Questions and Answers of Financial Accounting An Introduction

Under IFRS, for non-financial companies, most non-current assets are measured at:A. Fair value.B. The lower of cost or fair value.C. Cost less depreciation and impairment.D. Net realisable value.
Oxfam’s purpose is to help create lasting solutions to the injustice of poverty.As stated in its Memorandum of Association, the objects for which Oxfam is established for the public benefit are:●
We are a global, science-led biopharmaceutical business.Return to shareholders Revenue from the sale of our medicines generates cash flow, which helps us fund business investment. It also enables us
Our mission and supporting strategies The FRC’s mission is to promote high quality corporate governance and reporting to foster investment.Why have we landed on this mission? The capital markets
Next is a UK - based multi-channel retailer offering exciting, beautifully designed, excellent quality clothing, footwear, accessories and home products Management team The success of NEXT relies on
National Express and Stagecoach are both major providers of transport services in the UK. Here we compare their accounts of financial performance in their UK Bus divisions.National Express plc UK Bus
In the year, total turnover of £17.7bn was down 2% (2012/13:£18.1bn). When compared to the prior year the underlying operating margin of 4.9% fell by 40bps. This increased to 50bps after adjusting
Who we are Royal Mail is the UK’s pre-eminent delivery company, connecting people, customers and businesses.As the UK’s sole designated Universal Service Provider1, we are proud to deliver a
Write a short commentary on each ledger account prepared in S1, to enable a non-accountant to understand their purpose and content.
Associated British Foods is a diversified international food, ingredients and retail group with sales of £12.9bn, and 118,000 employees in 47 countries across Europe, southern Africa, the Americas,
WHSmith plc is one of the UK’s leading retailers and is made up of two core businesses – Travel and High Street.Extracts from Annual report and accounts About us WHSmith has a presence in a wide
Rio Tinto is a leading global mining group that focuses on finding, mining and processing the Earth’s mineral resources. Our vision is to be a company that is admired and respected for delivering
Mothercare, the buggy-tobabywear retailer, has launched a £100m rights issue to pay down debt and close up to 75 UK stores to transform the property-heavy group into a “digitally led
Our businesses are organised so that they are close to the markets and customers that they serve.They are managed as five business segments that bring together common industry expertise, operational
Five years ago ITV, the UK broadcaster, was the lead in a tragic story of large debts and little profits, with a market capitalisation below £3bn.Since 2010, when Adam Crozier became chief
£12,000 received from a credit customer was posted to the debit of the customer’s account. Resultant difference in the Trial Balance was placed in a Suspense account and then that balance adjusted
A trader’s gross salary to staff for a month is £417,000. PAYE is deductible at 6%, while NI contribution is 5% by staff and 10% by the employer. Calculate (a) The Net salary payable for the
VB Limited, a chemical company, extracted a Trial Balance from its ledgers on 30 April 2012 and found that the sum of the debit balances did not equal the sum of the credit balances. A Suspense
To write off a trade debt of £11,750, in the books of a VAT-registered trader:(a) Debit Bad debts account £11,750, credit Trade receivable account £11,750(b) Debit Bad debts account £10,000,
To account for increasing the Allowance for doubtful debts by £4,935:(a) Debit Bad debts account £4,935, credit Allowance for doubtful debts account £4,935(b) Debit Bad debts account £4,200,
Sasha Whitmore is the new owner of a catering establishment acquired on 1 July 2011, from Sunshine Caterers (SS). She seeks your advice on whether she could report the following resources as assets
The year-end Trial Balance of Cavalier plc, as at 30 June 2012, reports Development costs at an amount of £780,000. The break-down of this amount is as shown. You are informed as follows:(a) The
Lion is a company producing medicinal drugs. At 1 October 2010 the following balances existed in the records:■ Deferred development expenditure £1,200,000. See details in the box.■ Equipment
Which of the assets named below is not an intangible asset?(a) Brand name(b) Inventory(c) Goodwill(d) Patent
Explain the circumstances in which you would capitalise the cost of:1. A reputed brand name acquired as part of a business combination and expected to have a useful life of at least 20 years2.
Which of the following statements relating to intangible assets is/are correct?(a) Research on market potential, prior to launching a product, can be capitalised(b) Applied research, calculated to
What a company spends on its research and development activities is no different from what is spent on other areas such as salaries and advertising. Why is there such a hype and importance attached
Jason, Jim and Jones are the only shareholders of a private limited company, operating under the name Triple Jay Computers Ltd. They are manufacturers and dealers in both computer hardware and
Alpha plc paid £900,000 to acquire the whole of the equity in Beta plc on 31 December 2011, when the net assets of Beta plc were reported as shown. As at the date of acquisition:(a) Beta plc reports
Which of the following qualities should an asset possess for it to qualify for recognition as an asset?(a) It should have physical existence(b) It should be within the entity’s control(c) It should
Able plc, a pharmaceutical company, was searching for a medication capable of reducing the level of LDL cholesterol in the bloodstream. On 1 January 2009 it paid £360,000 to acquire equipment for
In addition to the information provided in Activity 22.3, you are informed that, besides depreciation of equipment, further development costs of £36,000 were incurred in 2012 by Able plc on the same
Salvage Society was registered as a charity on 1 January 2011 when some retired persons in Wimbledon contributed £72,200 for the purpose. The amount was placed in a bank and recorded as an
Which of the intangibles named below is the only one which may be capitalised, at least initially, though (i) it is not separable, (ii) there is no active market in it and (iii) flow of economic
A company paid £10 million to acquire a reputed brand name. Although there is no active market in that asset it is permitted to report the brand name as an asset for which two of the following
Pharma plc, engaged in the production of pharmaceutical drugs, has been contracted by the World Health Organisation (WHO) to search for an immediate remedy for the common cold. Under this contract
Which of the following intangibles are prohibited from being recognised as an asset?(a) Home-grown goodwill(b) Separately acquired intangibles(c) Internally generated intangibles(d) Goodwill acquired
For which of the following reasons is the recognition as an asset of an internally generated intangible prohibited?(a) Because there may not be an active market for that asset(b) Because its cost is
Winterblues is a charity providing warm food and soup to the homeless and destitute. It prepares financial statements annually on 31 December. On 1 April 2011 it received from its local borough a
Which of the following are essential for recognising an intangible asset (other than goodwill) when a business is acquired as a going concern?(a) There is a probability that future economic benefits
Accepting the circumstances as reported in Activity 22.6, but assuming that Winterblues uses the offset method for reporting grants, set out related extracts in the Statement of income for 2011 and
Which of the following need to be established before development costs are capitalised?(a) A customer should have ordered the development of the product(b) The cost of the product should be reliably
Expenses on which of those listed below should be capitalised?(a) Pure research(b) Applied research(c) Development cost(d) Applied research and development cost
A company is searching for a white board marker the writings of which, instead of being rubbed off, may be blown out when lecturers breathe on them from a distance. Which of the following expenses
Which of the following are valid reasons for capitalising development costs?(a) For properly matching the cost of a development with benefits arising therefrom(b) To ensure that resources available
Which of the following are reasons for writing off research and development costs as expenses?(a) Poor co-relation between costs and delayed flow of economic benefit(b) It may not always be probable
If a development projects meets with all the conditions stipulated in IAS 38, the requirement of the standard is that the costs of that project:(a) Shall be fully written off as expense(b) Shall be
Intangible assets, other than goodwill, acquired as part of an ongoing business or acquired separately:(a) Should be never amortised(b) Should be amortised systematically over their estimated useful
The cost of goodwill purchased as part of an acquisition of an ongoing business shall:(a) Never be amortised, but there shall be an annual impairment review(b) Be amortised over 20 years(c) Be
Which of the following would be the justification for accounting for government grants on the ‘income approach’ rather than the ‘capital approach’?(a) If tax paid to government is an expense
Which of the following statements with regard to accounting for goodwill and other intangibles is not correct?(a) Impairment written off in respect of an intangible can be corrected when
IAS 20 permits the reporting of government grant either on the deferral method or on the offset method. As accountant of a limited company which of the following reasons will prompt you to opt for
Which of the following is not a government grant?(a) Cost-free land allocated to build a staff health care centre(b) A cost-free licence received from a local borough to operate a taxi service(c)
Government grants should normally be accounted on an accruals basis. Which of the following grants received would you account on a receipts basis?(a) Received by a charity to operate one of its
With regard to government grants and accounting for them which of the following statements is inaccurate?(a) Assistance in cash or kind received from government or others is known as a government
Which of the following is not essential for recognition as a liability?(a) There should be a present obligation to transfer economic benefit(b) The obligation to transfer economic benefit should be
(a) How does IAS 37, Provisions, Contingent Liabilities and Contingent Assets, distinguish the identification and accounting for a liability, a provision and a contingent liability?(b) State with
Sylvia carries on business as a baker trading as The French Confection. When finalising the accounts of The French Confection for the year ending on 31 March 2012, she seeks your advice on whether
The financial statements of Casserole plc, in respect of the year ending on 31 December 2011, are to be adopted by their board at a meeting scheduled for 7 May 2012. By a letter dated 15 April 2012
When you were interviewed on 7 May 2011 for the position of head of the accounts department you learnt that those who held the position before you were sent for induction to the parent company in the
Which of the following statements is correct?(a) There is no need to account for a liability if the amount is not known for certain(b) When an asset is acquired a provision will need to be made for
A building contractor seeks your advice on how the following claims should be treated when finalising accounts for the year ended 31 December 2012:(a) When the scaffolding at a building site
Your managing director is having a polite disagreement with the auditors on the subject of accounting for contingencies. It appears that your firm is involved in four unrelated legal cases, P, Q, R
A supermarket receives a claim for £50,000 from a customer in respect of injuries suffered when the shopping trolley dragged him down the travelator. The claim is contested at court. The brakes on
Robin Dale Ltd, a wholesalers, prepared his draft Statement of financial position as shown. Following events occurred prior to the approval of the financial statements by the Directors of the company
Which of the following statements is incorrect?(a) Damages awarded by court against the business may be ignored because it will be appealed(b) A liability is a present obligation, arising from past
Which of the following requirements in IAS 37 are calculated to ensure that provisions are not created and used to either understate or overstate the performance and net assets of a business?(i) A
Warren Industries manufactures and retails domestic appliances. The business had prepared draft accounts by 21.2.2012 and seeks your advice on how they should account for the following claims in the
Michael Orwell is a farmer carrying out field trials of genetically modified corn. One of his neighbours, an organic farmer, has obtained a court order(i) Restraining Michael from sowing more GM
Sophie Peters produces ladies’ designer wear. Her orderbooks are full and she counts among her customers many leading retailers in the city. Her problem, however, is that despite working three
Alan Smith received summons dated 7 March for an interview, attended the interview on 28 March, received the appointment letter dated 11 April and assumed duties on 15 April. Which of those listed on
A fashion designer received a claim for £100,000 as damages because some wedding garments were not delivered in time for a wedding. The designer admits the delay but disputes the amount of the
Prentice Printers commenced business on 1 July 2010, acquiring the printing machine on that day for £480,000. The useful life of the machine is estimated at ten years and the total cost of repair
On 7 May 2012 Adler Printers signed a contract with Boon plc for £12 million. In terms of this contract Boon plc is required to supply 40,000 reams per year of high-quality printing paper for three
When preparing the financial statements for the year ended 31 December 2011, Camilus Plc has accounted for(a) A provision for amounts payable to a supplier because as at the date of reporting the
Gabriels’ Bakery is guilty of supplying stale bread to some of its retailers and, as at 31 December 2011, expects to receive claims for compensation. All customers are expected to claim back the
A manufacturer of audio equipment offers a warrant to remedy manufacturing defects, at no cost to the customer, if identified within six months of sale, but customarily has extended this facility for
City Builders (CB) is engaged in a major civil engineering contract which includes a penalty clause that equires payment of damages if the completion of the contract is delayed. Though as at 31
Radon plc is facing a claim for £500,000 from a customer, in respect of a fire the cause of which has been traced to a defective electric circuit in a refrigerator sold by Radon. The legal opinion
Karen Retail’s draft Statement of financial position, shown below on the right, was approved by the board of directors for release to shareholders on 4 March 2012. Following events took place
A builder finds that, on account of the negligence of his workmen, he has to replace the bathroom suite in a residence still under construction. The replacement is expected to cost £15,000; but it
A building contractor received a claim for £1 million on behalf of one of his workers paralysed with head injuries suffered when scaffolding at a building site collapsed. The insurance refused to
Metalworks manufacturers of safety helmets had to write off £120,000 being the cost of helmets which had to be destroyed because they failed the safety test. Metalworks has filed a court action
Which of the following statements is correct?(a) A contingent liability may be accounted for if its occurrence is certain(b) A contingent liability should always be disclosed in a note(c) A
Which of the following should be disclosed as a note to financial statements as a contingent liability?(a) A customer’s claim that is unlikely to succeed(b) A customer’s claim which, according to
The following is a list of events that took place between the date of the Statement of financial position (30.6.2012) and the date it was approved for sending to shareholders. Place a tick in the
John Dyson is in business trading wholesale in consumer durables. He purchases from reputable suppliers and sells at a price calculated to yield a profit margin of 25% on cost. His accounts are in a
A partnership business carried on by Gerenia and Petunia was acquired by Foliage Ltd with effect from 30 June 2012. Particulars of this acquisition are as stated as part of Activity
The Trial Balance extracted from the books of City Grocers on 31.3.2012 failed to balance. The difference was placed in a Suspense account. Since then the following errors have been detected:(a) A
As at 30 September 2012 the Cash Book reports a bank overdraft of £10,240 whereas the bank statement reports a favourable balance of £5,680. Inquiries reveal as follows:(i) A cheque for £14,750
(a) What are the books of prime entry you are familiar with so far and what is entered in each?(b) What are the main books of account and why are they referred to as that?(c) What are the subsidiary
During the year ended 30 June 2012 Jeremy Transporters entered into the following transactions:(a) Bob Salmon, a customer experiencing cash flow problems, hands in his vehicle valued at £15,000 in
Chi Knitwear Ltd is an old-fashioned firm with a handwritten set of books. A Trial Balance is extracted at the end of each month, and a Statement of income and a Statement of financial position are
(a) Why is it an error to record the acquisition of a non current asset on credit terms in the Purchases Day Book?(b) Acquired from Electroplastics Ltd, on credit terms, a photocopying machine for
The following accounting errors were detected in the course of the annual audit:(a) £16,000, the cost of furniture acquired for office use from Smiths Ltd, has been recorded in the Purchases Day
Dave Porter commenced business introducing his car valued at £30,000, furniture valued at £12,000, £25,000 in cash as well as a bank loan of £10,000. Set out the prime entry for the capital
An invoice for 24,000 from Carmart Ltd, for an office vehicle, has been entered in the Purchases Day Book. Set out the journal entry for correcting this error.
The audit of the books of Collin Drake, dealer in word processors, during the year to 30 April 2012 revealed the following errors and omissions:(a) A sale invoiced to Sue Robert at £14,200 was
Which of the following statements is incorrect? In the double-entry accounting system maintained manually, a journal entry:(a) Should be substantiated by the appropriate voucher and authorised at the
The prime entry for the acquisition of a Cash Book, ledgers and a journal for £240 from W. Smith Ltd on credit would be in the:(a) Purchases Day Book(b) Journal(c) Cash Book(d) None of the above

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