Practice Questions

LEARNING OUTCOME 1

You are a financial analyst for Sportswear UK Ltd, a company that produces sportswear.

Your director has asked you to prepare the draft financial statements for the year ended 31

July 2015, based on the trial balances below, which have been extracted from the

accounting system and the information in the notes to the accounts. Prepare an Income

Statement, a Statement of Financial Position, and a Statement of Changes in Equity as at 31

July 2015, along with relevant working notes.Trial Balance for Sportswear UK Ltd at 31 July

2015

Account Name Debit ($000) Credit ($000)

Administration expenses 800

Bank 400

6% Debentures 2020 300

Trade Receivables 1,000

Investments 1,500

Intangible assets: Goodwill 500

Distribution costs 30

Investment income 200

Equipment at cost 80

Equipment (accumulated

depreciation)

30

Ordinary share capital

(1,500,000 ordinary shares of

1)

1,500

Dividends Paid (31st January

2015)

100

Buildings at cost 1,500

Buildings (accumulated

depreciation)

300

Retained earnings (at 1 August

2014)

1,000

Profit on disposal of

discontinued operations

150

Purchases 3,000

Inventory (at 1 August 2014) 400

Trade payables 800

Revenue 6,000

Total 9,310 9,310

Notes to the accounts:

1. Inventory at 31 July 2015 was valued at $300,000.

2. The following expenses were still outstanding at 31 July 2015: Administration costs

$3,000.

3. The Distribution costs include a prepayment of $4,000 relating to the following year.

4. Depreciation is to be charged on:

Buildings $120,000

Equipment $10,000

5. Corporation tax charge on profits for the year is estimated to be $150,000.

6. Debenture interest is outstanding at the year-end.

Learning Outcome 3

Describe the users and uses of accounting.

Who are the users of financial statements? Describe how the various users may use

the financial statement information.

a. Define how managerial accounting differs from financial accounting. Be sure to

address the diverse users of managerial and of financial accounting and provide

examples of how at least five users

How does information from the balance sheet help users of the financial

statements?

Explain one way in which the characteristics of financial and management

accounting information differ.

What are the limitations of financial Statements in meeting the needs of users of

financial information?

Learning Outcome 4

1 Distinguish between share and debenture?

2 Write the characteristic features of debenture?

3 What is the main difference between equity shares and preference shares?