Questions and Answers of Business Accounting

A company’s balance sheet appears as follows:Required:(a) If £6,000 of the ordinary shares were purchased at par, there being no new issue of shares for the purpose, show the journal entries to
Some years ago M plc had issued £375,000 of 10 per cent debentures 20X6/20X0 at par. The terms of the issue allow the company the right to repurchase these debentures for cancellation at or below
Debentures of £30,000 are issued on 1 January 20X3. Redemption is to take place, on equal terms, four years later. The company decides to put aside an equal amount to be invested at 5 per cent which
The following information relates to White Rabbit Trading plc:On 1 February 20X7 the company closed the list of applications for 400,000 ordinary shares at a premium of 50p. The shares were to be
Alas plc has an authorised share capital of 150,000 ordinary shares of £10 each. Upon incorporation, 50,000 shares were issued and fully paid. The company has decided to issue another 50,000 shares,
During the year to 30 September 20X9, Popham plc issued 100,000 £1 ordinary shares. The terms of the offer were as follows:Applications were received for 200,000 shares. The directors decided to
On 30 June 20X4 Smith and Sons Ltd acquired all the assets, except the investments, of Firefly Ltd.The following are the summaries of the profit and loss account of Firefly Ltd for the years ending
Chess Ltd was incorporated on 1 September 20X4 and took over the business of Red and Green on 1 June 20X4. It was agreed that all profits made from 1 June should belong to the company and that the
CJK Ltd was incorporated on 15 December 20X9 with an authorised capital of 200,000 ordinary shares of £0.20 each to acquire as at 31 December 20X9 the business of CK, a sole trader, and RP Ltd, a
The following information relates to Grigg plc:1. On 1 April 20X8 the company had £100,000 10 per cent debentures in issue. The interest on these debentures is paid on 30 September and 31 March.2.
The balance sheet of Hubble Ltd as at 31 May 20X0 is shown below.Hubble Ltd agreed to purchase at this date the freehold premises, plant and machinery and stock of A Bubble at agreed valuations of
Why do you think the amount paid for a business may be different from the total value of its net assets as shown in its financial statements?
Rowlock Ltd was incorporated on 1 October 20X8 to acquire Rowlock’s mail order business, with effect from 1 June 20X8.The purchase consideration was agreed at £35,000 to be satisfied by the issue
From the following information you are required to prepare a statement apportioning the unappropriated profit between the pre-incorporation and post-incorporation periods, showing the basis of
The following information relates to Kemp plc for the year to 31 March 20X9:Required:Write up the following accounts for the year to 31 March 20X9, being careful to insert the appropriate date for
The following figures appeared in W Ltd’s balance sheet at 31 March 20X2:During the year ended 31 March 20X3, W Ltd made a payment of £520,000 to the Collector of Taxes in settlement of the
Camden Lock Ltd has just finished its first year of trading to 31 December 20X6. Corporation tax throughout was 40 per cent and income tax 20 per cent. You are given the following information:(i) Net
Why do you think the rules for capital allowances are different from the rules for depreciation?
In this example, taxable profits were higher than the net profit. Yet, over the life of a fixed asset, the amount of profit assessed in total for tax will always equal the total net profit for that
If a sole trader has the same net profit each year as is earned by a small company, all other things being equal, which business will show the greater accumulated profits if(a) The sole trader pays
Corporation tax for the tax years 20X7, 20X8, and 20X9 was 40 per cent and income tax for each year was 20 per cent.(A) Skim Ltd’s draft profit and loss account for the year ended 31 December 20X8
Why do you think the depreciation is £925 per year?
Joytan Ltd has a trading profit, before dealing with any of the undermentioned items, for the year ended 31 December 20X4 of £500,000. Prepare the profit and loss account for the year.(a) The
Sunset Ltd has an operating profit for the year ended 31 December 20X2, before dealing with the following items, of £150,000. Complete the profit and loss account.(a) The standard rate of income tax
An extract from the draft accounts of Either Ltd at 30 November 20X5 shows the following figures before allowing for any dividend which might be proposed:Additional information includes:(i) The
Deflation Ltd, which had experienced trading difficulties, decided to reorganise its finances. On 31 December 20X5 a final trial balance extracted from the books showed the following
The Merton Manufacturing Co Ltd has been in business for many years making fitted furniture and chairs. During 20X4 and 20X5 substantial losses have been sustained on the manufacture of chairs and
Why do you think special revenue reserves are used, rather than simply leaving everything in the profit and loss account (which is, itself, a revenue reserve)?
On 31 March 20X2, the following was the balance sheet of Quality Yarns Ltd.The following scheme of capital reduction was sanctioned by the Court and agreed by the shareholders:(a) Preference shares
Why do you think a company would wish to change its share capital?
In terms of the amount of working capital, what is the difference between doing this and leaving the amount transferred in profit and loss?
The balance sheet of Tatters Ltd on 31 December 20X8 was as follows:The dividend on the preference shares is £12,000 in arrears. A scheme of reconstruction was accepted by all parties and was
The directors are preparing the published accounts of Dorman plc for the year to 31 October 20X5. The following information is provided for certain of the items which are to be included in the final
The ledger balances of Tick Tick Ltd at 31 March 20X1 were as follows:A capital reduction scheme has been sanctioned under which the 250,000 preference shares are to be reduced to 80p each, fully
Why do you think there is such an emphasis on the ‘qualitative’ aspects of information in the Statement of Principles?
Why do you think this switch in the UK and Ireland towards international accounting standards has occurred?
In preparing the published financial statements of a company, briefly state the significant accounting/disclosure requirements you would have in mind in ensuring that the financial statements comply
Oldfield Enterprises Limited was formed on 1 January 20X5 to manufacture and sell a new type of lawn mower. The bookkeeping staff of the company have produced monthly figures for the first ten months
The chief accountant of Uncertain Ltd is not sure of the appropriate accounting treatment for a number of events occurring during the year 20X5/6.(i) A significant number of employees have been made
The accountant of Hook, Line and Sinker, a partnership of seven people, has asked your advice in dealing with the following items in the partnership accounts for the year to 31 May 20X7.(a) (i)
From the following selected balances of Filo plc as at 31 March 20X5 draw up (i) a detailed trading and profit and loss account for internal use, and (ii) a profit and loss account for
The following information has been extracted from the books of account of Rufford plc for the year to 31 March 20X6:Additional information:3. There was an overprovision for corporation tax of £3,000
The following balances have been extracted from the books of Mitchell plc on 31 July 20X2. From them draw up (i) a detailed trading and profit and loss account for internal use, for the year ended 31
From the following selected balances of State plc as at 31 December 20X8, prepare (i) A detailed trading and profit and loss account for the year ended 31 December 20X8 for internal use and (ii) A
Fresno Group plc have prepared their financial statements for the year ended 31 January 20X4. However, the financial accountant of Fresno Group plc had difficulty in preparing the statements required
Bunker plc is a trading company; it does not carry out any manufacturing operations. The following information has been extracted from the books of account for the year to 31 March 20X0:Additional
What do you think these advantages may be?
The reason for taking this approach ought to be fairly obvious. What do you think it is?
Why would most companies not want to publish detailed financial statements?
The following balances remained in the books of Polk Ltd on 31 March 20X4, after the profit and loss account and appropriation account had been drawn up. You are to draft the balance sheet as at 31
The following trial balance has been extracted from the books of Baganza plc as at 30 September 20X7:Additional information:1. The stock at 30 September 20X7 was valued at £3,600,000.2. Depreciation
Why do you think dividends of this kind must be shown separately?
After the profit and loss appropriation account has been prepared for the year ended 30 April 20X7, the following balances remain in the books of Tickers plc. Prepare up a balance sheet in accordance
The trial balance of Jeremina plc as at 31 March 20X2 is as follows:Notes:(i) Stock of finished goods on 31 March 20X2 £163,000.(ii) Motor expenses and depreciation on motors to be apportioned:
Why do you think these small companies are exempted from having their financial statements audited?
You are presented with the following information relating to Plott plc for the year to 31 March 20X1:Additional information:1. The above information has been obtained after the compilation of the
Why do you think companies are allowed to send their shareholders summary financial statements rather than the full statements?
The following information has been extracted from the books of Quire plc as at 30 September 20X1.The following additional information is to be taken into account:1. Stocks at 30 September 20X1 were
The following trial balance has been extracted from the books of Patt plc as at 31 March 20X0:Additional information:1. Following the preparation of the above trial balance, the following additional
Why do you think these notes are required rather than leaving it up to companies to provide the information they believe to be worthwhile including?
The following information has been extracted from the books of account of Billinge plc as at 30 June 20X6:Additional information:1. The company was incorporated in 20X0.2. The stock at 30 June 20X6
Cosnett Ltd is a company principally involved in the manufacture of aluminium accessories for camping enthusiasts. Its trial balance at 30 September 20X5 was:You are provided with the following
The following trial balance has been extracted from the books of Arran plc as at 31 March 20X7:Additional information:1. Stocks at 31 March 20X7 were valued at £150,000.2. Depreciation for the year
The following trial balance has been extracted from the books of account of Greet plc as at 31 March 20X8Additional information:1. Stock at 31 March 20X8 was valued at £150,000.2. The following
The accountant of Scampion plc, a retailing company listed on the London Stock Exchange, has produced the following draft financial statements for the company for the year to 31 May 20X7.You discover
The Companies Acts and accounting standards require a great deal of information to be disclosed in a company’s annual report and accounts.Required:List the disclosure requirements for the following
Imagine you are running a business and you have £500,000 that you won’t need for three months. How will you invest it?
(a) List the nine headings in the cash flow statement, as required by FRS 1.Data from FRS 1Cash flows relating to items classed as exceptional or extraordinary in the profit and loss account should
Why do you think that such items not affecting cash flows should still be reported in a note?
Give an example of the information to be included under each of the headings in an FRS 1-based cash flow statement and indicate why this information might be useful.Data from FRS 1Cash flows relating
When the items needed for the additional information required by the direct method are so easy to identify from the Cash Book, why do you think most companies prefer to use the indirect method?
Prepare a cash flow statement for Lee Ltd for the year ended 31 December 20X4 as required under FRS 1 using the direct method, together with note 1 to the statement. The profit and loss account,
Repeat Question 14.3, this time using the direct method prepare a cash flow statement following the requirements of IAS 7.DATA FROM Question 14.3Prepare a cash flow statement for Lee Ltd for the year
The balance sheets and additional information relating to Pennylane Ltd are given below. Prepare a cash flow statement for Pennylane Ltd for the year ended 31 December 20X3 as required under FRS 1
Repeat question 14.5A, this time following the requirements of IAS 7.Data from Question 14.5AThe balance sheets and additional information relating to Pennylane Ltd are given below. Prepare a cash
The following information has been extracted from the books of Nimmo Limited for the year to 31 December 20X9:Additional information:1. The directors are extremely concerned about the large bank
The following summarised balance sheets relate to Track Limited:Additional information:1. During the year to 30 June 20X1, some fixed assets originally costing £25,000 had been sold for £20,000 in
You are presented with the following summarised information relating to Ward plc:Notes:1. The taxation charge in the profit and loss account includes the following items:2. During the year to 30 June
The accountant of a private company has been able to get the use of a computer to produce the spreadsheets shown below but as yet the computer lacks a program to print out final accounts. The
You are presented with the following forecast information relating to Baker Limited for the nine months to 30 September 20X7. Forecast profit and loss accounts (abridged) for the three quarters to
The following information has been extracted from the draft financial information of V Ltd:(a) You are required to prepare a cash flow statement for V Ltd for the year ended 31 December 20X3 in
The financial statements of Arms Ltd are made up to 31 March in each year. Work on a certain contract started on 1 July 20X6 and completed on 31 January 20X8. The total contract price was £360,000,
As each contract has or will have a unique flow of revenue, it makes sound business sense to know the profit or loss it generates. Hence the use of individual contract accounts. When financial
Stannard and Sykes Ltd are contractors for the construction of a pier for the Seafront Development Corporation. The value of the contract is £300,000, and payment is by engineer’s certificate
What is the profit to date on Contract 44?
Cantilever Ltd was awarded a contract to build an office block in London and work commenced at the site on 1 May 20X5.During the period to 28 February 20X6, the expenditure on the contract was as
You are required to prepare the contract account for the year ended 31 December 20X0, and show the calculation of the sum to be credited to the profit and loss account for that year. On 1 April 20X0
Why do you think preference shareholders do not have the same voting rights as ordinary shareholders?
What determines whether or not one company is a subsidiary undertaking of another company?
How are incorporated businesses affected by the provisions of FRS 2?
What benefits accrue to the investor in a parent undertaking by the use of consolidated financial statements?
How did FRS 2 change the way in which consolidated financial statements should be drawn up?
Why do you think the directors’ report is audited?
The following trial balance of X Limited, a non-listed company, has been extracted from the books after the preparation of the profit and loss and appropriation accounts for the year ended 31 March
OTL Ltd commenced business on 1 January 2017. The head office is in London and there is a branch in Highland. The currency of Highland is the crown. The following are the trial balances of the head
EG Company Limited, a manufacturing business, exports some of its products through an overseas branch whose currency is ‘florins’, which carries out the final assembly operations before selling
Star Stores has its head office and main store in Crewe, and a branch store in Leek. All goods are purchased by the head office. Goods are invoiced to the branch at cost price plus a profit loading
Nion is a retail goods outlet operating from a head office in London and a branch in Brighton. The following trial balances have been extracted from the books of account as at 31 October
LR, a trader, commenced business on 1 January 2016, with a head office and one branch. All goods were purchased by the head office and goods sent to the branch were invoiced at a fixed selling price
Packer and Stringer were in partnership as retail traders sharing profits and losses: Packer 3/4, Stringer 1/4. The partners were credited annually with interest at the rate of 6% per annum on their

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