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principles of financial accounting

Questions and Answers of Principles Of Financial Accounting

An asset was purchased for £10,000 on l.l.XO and has an estimated residual value of £1,500 at the end of its useful life of five years. Calculate the depreciation charge for each year assuming the
If the depreciation estimate is debited to the profit and loss account in a period identity where the equal and opposite credit entry will be made. Show the entries in the accounts for the period
C Charm purchases assets at the commencement of his business as follows:Depreciation is to be charged on a straight line basis for all assets. Show the ledger accounts for all fixed assets and
An asset is purchased for £12,000 on l.l.XO and is estimated to have a useful life of four years with a residual value at the end of its useful life of £2,000. Its method of use is assumed to be
Answer TRUE or FALSE in respect of the following and fully explain your choice:(a) If an accrued expense is ignored at the year end the profit will be understated.(b) if an accrued expense from the
Complete the following:Adjustments for accruals and prepayments are made in the accounts in accordance with the concept of —.
The following adjustments are required to the ledger accounts for Mr Black for the year ended 31 December 20X5:► office expenses paid in 20X5 £1,425, amount owing £75► rents paid £4,800
As at the year end 31.12.X5 the following debts out of a total debtors’ figure of£54,500 are found to be bad:The balance sheet as at 31.12.X4 showed a provision for bad debts for the busi¬ ness
At the year end the following debts, out of a total debt figure of £45,680, are found to be bad:► David £450,► Alex £650,► Sand £240 but lOp in the pound payable.It is also estimated that a
Currant commenced business on 1.10.X2 purchasing fixtures and fittings for £25,000 and a van for £16,000. The fixtures and fittings were estimated to have a useful life of 8 years and a residual
Provide a definition of depreciation as it is used in accounting.
What information is needed in respect of an asset in order in order to make an assessment of depreciation for that asset.
The following fixed assets are owned by Black for use in his business:All assets were bought on 1 January 20X0 and the depreciation policy of Black is as follows:Buildings 1% straight line Equipment
The following trial balance was extracted from the books of Rodney, a sole trader, as at31.12.X5:The following matters have not been taken into account in the preparation of the above trial
The following trial balance was extracted from the books of ATEC as at 31.12.X9The following matters have not been taken into account in the preparation of the above trial balance:► stock as at
Identify two drawbacks of sole trader businesses.
Obtain a set of company financial statements. This can be done by accessing library facilities, using company websites or by using the Annual Reports Service offered in the Financial Times - read the
Explain why a company may wish to issue shares at a premium.
A company is formed with a total authorised (authorised by its inclusion in the Memorandum of Association) share capital of £500,000, consisting of 300,000 £1 ordinary shares and 100,000 5% £2
A company makes an issue of £10,000 6% debentures at £99. Show the entries in the ledger accounts, including cash, to account for this issue.
From your set of company accounts identity the interim and final dividend payments made.
Is the interest payable on the debenture an expense of trading for the company?Is the dividend payable to the shareholders an expense of trading for the company?
Pump Ltd, a newly forming company, estimates it will need capital of £lm so that it can remain in business. It estimates its profits per annum before interest payments and dividends as £100,000 in
Identify a circumstance when recording a fixed asset at historical cost might not be the most relevant to the user.
Company A purchased land in 20X1 for £10,000 for cash. As at 31.12.X5 the com¬ pany estimates that the land could be sold for £50,000. Identify how this increase in value could be recorded in the
The trial balance of Beta Ltd as at 31.12.X5, before adjustment for any of the items listed in the notes, is as follows:The following notes are to be taken into account:1 Stock as at 31.12.X5 is
Answer the following questions for both sole traders and companies:(a) Is there any statutory regulation governing them?(b) Who owns the business?(c) Who manages the business?(d) Is the business a
You are required to prepare the profit and loss account for the year ended 31.3.X6 and the balance sheet as at that date for internal purposes for the following company:You are also given the
The trial balance of Burn Ltd. as at 31.12.X9 was as follows:The following additional information is available none of which has been accounted for in the trial balance:► Stock 31.12.X9 £4,560.►
The trial balance of Black Ltd as at 31 December 20X5 was as follows:The following information is available none of which has been taken account of in the preparation of the trial balance above:(a)
Identify as many cash flows as you can for a business. Enter them in the table below. Two are already entered for you.CASH FLOWS Into the business Out of the business► Capital contributed in the
Alex Ltd has drawn up the following profit and loss account for the first year of trading:The following information is also available:► The company started the year with £20,000 cash in the
The following information is available in respect of White Rose Ltd for the year end 31.12.X5:► Net cash inflow from operating activities was £120,000.► The company received dividends during the
Identify as many items as you can that appear in the profit and loss account before interest, taxation and dividends that do not involve a flow of cash.
The following information is available in respect of Red Rose Ltd for the year ended 31.12.X5Net profit of £120 is after charging depreciation of £25 and including loss on sale of assets of
Identify two drawbacks of a cash flow statement.
Identify two reasons why cash flow statements may be regarded as more useful than funds flow (working capital) statements.
From the following information in respect of Sparrow Ltd prepare the cash flow statement for the year ended 31.12.X5.Depreciation charged during the year was £187,000 and assets sold during the year
Review the cash flow statement prepared in answer to question 2 and summarise any conclusions which may be drawn from it in respect of the financial operations and position of Sparrow Ltd for the
On 1 September 200Y CIP Ltd. issues 21 million £1 ordinary shares at a premium of 100%. The financial statements for the year to 30 September 200Y were as follows:Additional information:► The
Prepare a cash flow statement in acceptable form for Peak Ltd for the year ended 31 December 20X5.The following additional information is available:► A market issue of shares was made on 1 January
Identify the case law that is at the base of corporate organisations in the UK.
Identify the five principal accounting concepts as detailed in the Companies Acts.
Boss Ltd identifies a profit of £110,000 for the year before accounting for the following items:► There is a law suit pending against Boss Ltd for which the amount of damages could be £200,000 if
Why did the ASC have no legal power to enforce standards?
Find a copy of any FRS. These should be available in your library in a text of accounting standards, or may even be available on your computer network. Identify the main sections of an accounting
Identify any other reasons that you can think of why no court cases have occurred.
Draw a diagram to show the relationships between the bodies governing the regulatory framework.
List five possible determinants of a country’s regulatory framework of accounting.
Given the information above suggest in one sentence what type of accounting frame¬ work Germany may have.
Suggest in one sentence what type of accounting frannework France may have.
Suggest in one sentence what type of accounting the Netherlands may have.
complete the following table - the UK entries have already been made for you. UK Germany France Netherlands Type of law Common Role of profession Forceful Providers of finance Shareholders Source of
Do all European countries adopt the principle of the true and fair view?
Identify the users of accounting information. Note that your list could be wider than that identified in Chapter 1 if you refer to your studies in other areas such as economics.
Identify the three general areas of interest for users of financial statements.
Compare and contrast each item on the balance sheet and profit and loss of Rodann with the figure for the previous year. Note seven points of interest from this comparison.
calculate the ROCE for Rodann Ltd for 20X4 and 20X5.
Calculate these four ratios for Rodann Ltd and interpret them.
Calculate stock, debtor and creditor turnover periods for Rodann Ltd and interpret them.
Calculate ratios of wages, depreciation and other expenses to sales and interpret thenn for Rodann Ltd.
Given the following information calculate ROCE and ROOE for Ricmar Ltd for 20X4 and 20X5: 20X4 20X5 Profit before tax 80 85 Interest charged 10 10 Capital employed 1,250 1,280 Long-term debt 100 100
Obtain a fairly recent copy of the Financial Times. Look up the London share infor¬ mation service found in the FT and make a note of the data provided for each company. Also read the ‘UK company
The following information is available in respect of Shamar Ltd.Calculate dividend per share in pence for both preference and ordinary shares, and dividend cover. 20X4 20X5 2,500,000 500,000
Calculate the four liquidity ratios for Rodann Ltd and explain what the figures calculated mean.
Make a list of additional information that you would like when undertaking a ratio analysis of a company.
On the first day of the fiscal year, a delivery truck with a list price of \(\$ 90,000\) was acquired in exchange for an old delivery truck and \(\$ 74,500\) cash. The old truck had a cost of \(\$
Note down at least three specific events that will therefore not usually be included in a profit and loss account.
Mr Tate owns a supermarket, which trades as Lowprice Supermarkets. In June, Lowprice Supermarkets buys goods from its suppliers costing £220,000, and makes sales of £300,000. Prepare the trading
Use the opening stock figure of £48,000 to revise the trading account above.
Assume that the other expenses for June were wages of £32,000, insurance of £4,000, heat and light expenses amounting to £17,000, and telephone costs of £2,000. Draft the trading and profit and
Think about who is likely to be entitled to a share of a limited company’s profit, and so suggest what these three appropriations will be.
Assume that Lowprice Supermarkets is a limited company. It calculates its tax liability on the profit for June at £11,000. Mr Tate, the managing director, declares a dividend of £8,000 from the
Suraya Ltd started in business on 1 January 20X7. On 31 December 20X7 the following balances were taken from the company’s books, and from a final stocktake.The tax liability on the profit for the
Anne, a trader, had the following dealings during August in her only item of stock. There was no opening stock.Draft the trading account for the month, ► a FIFO basis of stock valuation ► a UFO
Draft the trading account for Anne, using the same data as in the previous activity, but this time assuming an AVCO valuation base for stock.
Suppose that the subscriptions from members of the Moortown Athletics Club (see above) are for the year to 31 December, but were all received in January, and that the rent of the clubhouse was paid
List three advantages for a business of having its accounting carried out using infor¬ mation technology. (There are a couple inherent in what we have said above, but try to come up with at least
The following details relate to the trading activities of Anarkhi Ltd for its first year of trading, to 30 June:All purchases may be considered as part of cost of sales. All other costs should be
This question requires you to prepare a Trading and Profit and Loss Account, but then also brings in the preparation of the associated balance sheet. In this way it aims to integrate your study of
Marsden Computing buys end-of-range computers and sells them to the general public at monthly auctions. Its transactions for the past three months have been as follows. (On 1 January it held 20
Complete the following table, by making at least one entry under each heading. You may find it helpful to think in terms of the relative disadvantages of the UK system, rather than of the relative
FRS 18 sets out the above policies in rather more formal terms. In the list below, two extracts are given from that standard. Identify which extract relates to which two of the three key policies.A
Sam and Louise had £800, out of which they purchased a second-hand van for £500. All their other assets are to be ignored. They estimated that the van will have a life of about another 20,000
Markham Publishing pic sells books to book shops worth £200,000 Just before the accounting year end. The agreement is that any book not sold may be returned to the publisher. None are returned in
Briefly, note down at least one practical problem that you foresee with such an approach to valuation. As always, you will learn more and faster if you think about the issue raised in the activity
Write two sentences of your own to define each of the characteristics, ‘relevance’ and ‘reliability’. In other words, what do you think these words mean in accounting terms?
The other characteristics are comparability and understandability. Repeat the previous activity, this time Jotting down a couple of your own sentences to define each of these terms.
Global Trading is currently preparing its annual report and accounts. As its name sug¬ gests, it is a very big enterprise, with very complex accounting procedures and reports. Currently, it
The assumption that an organisation will continue to operate indefinitely is a fair description of which concept?(a) accruals(b) going concern(c) consistency(d) prudence
The concept of materiality implies that an organisation will:(a) only account for items which don’t affect the overall view gained from its accounts(b) not account for fixed assets which are due to
The concept of money measurement means:(a) accounts cost a material amount of money to prepare(b) only items that can be objectively measured in money terms are accounted for(c) accounts are only
The recognition that an organisation is distinct from its owners is a fair description of which concept?(a) duality(b) separate valuation(c) business entity(d) objectivity
The concept of realisation means that:(a) items are accounted for in the period in which the associated cash flow occurs(b) items are recognised when the directors realise that a cost has been
‘The Accounting Standards Board (ASB) should spend less time on developing a vague set of principles and more time on specifying clear accounting practices.’ To what extent do you agree with this
Back in Chapter 1 we asked you to identify the relative merits of the UK and French approaches to financial reporting. To recap, the French system is based on the ‘plan comptable’, a
Outline the purposes and main features of the Statement of Principles. Your answer should be in the form of an essay of around 500 words, briefly covering the content of each of the chapters in turn,
Mr. Bean intends to set up in business as an antiques dealer. He places £20,000 of his own money into a business bank account then purchases items for resale for £12,000 and a van for £5,000. He
Identity for Mr Bean the duality involved in the introduction of his capital into the business and the purchase of his van.
Complete the duality for the other transactions in the bank account.

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