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Accounting A Smart Approach 1st Edition Mary Carey, Jane Towers Clark, Cathy Knowles - Solutions
Sam has been invited by a prospective supplier of shuttlecocks to visit his factory in Greece. Vas, the factory owner, has two manufacturing departments: first the cork-base department manufactures the bases by machine, and then the feather department manually applies feathers into the cork base. A
Sam has talked through with his production supervisor, Anna, all the activities undertaken to make a tennis racquet. They have estimated costs by each activity and discussed what will drive these costs. The solution for writing a specification has been given as an example.Required:a) Calculate the
How can the accuracy of a budget be improved?
How can budgets motivate and de-motivate managers?
Which types of businesses might put more emphasis on planning rather than control in their use of budgets?
What conflicts can occur as a result of the different objectives of budgeting?
Can all costs be clearly categorized as fixed or variable costs?
Why is it cheaper per unit to produce more of a product?
Why is contribution different to profit?
How can you calculate break-even in a complex business with many different products?
What are the business consequences of classifying variable and fixed costs incorrectly?
It is assumed that a specific decision affecting one product will not affect other products. Do you think this will always hold true?
Pippa runs a photographic studio specializing in black and white portrait photography.Clients book a one hour studio session and are entitled to receive two large photographs of their choice from the sitting.The following outgoings are associated with Pippa’s business:* Pippa rents the
Give three examples of variable costs and three examples of fixed costs that you might expect Sam to incur when manufacturing tennis racquets.
In order to explore the feasibility of the venture, Sam is planning to undertake break-even analysis based on his estimates for the tennis racquet project.Sam realizes that the first step in his analysis of the figures must be to identify those costs that are variable and those that are fixed.Sam
Sam has done some further research into the making and selling of tennis racquets and estimates that he can sell them for £25 each. For Sam’s tennis racquet costing, calculate the contribution for each tennis racquet sold.
Sam’s cousin Dan is over from Australia for the summer on a working visa and has decided to run football coaching days to help him fund his cycling tour of England. He has negotiated with one of Sam’s customers to hire their football pitch and other facilities for the day. He has agreed to pay
Sam’s old friend Dot is considering setting up a business offering ‘historical boating trips’ along the River Thames. Dot thinks that she may be able to make a good living out of this. She has carried out market research and identified that there is a market for boating trips where everything
1. Compute and reflect upon the margin of safety for Dot’s champagne boating business.2. Would you consider it to be high risk for Dot?3. What would be your advice to Dot in terms of whether she should undertake the business?
Using the information you obtained earlier:a) How many racquets would Smart Sports need to sell to break-even?b) What would the profit be if Smart Sports actually sold 1,100 racquets?c) If you were Sam, would you go ahead? How risky is it?Sam has also estimated how various levels of sales will
Kim has prepared the information in Table 9.1 so that Sam can consider whether to obtain external funding by issuing ordinary shares or by issuing debt. He has prepared alternative statements of financial positions for each option:a) Calculate the gearing proportion for the alternative funding
Sam Smart has been very busy running his business Smart Sports for the last few years. Sam’s cousin Dan, who lives in Australia, has been playing the lottery for the last five years and has recently struck lucky and won AU\($20,000\). Sam is in need of a holiday, and as both he and Dan have a
Sam and Kim begin to draw up the cash budget for the first three months of trad- ing. Sam plans to call the business Smart Sports and he will invest his savings of 10,000 to get it started. His mother has offered to provide a loan if it is needed. Initially, he plans to use his garage to store
Who might be particularly interested in each of the following types of ratio:° Profitability° Liquidity° Efficiency?
Shown in Tables 8.1 and 8.2 are the summarized income statements for the two Indian shops for the year ended 31 December 2014, plus the summarized total capital employed as at 31 December 2014.Required:a) Calculate the return on capital employed, the gross profit margin, the operating profit
The ratios in Table 8.4 have been computed for a manufacturing business and a supermarket.Discuss why it is possible for these two companies to operate successfully with such different liquidity ratios. Table 8.4 Current ratio Manufacturer of sugars, starches, etc. from carbohydrates 1.48:1 Acid
Smart Sports Ltd has been approached by Running Fast Ltd, who run a small chain of sports stores in the London area, to supply them on a monthly basis with team kits.The business has had a number of defaults on payments by small retailers, and Sam is keen to establish the viability of Running Fast
What non-financial factors might you consider when deciding whether or not to invest in a business?
Why do investors pay more for a business than the statement of financial position value of the net assets?
Can investors rely on the accounting information given to them?
How can an investor explore the economic/market context in which the business operates?
Dee Ltd manufactures sweets and chocolates. Extracts from Dee Ltd's statement of financial position as at 30 September 2013 is given in Table 9.7.REQUIRED:a) Explain what you understand by the term ‘gearing.b) Using the extracts from Dee Ltd's statement of financial position, determine Dee Ltd's
Joisa plc is a business that specializes in the manufacturing of designer luggage.A luxury goods company Luxy Goods plc is considering buying Joisa plc so that they can expand their luxury goods business into luggage.The financial information is available for the three years to June 2012 and is
Rory’s Newsmart owns and runs four stationery shops in Edinburgh, supplying retail and trade customers. Rory, who is the managing director of the company, has asked for your help. He is very concerned because he suspects that one of the shop managers has been stealing money from the business. He
A few years ago Sarah started a business making cookies, cakes, and biscuits and supplying them to coffee shops and cafés. The business has always been profitable, and during 2011 it diversified into the production and sale of cookie- and bread-making kits. This seems to have been a successful
When Danni first started trading, he sold 2,000 cans of drinks in January, the first month. The drinks cost him €2 each, and he sold them for €3 each. During that month, he bought 2,400 cans and also purchased two fridges for a total cost of €730. Danni paid €500 into his business bank
Decide whether each of the following would be classified as an operating cash flow, an investing cash flow, or a financing cash flow:a) Proceeds of a share issue.b) Purchase of property.c) Purchase of a motor van.d) Cash tied up in inventory.e) Proceeds of a loan issue.
Smart Sports Ltd’s income statement for the year ended 31 December 2013 showed a profit for the year of £30,902. During that year, the company purchased new premises at a cost of £80,000, along with other non-current assets. The statement of changes in equity for 2013 along with the statements
By referring to the statement of cash flows in Table 7.4, answer the following questions:a) Explain why the business has an overdraft at 31 December 2013 despite all its fundraising activities and the profit made during the year?b) What steps could Sam take to ensure that the business’s overdraft
In January 2014, Raja invested £30,000 in Smart Sports Ltd by buying 20,000 shares in the business. In the same month, he set-up shops in Mumbai and Delhi and started trading, having appointed managers at each branch. The company results, including the Indian branches, show a profit for that year
Using the statement of cash flows you prepared in Demonstration Exercise 7.5, and the ‘What to look for’ questions listed in the previous section, interpret Smart Sports Ltd’s statement of cash flows for the year ended 31 December 2014.
Would you expect the gross profit margin to be high or low for a luxury-products business?
Will a business that operates with a high gross profit margin necessarily achieve a high operating profit margin and a high return on capital employed?
If the current and acid test ratios fall sharply, does this necessarily mean that the business is experiencing liquidity problems?
What could happen if a company does not control its trade receivable days?
What is Just In-Time inventory control?
The following ratios were computed for TC Ltd based on the company’s 2013 and 2012 accounts:REQUIRED:Explain which of the following statements are true and which are false:a) On average, TC Ltd's trade receivables are taking longer to pay in 2013 than in 2012.b) On average, TC Ltd's inventories
Summarized in Table 8.7 is some data extracted from the accounts of three companies, all of which are in the wholesale dog food business:REQUIRED:a) Calculate the following ratios for all three companies:Gross profit margin Trade payable days Trade receivable days Inventory days.b) Comment on the
A sole trader's statement of financial position shows the amount of capital that the owner has invested in the business. What is the equivalent figure or figures for a company?
A sole trader can take drawings from a business. How would someone who is a director and shareholder of a business be rewarded?
What are the implications for a company if some of its shareholders sell their shares at a profit? Will the share premium account be affected?
Adiga Ltd is a company that has issued ordinary £1 shares and 7% £1 preference shares. The company’s trial balance as at 31 December 2012, after the income statement has been prepared, is shown in Table 6.13.REQUIRED:a) Prepare the statement of changes in equity for the year ended 31 December
The trial balance in Table 6.14 was prepared for Sacha SA, a French winemaker, after the income statement for the year ended 31 March 2013 had been drawn up.REQUIRED:a) The directors are keen for the property to be shown at the revalued amount in the accounts. Explain what the effect on the
Casey, one ofy our friends, has recently inherited a small shareholding in an Irish company, Meditor Ltd, which manufactures diagnostic medical equipment. Casey knows very little about the company but has acquired extracts from its two most recent statements of financial position.REQUIRED:Based on
Balances extracted from the books of Smart Sports Ltd after it has been Trading for one year are given in Table 6.2.Using the information given above for Smart Sports Ltd:a) Complete the pro-forma income statement for the year ended 31 December 2012 (Table 6.3).b) What is the operating profit for
Danni’s Drinks GmbH issues 10,000 €1 ordinary shares at €1.40 per share.Required:a) How much cash will be raised from this share issue?b) By how much will the ordinary share capital increase as a result of this share issue?c) What is the total share premium arising from this share issue?
The trial balance of Smart Sports Ltd as at 31 December 2012 is given in Table 6.8.Remember that you have prepared the income statement and statement of changes in equity in Demonstration Exercise 6.1.a) Does the company owe any interest on the loan at the year-end if the loan was taken out at the
One of the suppliers whose accounts Sam had been reading included the accounts of Zippy Shirts SA, a company based in France. Extracts from the company’s financial statements as at 30 June 2012 and 30 June 2011 are given in Tables 6.10 and 6.11.a) What is the nominal value of the company’s
How is it possible for a profitable business to experience cash flow problems?
Why is working capital management key to managing cash in a business?
If a business generates significant cash flows from operations, is it always advisable to raise extra long-term funding (by issuing shares and/or loans) if the business wants to expand?
If a business found that there was a surplus on revaluing a property, what effect would this have on its cash position?
Statements of cash flow are prepared after the end of an accounting period. What technique could a business use to plan future cash movements and balances?
Danni, the drinks seller, buys a fridge costing €630 that is expected to be used by the business for three years, at the end of which time it is estimated that it will be worth approximately €30, known as the residual value. The total depreciation that must be provided over the asset’s life
Smart Sports purchased a printing machine for £5,500, and having done some research, Sam estimates that it should have a useful life of four years, at the end of which time it is likely to have no residual value. If the straight-line depreciation method is going to be used:a) What rate, given as
Smart Sports purchased a computer for £3,500. Kim advises Sam to depreciate it on the reducing-balance basis at the rate of 40% per annum.a) Complete the working in Table 4.4 to find the depreciation charge for each of the first three years:In summary, the annual depreciation charged to the income
The trial balance for Smart Sports is given in Table 4.7, along with additional information in the table footnotes that will enable the final version of the income statement and statement of financial position to be prepared.1. The loan was interest-free for the first six months of the year,
Shareholders in companies are protected by limited liability, which is a long-standing principle Why do you think shareholders are given the benefit of this protection?
Ordinary shares are issued by all companies, and preference shares are issued more rarely. Who might be interested in buying preference shares in a company?
Given that companies issuing loans and debentures will be obliged to meet interest payments when they fall due, why do companies not just issue share capital only and avoid this obligation?
If a company has retained profits over a number of years, does this mean that the company must have large cash balances as a result?
Chris Monk is planning to form a company, Monk Ltd, and needs to raise a total of £1,000,000. He is considering various ways of raising this sum:Option 1 Issue 70,000 £10 ordinary shares at nominal value, £10 per share, and issue a £300,000 6% debenture, repayable in five years’ time.Option 2
Jorge is planning to set-up a restaurant business called Herring, serving Scandinavianstyle fast food. He has plans to start by opening one restaurant and then within months to open at least two more. He has a great deal of experience in the catering sector but has never previously set-up his own
a) What might be the main benefits to Sam of forming a company?b) Would you expect Smart Sports to be formed as a private or public company, and how will this affect the company name?c) IfSam cannot advertise his shares to the public, who might he approach with a view to investing as a
Sam has decided that he will form a company, Smart Sports Ltd, and aims to raise £50,000 from the issue of ordinary shares.a) Would you recommend that the company issue 50,000 shares of £1 nominal value, 5,000 shares of £10 nominal value, or 500 shares of £100 nominal value? Explain your
Sam is interested in making contact with venture capitalists to see whether Smart Sports is a business in which they might be prepared to invest in the futurea) What might be the main benefits to Smart Sports of obtaining venture capital finance?b) Can you list the sort of information that the
Sam has now decided to form his company, Smart Sports Ltd, and to issue 50,000 £1 ordinary shares at £1 per share. In addition, the company will take out a fiveyear loan for £18,000 from Green Bank. Sam will acquire 70% of the ordinary shares issued, his friends Dot and Dan will acquire 12%
Danni runs a business selling soft drinks from a van that trades outside sporting events and concerts. Which of the following would be assets of Danni’s Drinks business?a) The fridges bought by Danni that are used to keep the drinks cold.b) Bottles and cans of drinks held for sale.c) Two boxes of
Sam has prepared his income statement for the year ended 31 December 2011, and the balances shown in Table 3.2 remain on his trial balance.Note that, because the trial balance in Table 3.2 has been prepared after the income statement has been produced, all of the accounts used in preparing the
Smart Sports has paid electricity bills totalling £1,920 during its first year of trading, which is the amount on the trial balance. However, this amount covers only electricity used up to 31 October 2011. Sam estimates that the cost of electricity used during November and December 2011 will
Smart Sports has paid insurance premiums totalling £1,750 during its first year of trading, which is the amount on the trial balance at the year-end, 31 December 2011. However, this amount provides insurance cover up to 31 March 2012.Sam has calculated that the cost of insurance is £117 per
The trial balance for Smart Sports is given in Table 3.4:1. Betty’s loan to the business was interest-free for the first six months of the year, after which time interest was to be paid at the rate of 6% per annum. No interest had been paid during the year.2. Purchases remaining unsold in
Does the statement of financial position include every significant asset from which the business benefits?
Would it be easy to value these assets in order to include them on the statement of financial position?
Will all businesses use the same depreciation methods and rates for similar assets?
Property is included as a non-current asset on the statement of financial position at cost less accumulated depreciation, is this likely to be the most relevant value for all users of the accounts?
The provision for doubtful debts is based on a percentage of trade receivables at the year-end, a percentage which varies from business to business Why is there no common percentage for all businesses?
Does the prudence concept mean that accountants always take a very pessimistic approach towards arriving at the profit for the year?
Douggen manufactures and installs specialist industrial pumps. The business commenced trading on 1 January 2012 and purchased the following assets: Plant and machinery £80,000 Motor vehicles £24,000 Before preparing the financial statements, Douggen needs to decide how the business is going to
The trial balance of Russells as at 31 December 2012 is shown in Table 4.10.*No depreciation is to be charged on freehold premises.*All depreciation is to be provided on the straight-line basis. Plant and equipment is to be depreciated at 30% per annum and fixtures and fittings at 20% per
Poppy started a business on 1 July 2011 as a personal fitness instructor and put in €8,000 capital to fund it. She prepared her first year’s accounts to 30 June 2012.During her first year, she purchased lightweight transportable equipment: a rowing machine for €2,500, a cycling machine for
Jo recently set-up as a satay man along Bukit Timah Road in Singapore providing satay at parties. Jo bought-in 1,700 chicken satays at 50 cents per satay and had 700 satays at the end of the month. He is able to sell each satay for \($1.20\) and works on a pay-for-what-you-eat basis.REQUIRED:a)
Sophie Sophie has a hairdressing business and has produced the trial balance in Table 2.6.REQUIRED:Categorize each of the items in Sophie's trial balance into one oft he following types:* income * expenditure * assets * liabilities * capital * drawings. Table 2.6 Sophie Trial balance as at 31
Helga's trial balance, drawn up at the end of the first year of trading, is shown in Table 2.7.REQUIRED:a) Identify the entries in Helga's trial balance that represent revenue income and revenue expenses.b) Prepare the income statement for Helga for the year ended 30 November 2012.c) There are two
A friend of Sam, Danni, sells canned drinks from a van in the centre of Berlin each night. Danni sold 500 drinks during one week. Each drink sold for €3, and each one cost Danni €2 to make. 1. How much profit did Danni make that week? 2.If Danni had bought 550 cans to sell during that week,
If one of Danni’s customers, who bought drinks worth €30 during January, was allowed not to pay immediately but was given one month’s credit, then:1. What would be the effect on Danni’s profit for January?2. What would be the effect on Danni’s cash balance for January?For accounting
Consider the Smart Sports business, and for each type of account listed above write down at least one example of an item that might be included under that heading.
Table 2.3 shows the payments that Smart Sports made during the year ended 31 December 2011. Categorize each payment into capital or revenue expenses.The first two have been completed. Table 2.3 Printing machine Computer Purchases of goods for resale Accountant's fees Electricity Insurance Telephone
Danni sells drinks cans from his van in Berlin. On Monday he started the day with 30 cans in his fridge. He bought 50 more cans during the day, and he finished the day with 20 cans.1. How many cans did Danni sell on Monday?2. If Danni sells the cans for €3 and they cost him €2 each, what will
The revenue income and expenditure for Smart Sports is given in Table 2.4. From this information, prepare the income statement (Table 2.5) for the year ended 31 December 2011. Table 2.4 Revenue income Sales 51,000 Revenue expenses Purchases 34,500 Electricity 1,920 Insurance 1,750 Telephone 1,500
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