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introduction to financial accounting
Questions and Answers of
Introduction To Financial Accounting
G. Flay has three employees (A, B and C).A gets paid £6.00 per hour and worked 35 hours normal time this week and 2 hours overtime.B gets paid £7.00 per hour and worked 35 hours normal time this
Describe fully the provisions of IFRS 3 with regard to what constitutes a parent and a subsidiary.
Ermine commenced trading on 1 July 20X4 with a capital of £100,000 cash. During the year ended 30 June 20X5, he operated from rented premises and at the end of the year he had sold all his
a. Outline the concept of economic income as defined by Hicks (1946) and explain its relevance in the measurement of profit (see Chapter 7 ‘The Accounting Equation and its Components’).b.
Explain how assets are valued using each of the following measurement methods: (a) Historical cost; (b) Current cost; and (c) Current purchasing power.
A. Daley commenced trading on 1 January 20X0 as a second-hand car dealer. His capital in cash was £20,000. On that date Daley acquired a 5-year lease on a lock-up garage at a cost of £5,000.The
Describe the main conceptual differences between current cost accounting and current purchasing power accounting.
Explain why the profit computed using historical cost accounting usually differs from that when calculated using replacement cost accounting and current purchasing power accounting.
McKee Ltd commenced trading on 1 January 20X0, selling a single type of imported DVD player. The company’s opening statement of financial position is shown below:All assets are shown at cost on 1
Discuss: a. the arguments for making price-level adjustments (in addition to specific price adjustments); b. the advantages and disadvantages of making a single general price level adjustment to the
Using the information from Exercise 35.12, prepare statements of financial position on current cost and historic cost bases at 31 December 20X0.Data From Exercise 35.12McKee Ltd commenced trading on
Joe Jones is an entrepreneurial student who decides to earn some funds to subsidise his studies. He purchases 25kg bags of potatoes and re-bags them into smaller 2.5kg bags and then sells them at the
The majority shareholder in McKee Ltd’s comments: ‘Both sets of financial statements give me the same dividend, so what does it matter’. Discuss.
After completing a training course at a technical college, Michael Faraday set up in business as a self-employed electrician on 1 January 20X5.He was very competent at his job, but had no idea how to
Kwella Ltd received the following invoices from suppliers during the week commencing 23 November 20X4. All purchases made by Kwella Ltd are subject to value added tax at 15 per cent. The following
Explain the differences and/or interrelationship between: (a) Changes in specific price levels;(b) Changes in general price levels; (c) Inflation; (d) The retail price index (RPI).
Explain fully why there is said to be a need to account for changing prices in final financial statements.
Explain the limitations of historical cost accounting in times of rising prices.
Mudgee Ltd issued the following invoices to customers in respect of credit sales made during the last week of May 20X5. The amounts stated are all net of value added tax. All sales made by Mudgee Ltd
M. Essex is in business as a wholesale coal merchant. The following transactions took place during December 20X4:1 Dec Balance at bank £5,000.3 Dec Purchased goods on credit from English Coal for
A business commenced trading for the week commencing 28 May 20X4 with £79 in cash and a bank overdraft of £515.The following receipts and payments occurred during the week ending 3 June
The following are extracts from the payroll of J. Sutcliffe Ltd for the week ending 24 January 20X0.There were no other deductions from the employees’ pay.You are required to prepare journal
Using the information from Exercise 34.6 write up the VAT account and highlight the amount that should be paid to, or received from, HM Revenue and Customs.Data from Exercise 34.6Write journals to
Fresh Ltd acquired 80 per cent of Stale Ltd on 1 January 20X9, when the balance on Fresh Ltd’s retained earnings was £160,000 and the balance on Stale Ltd’s retained earnings was £100,000.
Write journals to post the following transactions. (VAT is chargeable at 20 per cent.)1. The purchase of a motor vehicle for £12,000 (gross) in cash.2. The purchase of goods for £500 (net price
a. Briefly describe how each of the following is computed: (i) Employee’s gross pay; (ii) Employee’s net pay.b. Outline the nature of those items that are required by UK law to be
P buys 70 per cent of the shares of S on 31 Dec 20X0. The statements of financial position of the two companies on 31 December 20X1 are as follows:RequiredPrepare the consolidated statement of
a. Explain the main purpose of columnar day books.b. Describe the possible format of: (i) A columnar purchases day book; and (ii) A columnar cash book. Your answer should include reference
The following are the statements of financial positions of Wood plc and Stone plc as at 1 May 20X0:Wood plc purchased 80 per cent of the equity shares of Stone plc on 1 May 20X0 at a price of
The following are the statements of financial position of Gold plc and Silver plc as at 1 January 20X9:Gold plc purchased all the equity shares of Silver plc on 1 January 20X9. The assets and
The following are the statements of comprehensive income and statements of financial position of Gold plc and Silver plc for the year ended 31 December 20X9:Other informationGold plc paid a dividend
a. Briefly explain the nature of value added tax (VAT) and its associated cash flows.b. Describe how this affects the items shown in the final financial statements of businesses.c. What does it mean
The following are the statements of comprehensive income and statements of financial position of Wood plc and Stone plc for the year ended 30 April 20X1:Other informationWood plc paid a dividend of
H Ltd acquired 75 per cent of the share capital of S for £280,000 on 1 January 20X3. Goodwill arising on consolidation has been fully impaired. Details of the share capital and retained earnings of
At 1 January 20X0 H Ltd acquired 60 per cent of the share capital of S for £180,000. At that date the share capital of S consisted of 200,000 shares of 50p each. The reserves of H and S are stated
At 1 January 20X0 H Ltd acquired 80 per cent of the share capital of S for £160,000. At that date the share capital of S consisted of 100,000 equity shares of £1 each and its reserves totalled
a. Define a non-controlling interest in accordance with IFRS 10 – Consolidated Financial Statements (IASB, 2018b).b. Explain why non-controlling interests arise in consolidated financial statements
Given the circumstances in Question 33.5 above, describe how this relationship between Parhold plc and Subsid plc would affect the following at the end of the first accounting year after
Parhold plc has bought for cash of £12 million all the voting shares of Subsid plc, whose net assets have been valued at £10 million. Describe how this transaction would affect:a. The statement of
At 31 July 20X9, the statement of financial position of Winder Engineering plc showed the following position:The preference shares were originally issued at a premium of 10 per cent, and are
a. Explain the objective(s) of consolidated financial statements.b. Describe in general terms the principles of consolidation.
The summarized statement of financial position of Arbalest Ltd at 30 September 20X0 was as follows (internal accountant’s draft copy):During the year ended 30 September 20X1 the company had the
a. Explain the nature of goodwill arising on the acquisition of a subsidiary and how it is measured.b. Describe the requirements of IFRS 3 – Business Combinations (IASB, 2018a) with regard to the
The authorized and issued share capital of Forward Ltd as at 31 May 20X0 was 150,000 equity shares of £1 each, fully paid. On 1 June 20X0, the authorized share capital was increased to £225,000
Define each of the following in accordance with the Companies Act 2006, IFRS 3 – Business Combinations (IASB, 2018a) and International Financial Reporting Standard 10 – Consolidated Financial
The summarized statement of financial position for Turner plc at 31 May 20X0 was as follows:• On 1 June 20X0, 200,000 shares were offered to the public at 60p, 20p payable on application, 20p on
The following is the summarized statement of financial position of Shares Ltd as at 31 December 20X9:In order to improve the company’s liquidity and consolidate the capital position the following
The financial information below was extracted from the statement of financial position of two companies as at 30 June 20X9.Additional information1. Both companies revalued their freehold land and
Novinta plc issued 1,000,000 equity shares of £1 each at a premium of 30p. The cash payments are due as follows:On application – 45p (including 30p premium). One of the terms of the issue was that
Cara Van plc wants to issue one million £1 equity shares payable as follows:On application – 70p (including 30p premium)On allotment – 30pOn call two months after – 30pAfter publication of the
Describe the legal restrictions on the purchase and redemption of shares, including the reasons for these restrictions.
Explain the purpose of a capital redemption reserve.
From the following information prepare a manufacturing account and a statement of profit or loss for the year ended 31 December 20X4. Show clearly the prime cost, factory cost of completed
Explain the nature and purpose of: (a) A rights issue, and (b) A bonus issue of shares.
Describe the procedure relating to an issue of shares to the public where the price includes calls.
Prepare a statement of cash flows in accordance with IAS 7 using the information in Question 28.9. There was no investment income or interest paid during the year ended 31 March 20X9.Data From
Explain the difference between a receipts and payments account and an income and expenditure account.
Belfast Darts Club, though formed in 20X0, never maintained proper books of account. Their transactions, however, were always recorded through the bank account. They have two types of membership:
When a Welfare Association was formed on 1.1.20X0, the tenants of all 820 flats on University Street joined as members. The membership fee was agreed at £20 per month. Of these tenants, 560 also
The treasurer of Murray Golf Club has prepared the following receipts and payments account for the year ended 31 March 20X1:The treasurer has also supplied you with the following information:1.
The N. I. Jock United Social Club was started in 20W2 to provide facilities for Jock UnitedFootball Supporters in Northern Ireland. At 1 January 20X4 there were 400 paid-up members for 20X3 (£20 per
You have agreed to take over the role of bookkeeper for the AB sports and social club. The summarized statement of financial position on 31.12.X1 as prepared by the previous bookkeeper contained the
The treasurer of a club has given you the following account of its activities during the year ended 30 June 20X1.Additional information1. The freehold building, owned and occupied by the club, was
The Elite Bowling and Social Club prepares its annual financial statements to 31 October. The following receipts and payments account has been prepared by the treasurer:Additional information1. The
The treasurer of the Senior Social Club has prepared the following summary of the club’s receipts and payments for the year ended 30 November 20X9.On 1 December 20X8 the club owned equipment that
The secretary of the Woodland Hockey Club gives you the following summary of his cashbook for the year ended 31 May 20X1:The secretary also gives you the following information:On 31 May 20W9 the
The following are the summarized financial statements of Ingrid Ltd and Epona Ltd, two firms that operate in identical industries.Requireda. Calculate three ratios for each company showing
What is the difference between solvency and liquidity?Requireda. Calculate the gearing ratio for Bastante plc using market values.b. Explain the outcome.
Dale is in business as a sole trader. You are presented with the following summarized information relating to his business for the year to 31 October 20X9:Requireda. Based on the above information,
White and Black are sole traders. Both are wholesalers dealing in a similar range of goods. Summaries of the profit calculations and statements of financial position for the same year have been made
The following are the summarized financial statements of Alpha and Omega, two companies that operate in the same industry:Requireda. Using ratio analysis, comment on the profitability, efficiency,
Using the information provided in 29.20, assume the company faces three differing external environment scenarios: boom; steady state; and recession. Each scenario has different income potentials: if
The summarized statements of financial position as at 31 March 20X1 and 31 March 20X0 of Higher Ltd are as follows:Additional information1. Non-current assetsNon-current assets disposed of during the
The following are the statements of financial positions of Waterloo plc for the last two financial years ended on 30 September.Explanatory notes to the statement of financial positions are as
The statement of financial position of Euston Ltd as at 31 December 20X9, with corresponding amounts, showed the following:1. Property, plant and equipment includes the following:2. An item of plant
The following are the statements of financial positions of L. Tyler Ltd as at 31 May 20X0 and 31 May 20X1:1. Non-current assets that cost £12,000 and had a book value of £7,500 were sold during the
The directors of J. Kitchens Ltd were pleased when their accountants informed them that the company had made a profit of £24,000 during the year ended 31 December 20X9. However, their pleasure was
The statement of financial position of C.F. Ltd for the year ended 31 December 20X9, together with comparative figures for the previous year, is shown below.Additional information1. There were no
The following are the statements of financial position of A. Brooks as at 30 June 20X0 and 30 June 20X1:Additional information1. There were no disposals of non-current assets during the year.2.
The following are the financial statements for S. Low for the years ended 30 April 20X0 and 30 April 20X1:RequiredPrepare a statement of cash flows in accordance with IAS 7 for S. Low for the year
The following are the financial statements for A. Tack for the years ended 30 June 20X1 and 20X0:RequiredPrepare a statement of cash flows in accordance with IAS 7 for A. Tack for the year ended 30
A. Net is a sole trader and reports the following for the year ended 31 December 20X9:RequiredPrepare the statement of cash flows in accordance with IAS 7 for A. Net for the year ended 31 December
T. Bone is a sole trader and reports the following for the year ended 30 June 20X1:1. The 20X0 allowance for irrecoverable receivables was £600.2. The 20X1 allowance for irrecoverable receivables is
J. White, a sole trader, has produced the following statements of financial position for the years ended 31 March 20X8 and 31 March 20X9.J. White is unable to understand why, after he has made a
Peter, Paul and Mary have been in partnership for several years sharing profits and losses in the ratio 1 : 2 : 3. Their last statement of financial position is as follows:The partnership had become
Maraid, Wendy and Diane have been in partnership for a number of years sharing profits _25_ , _ 25_ and _ 15_ , respectively. They decide to form a limited company on 1 January 20X9, called McKee
Use the amended information from Exercise 25.6 as a starting point.Dissolution information1. On 1 January 20X9 the partners decide to form a company and issue £140,000 worth of shares in the company
Describe the characteristics of companies limited by shares.
What are preliminary expenses?
Explain how each of the following arises:a. A share premium;b. A debenture discount.
Design a table highlighting the attributes of a preference share that might cause it to be regarded as being equity, and the attributes that are more likely to cause it to be regarded as debt.
Set out below is the equity part of a company’s statement of financial position.Explain the purpose of each of the equity reserve accounts shown on this company’s statement of financial position.
The following information is available for Aston Products Plc as at 30 April 20X8.There were no other reserves in the statement of financial position at 30 April 20X8.You are given the following
Cold Heart plc, which has a turnover of £100 million and pre-tax profit of £10 million, has its financial statements drawn up on 30 June each year and at 30 June 20X9 the company’s accountant is
The trial balance of Norr Ltd at 31 December 20X9 is as follows:Additional information1. During the year a motor vehicle purchased on 31 March 20X6 for £8,000 was sold for £3,000. The sale proceeds
The Cirrus Co. Plc has the following balances on its books at 31 December 20X9.The following information is also given:1. The inventory at 31 December 20X9 has been valued at £32,000. Further
The following is the trial balance of D. Cooper Ltd as at 30 September 20X9:Additional information1. Inventory at 30 September 20X9 is valued at £13,480.2. Rates include a payment of £2,300 for the
The following is the trial balance of L. Johnson Ltd as at 31 December 20X9:Additional information1. Corporation tax of £2,544 will be payable on the profit of 20X9.2. Rates include £200 for the
The following is the trial balance of Oakwood Ltd as at 30 June 20X9:Additional information1. Corporation tax of £1,080 will be payable on the profit of this year.2. Rates include a prepayment of
The trial balance of Harmonica Ltd at 31 December 20X9 is given below.Additional information1. Closing inventory amounted to £5m.2. A review of the trade receivables total of £6.9m showed that it
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