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financial accounting an introduction

Questions and Answers of Financial Accounting An Introduction

Saddle plc has supplied you with copies of its Statements of financial position and the Statement of income as shown below:Required: Prepare the Statement of cash flows for the year ended 31
Dick Barton, a sole trader, banks all his takings intact and makes his payments by cheque. A summary of his bank statements for the year ended 30 April 2011 is shown.A list of his shop’s assets and
The Statements of financial position of Paddles plc are shown. You are informed as follows:(i) There was no disposal of noncurrent assets in the year.(ii) A dividend of £30,000 was paid in October
Rick Alderman owns a shop. Because of a recent bereavement he has neglected to maintain full accounting records. To prepare the financial statements for the year ended 31 December 2011 he has
Statements of financial position of Snowdrop Ltd are stated on the left. Additional information:(i) Statement of income for year to 31.5.2011 includes information stated.(ii) £270,000 was paid as
The financial statements of Diddle plc are set out. You are informed as follows:(i) A vehicle costing £72,000 was sold in the year for £54,000.(ii) Part of the loan notes were redeemed on 1.1.2011
Refer back to Activity 12.3 for information on Salmon and Tuna. You are further informed as follows:(a) Their Statement of financial position as at 31 December 2010 includes items shown.(b) In the
Mackeral plc’s capital employed as at 30 June 2011 is £7.5 million. A summary of their Statement of income appears. Directors are proposing to raise £1.5 million additional capital by a
Which of the following statements are correct?(a) Accounting ratios should always be expressed as a percentage(b) An accounting ratio compares two amounts appearing on the Statement of financial
Gloria seeks your advice on whether she should invest in ordinary shares of Minnow plc or Mullet plc. Shares of both companies have a par value of £1 and she has provided you with the information
A company’s sales have decreased and yet its year-end trade receivables have increased. Suggest possible reasons for the change in relationship between sales and receivables.
Alpha plc incorporated Beta plc on 1 January 2012, investing £150 and recording, in the books of Beta, £100 as share capital and the remainder as share premium. The Statements of financial position
Which of the following companies would qualify to be regarded as subsidiaries of Alpha?(a) Beta in which Alpha has 15% votes and a place on the board of directors(b) Delta in which Alpha has 52%
Alpha paid £300 to acquire 240 shares in Beta on 1 April 2010 when:(a) Beta’s reserves stood at £40.(b) Fair value of Beta’s land, which is not depreciated, was £100 more than the book
Alpha has 100% of the ordinary shares in Beta, 60% of the shares in Delta and 30% of the shares in Gamma. Each share has one vote at the shareholders’ meetings. Would you identify Beta, Delta and
On 1 January 2011 Alpha invested £500 to incorporate Beta. A year later each company had prepared its own Statement of financial position as shown.Required: Prepare the Consolidated Statement
Alpha plc paid £180 to acquire the whole of the equity in Beta plc on 1 January 2012, immediately upon Beta’s incorporation. The Statements of financial position of both companies, a year after
Alpha paid £450 to acquire 300 ordinary shares in Beta on 1 July 2010 when:(i) Beta’s Retained earnings were £40;(ii) Fair value of Beta’s property plant was £120 more than the book value;
Which of the following would qualify a company to be regarded as a parent of another?(a) A parent: both it and its subsidiary must be in the same line of business(b) A parent should own majority
Maureen incorporated Beta on 1 January 2011 investing £450. She recorded £400 in the Share capital account and £50 in a Share premium account. On the same day, immediately after incorporation,
Which of the following statement(s) is/are correct with regard to preparation of consolidated financial statements?(a) To be a subsidiary a parent should hold 100% of its equity shares(b)
When Alpha paid £1,200 to acquire 640 ordinary shares in Beta on 1 January 2010:(i) There was a gain of £300 and £40 on the fair valuation of Beta’s property, plant and equipment and brand names
Alpha paid £405,000 to acquire 300,000 shares of £1 each in Beta plc, immediately after Beta’s incorporation. The Statements of financial position of both companies have been prepared as
Ibrahim incorporated Beta on 1 April 2010, investing £360. A year later, on 1 April 2011, Alpha paid £500 to Ibrahim to acquire all his shares in Beta. By that date Beta’s retained earnings were
Alpha plc paid £820,000 to acquire all of the equity shares in Beta plc on 1 January 2010 when:(i) Beta had retained earnings amounting to £80,000.(ii) Investments held by Beta had a market value
Which of the following statement(s) apply when consolidating Statements of financial position?(a) All inter-company balances should be cancelled(b) The group share of the whole of subsidiary’s
Alpha paid £1,000 to acquire the whole of Beta’s equity on 1 April 2008 when:(a) Investments held by Beta were quoted in the share market at £210; and(b) Beta’s retained earnings were £180.In
Alpha plc paid £1,480 to acquire 2,400 shares in Beta plc. On the date of acquisition Beta plc had an accumulated loss of £180, though its property, plant and equipment had a fair value which
Alpha plc acquired 800,000 ordinary shares of 50p each in Beta plc for £760,000 on 1 April 2010 when:(i) Beta had an accumulated profit of £90,000.(ii) The market value of Beta’s land was
With regard to preparing Consolidated Statements of financial position which of the following statements is/are correct?(a) The Consolidated Statement of financial position reports only parent’s
Alpha acquired 75% of Beta on 1 January 2010 when Beta’s retained earnings were £140 and the fair value of the subsidiary’s identifiable non-monetary assets was almost the same as the book
The year-end Trial Balance of Cheapstake plc, prepared by your predecessor, is shown.You are informed:(i) The credit control department advises that:~ A debt of £25,000 should be written off;~
The Statements of financial position of Serendib Ltd are shown. You are given the following information:(a) A plant acquired for £450,000 was sold in the year, making a gain of £14,000.(b) During
(a) Explain the meaning of the term ‘working capital cycle’ for a trading company.(b) Calculate the working capital cycle in days from the information provided.(c) State one advantage to a
Sales in the year ending 31 March 2012 were £43,200. Identify the gross profit ratio, as a percentage, in each of the following independent situations:(a) Gross profit for the year was £5,400(b)
Stated below are particulars with regard to six different companies ‘a’ to ‘f’. Each of these companies has borrowed £2,500 at 8% interest per annum. Fill the shaded grids with appropriate
Tarrant Electronic report their gross profit for the year, along with comparative figures, arrived at as shown.Required:(a) Identify the gross profit ratios.(b) Explain possible reasons for the
Which of the following conclusions could be drawn if the gross profit ratio falls from 25 to 18%?(a) There has been a deliberate change in trading policy(b) There has been a mistake in counting or
Miss New Rich has decided to take advantage of the slump in the share market and has identified two listed companies, Rose plc and Daisy plc, for making her investment. She has obtained the financial
Aber and Cromby are two retail businesses in the leisurewear market. Your manager has asked you to review the performance of both businesses from the financial statements which are provided
Salmon Ltd and Tuna Ltd are both retailers of ready-made garments. Salmon aims at the more expensive end of the market, Tuna at the cheaper end. The financial statements of both companies are shown
Extracts from Chambers plc’s financial statements are shown:Required: On the basis of the information provided, assess any change in the profitability as well as liquidity position of Chambers
Nicola is thinking of investing in a limited company called Tresven. She seeks your help to calculate and interpret some ratios so as to assist her with the decision. Summarised financial statements
Which one or more of the following will reduce a company’s gross profit ratio?(a) Increasing profit margins added to cost(b) Omission from closing inventory of items with customers on sale or
Extracts from the financial statements of Apillon for the year ended 31 March 2011 and 2012 are given.Note a: sales revenue includes a cash sale of £300,000 in 2011 and £100,000 in
William had commenced in business with capital provided by his mother. The financial statements for the period from 1 April 2009 have been submitted to you as shown below.(a) Expenses that change
Extracts from Sardine plc’s Statement of income for the year ended 30 September 2011 are shown and particulars of capital employed, as at 30 September 2011, are shown. Assume that tax is calculated
Which one of the following will reduce a company’s gross profit ratio, when sales are increasing?(a) Decision to increase the quantity of inventory held(b) Increase in advertising costs and
Which one of the following could cause a significant increase in a company’s gross profit ratio?(a) Loss of goods by customer shoplifting or pilferage by staff(b) Inclusion in closing inventory of
The equity and reserves portion of Sardine plc’s Balance sheet as at 31 December 2011 is shown and an extract from the Statement of income ending on that date is shown. 300,000 Ordinary shares of
As at 31 March 2011 a listed company had no loan notes in issue and its capital employed was £3.9 million. Shown are summaries of the liability side of its Statement of financial position as at
The following information is available for the period ended 31 May 2011:1. Working capital as at 31 May 2011 was £11,500.2. Drawings during the year were £3,000.3. Depreciation of non-current
Which of the following ratios is known as the primary ratio?(a) Earnings per share(b) Return on capital employed ratio(c) Price earnings ratio(d) Liquidity ratio
A company’s Statement of financial position reports its current assets and current liabilities as shown. Which of the following is the correct calculation of the company’s working capital ratio
Prichard’s sales in the year ended 31 December 2011 were £390,000. The sales produced a gross profit ratio of 30%.(a) If the cost of inventory on 31 December 2010 was £78,000 and that of 31
Afford Mills is in business as a wholesale dealer in textiles. Sales in the year ended 30 June 2010 were £365,000 and Afford allows its customers 45 days’ credit, with sales taking place
In which line of business would you expect the working capital ratio to be higher?(a) Supermarket(b) Dealer in white goods such as refrigerators, washing machines and cookers(c) Construction
(a) What consequence will you expect if the inventory days are reduced from 78 to 64?(i) Profitability of the business will improve(ii) Liquidity of the business will improve(iii) Operational
Marlin’s wholesale reported its sales in the year ended 30 June 2012 as £511,000.(a) If her trade receivables on 30 June 2012 were £63,000, calculate her receivable days.(b) If her receivable
A business would attempt to negotiate extended credit period from its suppliers if:(a) It experiences cash flow problems(b) It wishes to negotiate better trade discounts(c) It wishes to extend credit
A business should endeavour to reduce its payable days if:(a) It breaches credit period allowed by suppliers(b) It wishes to improve its sales(c) It wishes to reduce bad debts(d) It has cash surplus
A fall in trade payable days may signal:(a) A reduction in profitability(b) An improvement in liquidity(c) Worsening operational efficiency
In respect of the year ended 31 December 2011 Hussain reports his purchases as £624,000 and his trade payables by the year-end as £114,000. His payable days would be: a 94 days b 67 days c 48 days
In respect of the year ended 31 March 2011 Akbar reports his purchases as £578,160 and his trade payable days as 54 days. Ascertain his trade payable as at 31 March 2011. a £92,400 b £85,536 C c
Your advice is sought by a bank which is considering a request for substantial overdraft facility from Fairways, a supermarket with sales outlets spread throughout the UK. The operating profit of
A company’s sales in the year ended 31 March 2011 were £948,200 and its operating profit £182,750. Its assets and liabilities at the year-end were as stated on the right. Which of the following
A company reports its net profit ratio as 5.4% and its total asset turnover as 7 times. Which of those stated on the right is the correct calculation of the company’s ROCE? 5.4/7 = 0.7% 5.4 x 7 =
Which of the following may be expected to improve a company’s liquidity?(a) Increase of the inventory days(b) Reduction of trade payable days(c) Reduction of trade receivable days(d) Repayment of
During the year ended 30 June 2012 a company’s sales were £498,400. As at 30 June 2011 the cost of its inventory was £98,200 and its trade payables £124,600. Identify its inventory turnover
Extracts from a listed company’s Statement of income for the year ended 30 June 2012 are shown, while its Statement of financial position reports:Calculate the earnings per share for 2012 in each
In which line of business would you expect the inventory turnover ratio to be higher?(a) Supermarket(b) Dealer in white goods such as refrigerators, washing machines and cookers(c) Construction
Which of the following statements is/are correct?(a) It is always bad to invest in a highly geared company(b) Redemption of long-term loans will reduce a company’s gearing(c) Paying dividends to
Which of the following changes in accounting ratios would please a company management concerned with cash flow problems in their company?(a) Increase in gross profit ratio(b) Increase in inventory
Four companies in the same line of business and with identical trading practices and accounting policies report their earnings per share as shown. Which of these companies would you say is the most
A listed company’s capital employed as at 31 December 2012 was £8,000,000. This amount includes the items shown on the right. Which capital gearing calculation shown below would you accept as
Which of the following steps will result in lowering the capital gearing of a company?(a) Pay dividends to its shareholders(b) Make a bonus issue of shares to ordinary shareholders(c) Make a rights
Information relating to Bamby plc is stated. Identify the share market ratios using information stated. Earnings per share Market price per share Dividend per share 24p 192p 8p
The financial statements for the current year (2011) and the preceding one are summarised below:You are required to comment on:(a) The profitability(b) The liquidity(c) The operational performance
Bravo plc invited application for 10,000 ordinary shares of £10 each, payable as stated in the box on the right. By 31 January 2010 applications were received for 16,000 shares. Applications for
The year-end Trial Balance of Global Ltd is set out. Further information:(a) Cost of closing inventory was £644,000.(b) The Trial Balance failed to balance because a folio in the Purchases Day Book
Which one or more of the following would you consider to be among the disadvantages of forming a limited company?(a) Legal control and stringent requirements that have to be complied with(b) The need
Titbits Ltd extracted its year-end Trial Balance as shown and informs you that:(a) Cost of goods remaining unsold at yearend cost £512,450. Goods costing £18,400 distributed free for sales
Benham Ltd has in issue six million shares of 50p each, issued at 60p each. Apart from the balances in the Share capital and Share premium accounts, the remaining account balances extracted as at 31
Which of the following will not be the most compelling reason for investing in a limited company rather than in a partnership?(a) Limitation of liability(b) Absence of confidentiality of information
Orange plc issued 100,000 ordinary shares of 50p each, at 60p each, fully called up and paid up. £3,000 was incurred as expense on the issue.Required:(a) Explain how the transactions stated above
Which of the following statements contained in the Articles of Association of Caves would identify it as a private limited company rather than a public limited company?(a) The liability of each
The balances listed on left are as at 31 December 2011 from the books of Abrador Ltd.You are informed as follows:(i) On 31 December 2011 the company issued for cash one million ordinary shares at a
Pink plc issued 100,000 ordinary shares of 50p each, at 60p each, 40p called. By the year-end it had received £32,000 from the issue and had incurred £2,000 as expense on issue.Required: Set
As at 31 March 2011 M plc has in issue 100 million ordinary shares of £1 each, 80p called up. On that day Terry paid 120p per share to buy 4,000 ordinary shares from Lester. In the event M plc
ABC Ltd extracted its year-end Trial Balance as shown below. You are further informed:(a) A vehicle acquired for £14,000 and written down to £6,000 by 31.3.2010 was sold on that day for £5,000.
The year-end Trial Balance was extracted from the books of Sparrow Ltd as shown.You are informed as follows:(a) Included within sales are goods invoiced at £16,000 in respect of which the customers
The Trial Balance of Adnett Ltd is shown.Additional information:(a) Cost of closing inventory is £560,000.(b) There are wages and salaries to be paid of £42,000.(c) Loan notes interest has not been
Beige plc has in issue 100 million shares of £1 each, 70p called up, and issued at 10p premium. Miriam, who has received an allotment of 5,000 shares from Beige plc, sold her entire holding to
Sinclair plc’s year-end Trial Balance is stated. The following information is provided:(i) Directors have resolved to report land and buildings at current values and have ascertained the market
Which of the following statements is incorrect?(a) In a company liquidation preference shares are entitled to priority return of capital(b) Normally preference shares have no votes at meetings of
Which of the following statements is correct?(a) Ordinary shares could be paid dividend even when a company has negative retained earnings(b) Debentures will not receive interest in a year when the
When preparing the financial statements for 2011 a limited company seeks your advice on how to deal with the items listed below. State your answer by placing a tick in the appropriate grid. (a) Final
Tax on the profit earned in 2010 was provided for at £74,000, and was settled on 1 September 2011 by a payment of £79,000. Current tax on the profits earned in 2011 has been estimated at £84,000.
£120,000 recorded in the Cash Book upon issuing 100,000 ordinary shares of £1 each should be credited to which account or accounts?(a) To a Suspense account(b) To the Share capital account(c)
The share capital of the company consisted of one million shares of £1 each. Those were issued for £1.50, for each of which £1 has been paid. The Statement financial position would refer to this

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