Questions and Answers of Financial And Management Accounting

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?
What is the definition of a current asset? (Section 9.2)
What is the working capital cycle? (Section 9.3)
What are the features of raw materials, work in progress and finished goods which justify their recognition in a balance sheet? (Section 9.4.1)
What information do users need about current assets? (Section 9.5)
What is meant by FIFO, LIFO and the average cost method of pricing issues of goods?(Section 9.8.3)
How is a provision for doubtful debts decided upon? (Section 9.9)
What is a prepayment? (Section 9.10)
What is meant by ‘revenue recognition’? (Section 9.11)
Why are there problems with revenue recognition? (Section 9.11.2)
[S] The Sycamore Company has inventories which include the following four items:Description Purchase cost Selling price Cost of selling££ £Engine 6,500 8,250 350 Chassis 2,000 1,800 200 Frame
A company has a stock of goods consisting of four different groups of items. The cost and net realisable value of each group is shown in the table below.Group of items Cost Net realisable value £
Record the transactions of question B9.3 in ledger accounts for L1 Receivables(debtors), L2 Provision for doubtful debts, L3 Cash and L4 Profit and loss account.
Could a cash flow statement be presented as the only financial statement reported by a company? Explain your view.
Apart from the annual report, what other documents do companies use to communicate financial statement information to investors, creditors and other users of financial statements? (Section 7.9)
What is an associated company? (Section 7.8.5)
Explain what is meant by goodwill on acquisition. (Section 7.8.4)
Explain, using the accounting equation, the effect on the parent company’s balance sheet of a share issue in exchange for shares in the subsidiary company. (Section 7.8.1)
Explain, using the accounting equation, the effect on the parent company’s balance sheet of a cash payment for an investment in a subsidiary company. (Section 7.8.1)
Define the terms: (Section 7.7.1)(a) group;(b) parent company; and(c) subsidiary.
Explain the purpose of consolidated financial statements. (Section 7.7)
Explain why groups of companies are formed. (Section 7.7)
Why does depreciation appear as a line item in the reconciliation of operating profit with cash flow? (Section 7.6.3)
What are the main sections of a cash flow statement prepared according to IAS 7?(Section 7.6)
What are the main headings to be found in most company income statements (profit and loss accounts)? (Section 7.5)
In the Companies Act formats, what is the reason for the order of items under heading C: current assets? (Section 7.4)
What are the main headings to be found in most company balance sheets? (Section 7.4)
How do companies report: (Section 7.3.1)(a) financial position;(b) performance; and(c) changes in financial position?
The following technical terms appear in this chapter. Check that you know the meaning of each. (If you cannot find them again in the text, they are defined at the end of the book.)(a) revenue(b)
Name the primary financial statements and explain the purpose of each. (Section 7.3.1)
What is the role of the IASB? (Section 7.2.2)
What is the IAS Regulation? (Section 7.2.1)
What is a Directive? (Section 7.2.1)
Explain the nature of, and reason for, other forms of communication beyond the annual report.
Explain the main features of group financial statements.
Define ‘parent company’ and ‘subsidiary company’ and explain how a group is structured.
Explain the main contents of (a) the balance sheet, (b) the income statement(profit and loss account) and (c) the cash flow statement as presented by larger companies.
Explain the structure of company reporting as set out in the Framework and in UK guidance.
Explain the key international influences that affect accounting practice in the UK.
Which activities are the main contributors to the profit of the Home Retail Group?
Record the transactions of question B9.4 in ledger accounts for L1 Receivables(debtors), L2 Provision for doubtful debts, L3 Cash and L4 Profit and loss account.
Record the transactions of question B9.5 in ledger accounts for L6 Expense of insurance and L7 Prepayment.
How does the summary statement of financial position (balance sheet) reflect the accounting equation?
How does the group explain the main changes?
Define and explain the accounting equation.
Define assets.
Apply the definition to examples of assets.
Explain and apply the rules for recognition of assets.
Define liabilities.
Apply the definition to examples of liabilities.
Explain and apply the rules for recognition of liabilities.
Define ownership interest.
Explain how the recognition of ownership interest depends on the recognition of assets and liabilities.
Use the accounting equation to show the effect of changes in the ownership interest.
Explain how users of financial statements can gain assurance about assets and liabilities.
Explain how the rules of debit and credit recording are derived from the accounting equation.
Write out the basic form of the accounting equation. (Section 2.2)
Define an asset and explain each part of the definition. (Section 2.3)
Give five examples of items which are assets. (Section 2.4)
Use the definition to explain why each of the items in your answer to A.2.3 is an asset.(Section 2.4)
Explain what ‘recognition’ means in accounting. (Section 2.5)
State the conditions for recognition of an asset. (Section 2.5)
Explain why an item may pass the definition test but fail the recognition test for an asset.(Section 2.5)
Give three examples of items which pass the definition test for an asset but fail the recognition test. (Section 2.5)
Some football clubs include the players in the statement of financial position (balance sheet) as an asset. Others do not. Give the arguments to support each approach.(Section 2.5)
Define a liability and explain each part of the definition. (Section 2.6)
Give five examples of items which are liabilities. (Section 2.7)
Use the definition to explain why each of the items in your answer to
is a liability.(Section 2.7)
State the conditions for recognition of a liability. (Section 2.8)
Explain why an item may pass the definition test but fail the recognition test for a liability.(Section 2.8)
Define the term ‘equity’. (Section 2.9)
Explain what is meant by ‘net assets’. (Section 2.9)
Set out the accounting equation for a change in the ownership interest. (Section 2.11)
Define ‘revenue’ and ‘expenses’. (Section 2.11.1)
Set out the accounting equation which represents the position after a change has occurred. (Section 2.11.2)
Explain the auditor’s approach to giving assurance about assets and liabilities.(Section 2.12)
Explain whether each of the items from question B.2.1 above which you have identified as assets and liabilities would also meet the conditions for recognition of the item in the statement of
Explain why each of the following items would not meet either the definition or the recognition conditions of an asset of the business:(a) a letter from the owner of the business, addressed to the
Separately, using the definitions and recognition criteria, prepare a short statement explaining why each item on your list passes the tests of definition and recognition. State the evidence you
Present your explanations to the group and together prepare a list of assets and a separate list of liabilities in order of the uncertainty which attaches to the expected future benefit.
Read the ‘contingent liability’ note, if there is one, to find examples of liabilities which have not been recognised but have been disclosed. Why will you not find a ‘contingent asset’note?
What do we learn about cash flow from the information in the table?
How does the description in words help the user to understand the information in the table?
Explain the benefits and problems of producing annual financial statements.
Explain the purpose and structure of the statement of financial position (balance sheet).
Explain the purpose and structure of the income statement (profit and loss account).
Explain the purpose and structure of the statement of cash flows.20 Comment on the usefulness to users of the financial statements prepared.
Apply the debit and credit form of analysis to the transactions of a short period of time, summarising them in a list which may be used for preparation of simple financial statements.
Explain why an accounting period of 12 months is used as the basis for reporting to external users of financial statements. (Section 3.3)
Explain how the structure of the statement of financial position (balance sheet) corresponds to the accounting equation. (Section 3.4)
Explain how the structure of the income statement (profit and loss account) represents a subsection of the accounting equation. (Section 3.5)
Explain how the structure of the statement of cash flows represents another subsection of the accounting equation. (Section 3.6)
List three features of a statement of financial position (balance sheet) which are particularly useful in making the format helpful to readers. (Section 3.4.3)
List three features of an income statement (profit and loss account) format which are particularly useful in making the format helpful to readers. (Section 3.5.1)
List three features of a statement of cash flows which are particularly useful in making the format helpful to readers. (Section 3.6.1)
Prepare a statement of financial position (balance sheet) from the following list of assets and liabilities, regarding the ownership interest as the missing item.£Trade payables (creditors) 43,000

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