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introductory financial accounting for business

Questions and Answers of Introductory Financial Accounting for Business

The following is the balance sheet of Alpha Ltd as on 30 June 20X8:The following information is relevant:1 There are contingent liabilities in respect of (i) a guarantee given to bankers to cover a
The draft balance sheet of Telin plc at 30 September 20X5 was as follows:Preference shares of the company were originally issued at a premium of 2p per share.The directors of the company decided to
Maxpool plc, a listed company, owned 60% of the shares in Ching Ltd. Bay plc, a listed company, owned the remaining 40% of the £1 ordinary shares in Ching Ltd.The holdings of shares were acquired on
(a) In 20X3 Arthur is a large loan creditor of X Ltd and receives interest at 20% p.a. on this loan. He also has a 24% shareholding in X Ltd. Until 20X1 he was a director of the company and left
The following is the draft trading and income statement of Parnell Ltd for the year ending 31 December 2003:You are given the following additional information, which is reflected in the above income
The IASC/IASB has issued accounting standards that concentrate on the issue of reporting financial performance.The main standards that report this are:IAS 1 Presentation of Financial Statements IAS
Cryptic plc extracted its trial balance on 30 June 20X5 as follows:The following information is relevant:(i) The company discontinued a major activity during the year and replaced it with another.
Olive A/S incorporated, with an authorised capital consisting of one million ordinary shares of 1 each, employs 646 persons, of whom 428 work at the factory and the rest at the head office. The trial
Springtime Ltd is a UK trading company buying and selling as wholesalers fashionable summer clothes.The following balances have been extracted from the books as at 31 March 20X4:Notes:1 Depreciation
8 IAS 1 Presentation of Financial Statements requires the publication of a statement of recognised income and expense or a statement of changes in equity.Explain the need for the publishing of these
7 ‘The regulators are correct in their thinking that voluntary disclosures, e.g. OFR and Interim Reports, are more helpful to shareholders than disclosures made under mandatory, more closely
6 Explain the relevance to the user of accounts if expenses are classified as ‘administrative expenses’rather than as ‘cost of sales’.
5 ‘Annual accounts have been put into such a straitjacket with an overemphasis on uniform disclosure that there will be a growing pressure by national bodies to introduce changes unilaterally which
4 Explain the conditions set out in IFRS 5 for determining whether operations have been discontinued and the problems that might arise in applying them.
3 When preparing accounts under Format 1, how would a bad debt that was materially larger than normal be disclosed?
2 It is said that Format 1 extends the management accounting concept of responsibility accounting to published financial statements. Explain what this means.
1 The directors of Ufool Ltd are aware that a sizeable number of shareholders, although still a minority, are extremely unhappy with current dividend levels and are agitating for larger
Phoenix plc’s trial balance at 30 June 20X7 was as follows:The following information is available:1 Freehold premises acquired for £1.8 million were revalued in 20X4, recognising a gain of
Raffles Ltd trades as a wine wholesaler with a large warehouse in Asia.The trainee accountant at Raffles Ltd has produced the following draft accounts for the year ended 31 December 20X6.The
Basalt plc is a wholesaler.The following is its trial balance as at 31 December 20X0.TheThe following additional information is supplied:(i) Depreciate plant and machinery 20% on straight-line
HK Ltd has prepared its draft trial balance to 30 June 20X1, which is shown below.The authorised share capital is 4,000,000 9% preference shares of $1 each and 18,000,000 ordinary shares of 50c
The following trial balance was extracted from the books of Old NV on 31 December 20X1.Note of information not taken into the trial balance data:(a) Provide for:(i) An audit fee of 38,000.(ii)
9 The SEC have objected to the use of the fair override on the grounds that fairness is achieved by compliance with standards and that the override could lead to companies concealing poor performance
8 Describe the content of an OFR statement in UK financial statements and discuss whether it should be made mandatory, more prescriptive and audited.
6 ‘A single set of multi-purpose financial statements is unable to satisfy the needs of shareholders for both a stewardship report and a report to assist the prediction of future cash flows.’
5 What are the fundamental objectives of corporate reports?24
4 ‘Companies should begin to move to greater disclosure of:● Days training per year for categories of staff.● Expenditure on training, both in total and differentiated between categories of
3 Classify the following items into cost of sales, distribution costs, administrative expenses, other operating income or item to be disclosed after trading profit:(a) Personnel department costs(b)
2 An income statement might contain the following profit figures:Gross profit Profit from operations Profit before tax Net profit from ordinary activities Net profit for the period.Explain when you
1 Explain why two companies carrying out identical trading transactions could produce different gross profit figures.
The following is an extract from Accountancy Age, 25 January 2001.A powerful and ‘shadowy’ group of senior partners from the seven largest firms has emerged to move closer to edging control of
The following extract is from ‘Comments of Leonard Spacek’, in R.T. Sprouse and M. Moonitz, A Tentative Set of Broad Accounting Principles for Business Enterprises, Accounting Research Study No.
The following extract is from Conceptual Framework for Financial Accounting and Reporting: Elements of Financial Statements and Their Measurement, FASB 3, December 1976.The benefits of achieving
The following information is available in relation to MCRV Ltd (based on the ICAS Report) for the year ending 31 December 20X8:(a) Statement of assets and liabilities as at 31 December. This
6 Financial accounting theory has accumulated a vast literature. A cynic might be inclined to say that the vastness of the literature is in sharp contrast to its impact on practice.(a) Describe the
5 ‘The replacement of accrual accounting with cash flow accounting would avoid the need for a conceptual framework.’21 Discuss.
4 (a) In 1999 in the UK, the ASB published the Statement of Principles. Explain what you consider to be the purpose and status of the Statement.(b) Chapter 4 of the Statement identifies and defines
3 R. Macve in A Conceptual Framework for Financial Accounting and Reporting: The Possibilities for an Agreed Structure suggested that the search for a conceptual framework was a political
2 Give a brief synopsis of the ICAS Making Corporate Reports Valuable.
1 (a) Name the user groups and information needs of the user groups identified by the IASC Framework for the Presentation and Preparation of Financial Statements.1 (b) Discuss the effect of the
Consider the interest of the tax authorities in financial reporting regulations. Explain why national tax authorities might be concerned about the transition from domestic accounting standards to
Use the EDGAR service (via the SEC website) to identify four European companies listed on the US Stock Exchange. From the Form 20-F identify which items feature in the reconciliation from net income
The current differences between IASs and US GAAP are extensive and the recent pairing of the US Financial Accounting Standards Board and IASB to align IAS and US GAAP will probably result in IAS
Consider the role of scandal in the development of accounting regulation.
‘Standardisation is the only way forward for European financial reporting.’ Discuss this statement in the light of efforts that have already been made in harmonisation and the requirement for
How does the local national regulatory framework for financial reporting differ from that in the USA? Which is better for particular interest groups and why?
13-23. No. The accounting for a profit enterprise is centered on the entity concept and the efficiency of the entity. Fund accounting is centered on a self-balancing set of accounts. Fund accounting
13-22. Budgeting by objectives and/or measures of productivity can be incorporated into the financial reporting.
13-21. No. Industrial revenue bonds are not backed by the full faith and credit of the governmental unit.
13-20. Government Finance Officers' Association.
13-19. When the representatives of the citizens approve the budget, then the individual expenditures become limits. An increase in an approved expenditure will require approval by the same
13-18. The number of funds that will be utilized will depend upon the responsibilities of the particular state or local government and the grouping of these responsibilities.
13-17.a. General fund - All cash receipts and disbursements not required to be accounted for in another fund.b. Proprietary fund - Intention is to maintain the fund's assets through cost
13-16. No. The accounting for a profit-oriented business is centered on the entity concept and the efficiency of the entity. The accounting for governments does not include a single entity concept or
13-15. No. Not-for-profit organizations are not allowed to use fund accounting.
13-14. Note: This is an open-ended question. The responses here are merely suggestions. 1. Dues will not increase 2. A monthly magazine will be started 3. Add 100 new members 4. Retain a minimum of
13-13. If quoted market prices are not available, then reasonable estimates should be used.
13-12. Examples would be methods used in determining current values of major assets, description of intangible assets, and assumptions used to compute the estimated income taxes.
13-11.a. Broker's statementsb. Income tax returnsc. Safe deposit boxd. Insurance policiese. Real estate tax returnf. Checkbook g. Bank statements
13-10. No. Assets and liabilities are not classified as current and noncurrent. Assets and liabilities are classified in order of liquidity and maturity.
13- 7. Statement of Changes in Net Worth. 13- 8. No. 13- 9. No. Generally accepted accounting principles as they apply to personal financial statements require the accrual basis.
13- 6. Net worth.
13- 5. Estimated current value basis.
13- 2. The basic personal financial statement is the Statement of Financial Condition. 13- 3. No. 13- 4. No.
13- 1. Personal financial statements may be prepared for an individual, a husband and wife, or a larger family group.
12-5 YOUR COVERED (This case provides an opportunity to review the consolidated statement of income for the Chubb Corporation using horizontal common-size analysis.)a. Horizontal Common-Size The
12- 4 YOU CAN BANK ON IT (This case includes significant parts of the annual report of the Wells Fargo & Company. It provides an opportunity to review statements of a bank. You may want to consider
12-3 SUMMARY OF LOAN LOSS EXPERIENCE (This case provides an opportunity to review loan loss experience.) - There has been an increase each year in the balance of loan loss experience. - Net
12-2 RESULTS OF OPERATIONS FOR OIL AND GAS PRODUCING ACTIVITIES (This case provides the opportunity to view results of operations for oil and gas producing activities using vertical and horizontal
12- 1 ALLOWANCE FOR FUNDS Primary emphasis on "allowance for equity funds used during construction" and "allowance for borrowing funds used during construction". Also, several ratios are included.
12-7a. 2c. 1e. 3b. 1d. 5
12-6a. 1. Operating Ratio = Operating Expenses Operating Revenues 2004 2003 2002 $1,550,000 $1,520,000 $1,480,000 $1,840,000 $1,670,400 $1,620,700 = 84.24% = 91.00% = 91.32% 2. Long-Term Debt To
12-5a. Operating Ratio = Operating Revenue Operating Expense 2004 2003 100.2% $624,000 $625,000 = 99.8% $618,000 $617,000 = This firm is having profit problems. Expenses have increased faster than
12-4a. 1. Operating Ratio = Operating Expenses Operating Revenues 2004 2003 2002 $850,600 $820,200 $780,000 $1,080,500 $1,037,200 $974,000 = 78.72% = 79.08% = 80.08% 2. Funded Debt to Operating
12-3a. 2004 2003 Operating Ratio: Operating expense $20,340,000 $18,125,000 Operating revenue $22,830,000 $20,500,000 = 89.1% = 88.4% Operating expenses as a percent of revenue have increased.b.
12-2a. 1. Earning Assets to Total Assets = Average Earning Assets Average Total Assets 2004 2003 2002 $50,000,000 $45,000,000 $43,000,000 $58,823,529 $54,216,867 $52,000,000 = 85.00% = 83.00% =
12-1 2004 2003 Averagea. Total Deposits = Total Deposits $24,000,000 $20,000,000 Times Capital Average Total $ 1,850,000 $ 1,600,000 Capital = 12.97 = 12.50b. Loans To Total = Average Loans
12-50. Conventional accounting recognizes depreciation but not the value of the property. This potentially presents a problem to investors in judging the value of the company. Some real estate
12-49. Insurance is a highly regulated industry that some perceive as having relatively low growth prospects. It is also an industry with substantial competition.The accounting environment probably
12-48. Insurance company, specific ratios are frequently based on SAP financial reporting to the states and not GAAP financial reporting that is used for the annual report and SEC reporting.
12-47. For short-duration contracts, revenue is ordinarily recognized over the period of the contract in proportion to the amount of insurance protection provided. When the risk differs significantly
12-46. Intangibles are recognized as an asset under GAAP, while intangibles are not recognized as an asset under SAP.
12-45. Under GAAP, these costs are deferred and charged to expense over the premium-paying period. Under SAP, these costs are charged to expense as incurred.
12-44. Real estate investments are reported at cost less accumulated depreciation and an allowance for impairment in value. An insurance company with substantial real estate investments is risky
12-43. Annual reports that insurance companies issue to the public are in accordance with generally accepted accounting principles (GAAP).
12-42. The annual reports filed with the state insurance departments are in accordance with Statutory Accounting Practices (SAP).
12-41. In this publication, data are compiled by composite carrier groups. It includes industry total dollars for income statement accounts, such as total revenue.
12-40. The passenger load factor indicates utilization of capacity. The greater the utilization, the lower the fixed charge per passenger and the higher the profit.
12-39. Higher revenue per passenger mile basically indicates higher rates on fares.
12-38. Differences in traffic volume and distance traveled will change revenues. The price level, type of service and effectiveness of asset use will change expenses for a transportation firm.
12-37. Revenue is divided into categories by type or function of service, such as passenger, freight, mail, etc.
12-36. Fixed assets is the most important asset category.
12-35. Operating revenue to operating property is a turnover ratio. Because of the heavy investment in fixed assets, this ratio will usually be less than 1 to 1 for a utility.
12-34. A decreasing operating ratio means a lower proportion of expenses and more profits.
12-33. This is a true statement. One of the reasons is that large sums can be spent for exploration and development years in advance of revenue from the found reserves. The other reason is that there
12-32. Major items on this schedule are typically revisions of previous estimates, improved recovery, discoveries and other additions, and production. This information can be significant in terms of
12-31. A variation of one of two costing methods is used by an oil or gas company to account for exploration and production costs. These methods are the successful-efforts method and the full-costing
12-30. Regulation makes their accounting systems uniform, and their revenues are controlled by rate structure.
12-29. Each relates to accounting for exploration costs. Successful efforts capitalizes only those costs of successful projects. Full cost capitalizes the outlays for both successful and unsuccessful
12-28. The account allowance for equity funds used during construction represents an assumed rate of return on equity funds used for construction. The account allowance for borrowed funds used during

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