Questions and Answers of Accounting And Finance For Non Specialists

The financial statements of Freezeqwik Ltd, a distributor of frozen foods, for the year ended 31 December last year are:
Can you think what these reasons may be? Try to think of at least one.
Can you recall from Chapter 6, a limitation when using this ratio for monitoring trade receivables?
It was mentioned above that although banks are usually prepared to supply references, their contents are not always very informative. Why might this be the case?
In the first bullet point concerning capital, it was mentioned that any major financial commitments should be taken into account. What sort of commitments might a potential business customer have
Superlec plc makes electrical appliances. One of its major component suppliers is Technicalities Ltd. The two businesses have recently established a comprehensive JIT relationship.Would you expect
Assume the same facts as in Activity 12.4, except that the business wishes to maintain buffer inventories of 300 units. At what level should the business reorder?Data from Activity 12.4An electrical
An electrical wholesaler sells a particular type of light switch. The annual demand for the light switch is 10,400 units and the lead time for orders is four weeks. Demand for the light switch is
What kinds of changes in the business environment might lead to a decision to change the level of investment in working capital? Try to identify four possible changes that could affect the working
Gainsborough Fashions Ltd operates a small chain of fashion shops. In recent months the business has been under pressure from its suppliers to reduce the average credit period taken from three months
Surveys (for example, Real World11.13) show that many small businesses use credit cards to help finance their activities. Why might they do this?Data from Real world 11.13Small business fundingThe
The evidence (Real World11.11) shows that more than half of the shares listed on the London Stock Exchange are owned by investors who are based overseas. Why might overseas investors want to buy
Chesterfield Wanderers is a professional football club that has enjoyed considerable success in both national and European competitions in recent years. As a result, the club has accumulated £10
Real World9.3 and Real World9.5 both suggest that the figures that appear in budgets seem not actually to occur. Is this feature a problem in trying to control the various aspects of the business
Compare the sales revenue, raw materials and labour values between the flexed budget and the actual results and reconcile the original budget and the actual profit for Baxter Ltd. Remember that the
Can you see any problems in comparing the various items (sales, direct materials and so on) for the budget and the actual performance of Baxter Ltd in order to draw conclusions as to which aspects
Have a go at preparing the trade payables budget for Vierra Popova Ltd for the six months from July to December (see Activity 9.8).Data from Activity 9.8Have a go at preparing the trade receivables
Have a go at preparing the trade receivables budget for Vierra Popova Ltd for the six months from July to December (see Activity 9.7 and Example9.2).Data from Example 9.2To illustrate some of the
Vierra Popova Ltd (Example9.1) now wishes to prepare its cash budget for the second six months of the year. The budgeted income statements for each month of the second half of the year are as
In a manufacturing business, can you suggest what might drive the cost of:1 Machine testing and calibration; and2 Receiving materials for production?
Taking the same business as in Example8.2, on closer analysis we find that of the overheads that total £20,000 next month, £8,000 relates to machines (depreciation, maintenance, rent of the space
Suppose that Marine Suppliers Ltd (see Activity 4.9) used a machine hour basis of charging overheads to jobs. What would be the cost of the particular job if it was expected to take five machine
Into which category, direct or indirect, would each of the elements of cost listed in Activity 8.4 fall, if we were seeking to find the cost of operating the entire business of Sparky Ltd for a
Activity 7.6 was concerned with the cost of putting a car into a marketable condition. Apart from the quantifiable items mentioned, are there other costs or benefits that are difficult to quantify,
Cottage Industries Ltd (see Example 7.1) has spare capacity as its basket makers have some spare time. An overseas retail chain has offered the business an order for 300 baskets at a price of £13
Ali plc owns a workshop from which it provides an IT repair and maintenance service. There has recently been a downturn in demand for the service. It would be possible for Ali plc to carry on the
In Real World7.3, we saw that Ryanair’s break-even point varied from 72 per cent to 83 per cent over the five-year period. Why was it not the same each year?Data from Real World 7.3BE at
Assume exactly the same circumstances as in Activity 7.4, except that the garage is busy at the moment. If a mechanic undertakes the engine-replacement job, it will mean that other work the mechanic
Touchstone plc’s income statements for the years ended 31 December 2019 and 2020 and statements of financial position as at 31 December 2019 and 2020 are as follows:Statements of financial position
The relevant information from the financial statements of Pluto plc for last year is as follows:
This question requires you to correct some figures on a set of company financial statements. It should prove useful practice for the material that you covered in Chapters2 and 3, as well as helping
Why might the directors of a company engage in creative accounting? Try to think of at least two reasons.
Why do you think Stock Exchange listed companies are required to disclose more information about their business than other companies? Try to think of at least one reason.
A shareholder of the company in Example4.3 owned 100 shares before the bonus issue. How will things change for this shareholder as regards the number of shares owned and the value of the
Can you think why shares might be issued at above their nominal value?
Are reserves amounts of cash? Can you think of a reason why this is an odd question?
Assume that a company has a single owner (shareholder) who dies. What do you think will happen in these circumstances?
Look back to Example3.1 and assume that a trainee accountant had prepared the income statement. Subsequent checking by the chief financial officer revealed the following errors:1. Sales performance
The following information relates to Simonson Engineering as at 30 September 2021:
Refer to the statement of financial position of Brie Manufacturing shown earlier in Example2.4. What would be the effect of revaluing the property to a figure of £110,000 in the statement of
The assets of Kunalun and Co., a large advertising agency, are as follows:Cash at bank;Fixtures and fittings;Office equipment;Motor vehicles;Property;Computers; andWork in progress (that is, partly
Do you think that incomplete financial information, or unverified financial information, should be presented to managers? Why?
Do you think that what is material for one business will also be material for all other businesses?
Ptarmigan Insurance plc (PI) is a large motor insurance business. Taking the user groups identified in Figure1.1, suggest, for each group, the sorts of decisions likely to be made about PI and the
With which of the ideas discussed earlier in the chapter is this accounting treatment of impaired non-current assets consistent?
Why might it be a good idea to have impairment tests carried out by independent experts rather than by the managers of the business?
TT and Co. is a new business that started trading on 1 January 2019. The following is a summary of transactions that occurred during the first year of trading:At the end of the year it was clear that
How will the eventual payment of the outstanding sales commission (Example3.4) and the electricity bill for the last quarter (Example3.5) be dealt with in the accounting records of Domestic
Can you think of other expenses for a retailer that cannot be linked directly to sales revenue and for which matching will therefore be done on a time basis?
What about the statement of cash flows? Is it prepared on an accruals accounting basis?
Andrew Wu (Engineering) Ltd bought a new motor car for its marketing director. The invoice received from the motor car supplier showed the following:What is the total cost of the new car to be
The following is the statement of financial position of WW Associates as at 31 December 2019:During 2020, the following transactions took place:1. The owners withdrew equity in the form of cash of
Sparky Ltd is a business that employs a number of electricians. The business undertakes a range of work for its customers, from replacing fuses to installing complete wiring systems in new houses.In
Cottage Industries Ltd (see Example 7.1) expects to sell 500 baskets a month. The business has the opportunity to rent a basket-making machine. Doing so would increase the total fixed cost of
Assume that the operating profit is £70,000 rather than £50,000. What would be the effect of this on ROSF?
If shareholders gain from the tax-deductibility of interest on borrowings, who loses?
What do you deduce from a comparison of Alexis plc’s gearing ratios over the two years?
In practice, do you think that each piece of accounting information produced will be perfectly complete, neutral and free from error?
Accounting reports are aimed at users with a reasonable knowledge of accounting and business and who are prepared to invest time in studying them. Do you think, however, that accounting reports
Suppose an item of information is capable of being provided. It is relevant to a particular decision and can be faithfully represented. It is also comparable, verifiable, timely and could be
Which do you think is the harder to assess, the economic benefits of accounting information or the costs of producing it?
Why do you think financial accounting reports are subject to regulation, whereas management accounting reports are not?
It can be argued that non-financial measures provided by management accountants, such as those mentioned above, do not, strictly speaking, fall within the scope of accounting information. Thus, they
Can you think of any areas of overlap between the information needs of managers and those of other users?
How should the harmonisation of accounting rules benefit:(a) An international investor?(b) An international business?
Look at Figure 1.5 and state, in broad terms, where an investment in:(a) UK government savings account; and(b) shares in an oil-exploration business should be placed on the risk–return
What other objectives might a business pursue? Try to think of at least two.
On Wednesday, Paul bought more wrapping paper for £460 cash. However, it was raining hard for much of the day and sales were slow. After Paul had sold half of his total inventories for £320, he
What forms might economic benefits take? Try to think of at least two.
Assume a business owns a 20 per cent stake in a gold mine. As this ownership stake will not give control over the whole of the gold mine, can this resource be regarded as an asset of the business?
From time to time, there have been attempts to place a value on the ‘human assets’ of a business in order to derive a figure that can be included on the statement of financial position. Do you
Indicate which of the following items could appear as an asset on the statement of financial position of a business. Explain your reasoning in each case.1. £1,000 owed to the business by a credit
Can you think of two additional items that might appear as assets in the statement of financial position of a typical business?
What would have been the effect on the statement of financial position if the inventories had been sold on 7 March for £1,000 rather than £5,000?
Can you think of two examples of assets that may be classified as non-current assets for an insurance business?
Can you think of one example of a current liability and one of a non-current liability?
Does this pose a problem for external users seeking to assess the business’s financial health?
Plumber and Company has a fleet of motor vans that are used for making deliveries to customers. The owners want to show these vans on the statement of financial position at their current values
What sort of poor decisions may be made as a result of overstating the financial strength of a business?Try to think of at least two.
In Chapter 1 we discussed neutrality as a desirable element of one of the major qualitative characteristics of financial information. Can you remember which one?
What are the two aspects of each of the following transactions?1. Purchasing £1,000 of inventories on credit.2. Owner withdrawing £2,000 in cash for her own use.3. Paying a supplier £1,000 for
Can you identify any of these resources? Try to think of at least two.
Try to identify two non-current assets with a finite useful life that can be classified as:1. Tangible; and2. Intangible.
Can you recall from Chapter2 how a profit, or loss, for a period is shown in the statement of financial position?
The following information relates to the activities of H&S Retailers for the year ended 30 April 2021:Prepare an income statement for the year ended 30 April 2021. Motor vehicle running
Singh Enterprises, which started business on 1 January 2018, has a reporting period to 31 December and uses the straight-line method of depreciation. On 1 January 2018, the business bought a machine
A manufacturer produces and sells a standard product on credit, which is transported to customers using the manufacturer’s delivery vans. Managers believe there are four points in the
Although revenue for providing services is often recognised before the cash is received, there are occasions when it is the other way around: a business will require payment before providing the
Assume that the machine in Example3.7 was owned by a business that made a profit before depreciation of £40,000 for each of the four years in which the asset was held.Calculate the profit for the
Why might output-based methods rather than input-based methods be more suitable to measure progress?
What judgements must be made to calculate a depreciation expense for a period?
Suppose that the 9,000 tonnes of inventories in Example3.8 were sold for £15 a tonne.(a) Calculate the gross profit for the period under each of the three costing assumptions.(b) What do you note
Assume that prices are falling rather than rising. How would your observations concerning the portrayal of financial performance and position be different for the various costing methods?
Can you think of any circumstances where the net realisable value will be lower than the cost of inventories held, even during a period of generally rising prices? Try to think of at least two.
Reporting inventories in the financial statements provides a further example of the need to apply subjective judgement. For the inventories of a retail business, what are the main judgements that are
What would be the effect on the income statement, and on the statement of financial position, of not taking into account the fact that a debt is irrecoverable?
The accounting treatment of irrecoverable debts is a further example where judgement is needed to derive an appropriate expense figure.What will be the effect of different judgements concerning the
Why do we need accounting rules? Can you think of any arguments against the use of accounting rules?
Limited companies can set a limit on the amount of debts that they will meet. They tend to have reserves of cash, as well as share capital and they can use these reserves topay dividends to the
The fact that shareholders can limit their losses to that which they have paid, or have agreed to pay, for their shares, is of great practical importance to potential shareholders.Can you think of

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