
Define a non-current (long-term) liability.
Explain the needs of users for information about non-current (long-term) liabilities.
Explain the different types of non-current (long-term) loan finance which may be found in the statements of financial position (balance sheets) of major companies.
Understand the purpose of provisions and explain how provisions are reported in financial statements.
Understand the nature of deferred income and explain how it is reported in financial statements.
Know the main types of loan finance and capital instruments used by companies and understand the principles of reporting information in the financial statements.
Prepare the ledger accounts to record provisions and deferred income.
Explain why a provision may be required. (Section 11.4)
Give three examples of situations which may lead to provisions. (Section 11.4)
Explain how deferred income is recorded. (Section 11.5)
Is it justifiable to report deferred income under the category of liability? (Section 11.5)
Explain what is meant by each of the following terms: (Section 11.6)(a) loan stock;(b) debenture;(c) bond;(d) maturity date; and(e) convertible loan stock.
The Washing Machine Repair Company gives a warranty of no-cost rectification of unsatisfactory repairs. It has turnover from repair contracts recorded as:Based on previous experience the manager
(Refer also to Chapter 10, section 10.3.2, on Contingent liabilities.)Explain why each of the following is reported as a contingent liability but not recognised as a provision in the statement of
Prepare bookkeeping records for the information in question B11.1.
Prepare bookkeeping records for the information in question B11.2.
What does the reader learn from the ratios and performance measures presented by the company?
What major ratios are not shown in this summary?
Define, calculate and interpret ratios that help analyse and understand(a) performance for investors, (b) management performance, (c) liquidity and working capital and (d) gearing.
Explain investors’ views of the balance of risk and return, and the risks of investing in a geared company when profits are fluctuating.
Explain how the pyramid of ratios helps integrate interpretation.
Describe the uses and limitations of ratio analysis.
Carry out a practical exercise of calculating and interpreting ratios.
Which ratios provide information on performance for investors? (Section 13.3.1)
Which ratios provide information on management performance? (Section 13.3.2)
Which ratios provide information on liquidity and working capital? (Section 13.3.3)
Which ratios provide information on gearing? (Section 13.3.4)
What is the view of investors on risk and return? (Section 13.4)
Why is financial gearing riskier for a company which has fluctuating profits? (Section 13.4.3)
Explain the use of the pyramid of ratios in analysis of performance. (Section 13.5)
What are the limitations of ratio analysis? (Section 13.6)
(a) Using the information provided in question C12.1, prepare a spreadsheet containing a trial balance, adjustment and resulting figures for income statement (profit and loss account) and statement
Suppose the factory building in question B12.4 was valued by the professional expert at £240,000. What effect would this information have on the reported financial statements?
Explain the effect on the accounting equation of the following transactions and decisions regarding dividends:(a) The company pays a dividend of £20,000 during the accounting period.(b) The
What are the principles for measuring, and processes for recording, these items?
Does the information show the desirable qualitative characteristics of financial statements?
What information is currently provided by companies to meet these needs?
What are the information needs of users in respect of the particular items?
What are the principles for defining and recognising these items?
Understand the nature and purpose of the statement of changes in equity in the IASB system and also the UK ASB equivalents.
How significant was the magnitude of the revaluation and how was it reported?
What reason did the group give for choosing to measure the revaluation of its property assets?
Why is it important for the company to give descriptive information about the investment in stores?
What is the largest non-current asset category by net book value? Is it what you would expect for a business of this kind?
Define a non-current (fixed) asset and apply the definition.
Explain the recognition conditions that are applied to tangible non-current (fixed)assets, intangible non-current (fixed) assets and non-current (fixed) asset investments.
Explain users’ needs for information about non-current (fixed) assets.
Describe and explain the non-current (fixed) asset information provided in annual reports of companies.
Evaluate the usefulness of published information about non-current (fixed) assets.
Explain the nature of depreciation.
Calculate depreciation, record the effect on the accounting equation and report the result in financial statements.1 Record non-current (fixed) assets and depreciation in ledger accounts.
What are the principles for defining and recognising these items?
What are the information needs of users in respect of the particular items?
What information is currently provided by companies to meet these needs?
Does the information show the desirable qualitative characteristics of financial statements?
What are the principles for measuring, and processes for recording, these items?
State the definition of a non-current (fixed) asset and explain why each condition is required. (Section 8.2)
Explain the categories: (Section 8.2.1)(a) tangible non-current (fixed) assets;(b) intangible non-current (fixed) assets; and(c) non-current (fixed) asset investments;and give an example of each.
What do users of financial statements particularly want to know about non-current(fixed) assets? (Section 8.4)
What type of information would you expect to find about non-current (fixed) assets in the financial statements and notes of a major UK listed company? (Section 8.4)
State the definition of depreciation. (Section 8.7)
What is meant by accumulated depreciation (also called aggregate depreciation)?(Section 8.7)
What information is needed to calculate annual depreciation? (Section 8.7.1)
What is the formula for calculating straight-line depreciation? (Section 8.7.2)
How is reducing-balance depreciation calculated? (Section 8.7.3)
How does depreciation help to retain cash in a business for asset replacement?(Section 8.7.5)
Why does the net book value of a non-current (fixed) asset not always equal the proceeds of sale? (Section 8.8.5)
Why is depreciation said to cause an allocation problem in accounting? (Section 8.8.6)
How should the cost of a non-current (fixed) asset be decided? (Section 8.2.2)
What is meant by impairment? (Section 8.8.7)
On 1 January Year 1, Angela’s Employment Agency was formed. The owner contributed £300,000 in cash which was immediately used to purchase a building. It is estimated to have a 20-year life and a
Angela’s Employment Agency sells the building for £285,000 on the final day of December YeaR 3.Record the transactions and events of Year 3 in an accounting equation spreadsheet. (See Table 8.7
Explain how the accounting equation spreadsheet of your answer to question
would alter if the building had been sold for £250,000.
On 1 January Year 1, Company A purchased a bus costing £70,000. It was estimated to have a useful life of three years and a residual value of £4,000. It was sold for £8,000 on the last day of Year
The biscuit machine in question C8.1 was sold at the end of Year 4 for a price of £3,000.Required (a) Prepare the spreadsheet for Year 4 analysing the transactions and events of the year.(b) Prepare
Prepare ledger accounts to report the transactions and events of questions C8.1 and C8.2.
What are the proportions of raw materials, work in progress and finished goods inventories?
How does the company deal with the volatile prices of cocoa and sugar?
Define a current asset and apply the definition.
Explain the operation of the working capital cycle.
Explain the factors affecting recognition of inventories (stocks), receivables(debtors) and investments.
Explain how the information presented in a company’s statement of financial position (balance sheet) and notes, in relation to current assets, meets the needs of users.
Explain the different approaches to measurement of inventories (stocks) and cost of goods sold.
Analyse provisions for doubtful debts using a spreadsheet.
Analyse prepayments using a spreadsheet.
Explain the term ‘revenue’ and the application of principles of revenue recognition.
Record receivables (debtors) and prepayments in ledger accounts.
What are the principles for defining and recognising these items?

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