Questions and Answers of Business Accounting

The annual forecasted profit from a project is:Equipment with a four-year useful economic life and no residual value will be purchased on 1 September for £60,000. £30,000 additional working
If the interest rate is 7 per cent, what is the net present value of the net cash flows arising from the project in Question 46.4A?Data fromQuestion 46.4AThe annual forecasted profit from a project
What is the payback period on the following project cash flows? (Brackets indicate expenditure.) Year 81234 0 Net cash flows £ (15,000) 10,000 6,000 3,000 1,000
If retained, a machine would be depreciated £3,000 for each of the next five years, at which point it would be fully written-down and scrapped. The machine could be sold at any point in the next
Using a discount rate of 8 per cent, what is the net present value of the project in Question 46.7?Data from Question 46.7What is the payback period on the following project cash flows? (Brackets
What is the internal rate of return on the project in Question 46.7?Data from Question 46.7What is the payback period on the following project cash flows? (Brackets indicate expenditure.)
What is the annualised amount of the net benefits from the project in Question 46.7?Data from Question 46.7What is the payback period on the following project cash flows? (Brackets indicate
The annual profit forecast for a project is:The project requires that a new machine be purchased for £128,000. It will be depreciated using the straight line method over five years to a residual
What is the payback on a project requiring £40,000 initial investment that has a net cash inflow of £26,000 in year 1, £16,000 in year 2, and £10,000 in year 3?
Using a discount rate of 6 per cent, what is the net present value of the project in Question 46.11A?Data from Question 46.11What is the payback on a project requiring £40,000 initial investment
What is the annualised amount of the net benefits from the project in Question 46.11A?Data from Question 46.11What is the payback on a project requiring £40,000 initial investment that has a net
What is the internal rate of return on the project in Question 46.11A?Data from Question 46.11What is the payback on a project requiring £40,000 initial investment that has a net cash inflow of
Roadwheelers Ltd were considering buying an additional lorry but the company had not yet decided which particular lorry to purchase. The lorries had broadly similar technical specifications and each
Hirwaun Pig Iron Co. operate a single blast furnace producing pig iron. The present blast furnace is obsolete and the company is considering its replacement. The alternatives the company is
Moray Ferries Ltd own a single ship which provides a short sea ferry service for passengers, private vehicles and commercial traffic. The present ship is nearing the end of its useful life and the
The Rovers Football Club are languishing in the middle of the Premier Division of the Football League. The Club have suffered a loss of £200,000 in their last financial year and whilst receipts from
Compare the balanced scorecard to traditional financial-accounting-based performance measurement.
Compare and contrast the two forms of measure applied by the balanced scorecard.
What operational decisions would need to be taken in order to establish and maintain an effective stockholding and ordering system?
What is the supply chain?
In what way can distribution decisions have both a direct and indirect impact upon customer service?
What is meant by the term, ‘supply chain management’?
Why does supply chain management bring new challenges for accounting and accountants?
Why will those organisations that integrate their ERP systems with supply chain management benefit more than those that introduce only one or the other or these two concepts?
Richard Toms has agreed to purchase the business of Norman Soul with effect from 1 August 20X7. Soul’s budgeted working capital at 1 August 20X7 is as follows:In addition to paying Soul for the
What disadvantages you learnt about earlier in this book may arise if an organisation’s managers are not allowed to vary their activities from budget?
A company’s estimated pattern of costs and revenues for the first four months of 20X7 is as follows:1. One-quarter of the materials are paid for in the month of production and the remainder two
What is it that you learnt about earlier in this book which involved all the functional areas and departments across the organisation that needs to be ‘right’ if appropriate budgets are to be
F. Tain is opening his first boutique on 1 July 20X2. He is investing £30,000 as capital. His plans are as follows:(i) On 1 July 20X2 to buy and pay for premises £60,000; shop fixtures £4,000;
M. Lamb is going to set up a new business on 1 April 20X5. She estimates that her first six months in business will be as follows:(i) She will put £60,000 into a bank account for the business on 1
(a) What is meant by the terms:(i) Budget(ii) Operating budget(iii) Master budget?(b) The information below relates to the business of Madingley Ltd:The following is a schedule of the budgeted income
The following information has been extracted from the books of Issa Ltd for the financial year ended 31 December 20X0.The company had commenced the preparation of its budget for the year ending 31
The balance sheet of Pies and Cakes Ltd at 30 June 20X8 was expected to be as follows:The plans for the six months to 31 December 20X8 can be summarised as:(i) Production costs per unit will be:(ii)
The following information relates to the actual sales of Griffton Ltd during the last four months of its financial year.The budgeted information below relates to the next financial year commencing 1
Bedford Ltd is a manufacturing business with several production departments. Benjamin Kent, the manager of the machining department, submitted the following figures for the firm’s annual budget for
The summarised balance sheet of Newland Traders at 30 May 20X7 was as follows:Selling and materials prices at 30 May 20X7 provide for a gross profit at the rate of 25 per cent of sales.The creditors
Len Auck and Brian Land trade as partners in Auckland Manufacturing Company making components for minicomputers. To cope with increasing demand the partners intend to extend their manufacturing
Rimham plc prepares its budgets annually and as the accountant you are responsible for this task. The following standard data is available:Production overheads are absorbed on the direct labour hour
Think back to Activity 41.1. What message have you taken from these four statements:1. ‘Data which is provided for a particular purpose, and which is completely wrong for the purpose, is worse than
Calculate the materials variances from the following data. (i) Material A: (ii) Material B: (iii) Material C: (iv) Material D: (v) Material E: Standard price per tonne Standard usage per unit Actual
Define the terms:(i) Standard costing(ii) Standard cost(iii) Standard hours(iv) Variance
Calculate the materials variances from the following data. (i) Material T: (ii) Material U: (iii) Material V: (iv) Material W: (v) Material X: Standard price per metre Standard usage per unit Actual
When you prepare one of these variance diagrams, there are two simple rules you can use to identify the type (price or usage) and nature (favourable or adverse) of the variance. What are they?
Calculate the labour variances from the following data: Job J (ii) Job K (iii) Job L (iv) Job M (v) Job N (vi) Job O (vii) Job P (viii) Job
Calculate the labour variances from the following data: (i) Job a (ii) Job b (iii) Job c (iv) Job d (v) Job e (vi) Job
The company for which you are the accountant manufactures three related, but different, products. These are dishwashers, washing machines and refrigerators. Each product has a standard time per unit
Central Grid plc manufactures tungsten parts which pass through two processes, machining and polishing, before being transferred to finished goods. The management of the company have in operation a
Borrico Ltd manufacture a single product and they had recently introduced a system of budgeting and variance analysis. The following information is available for the month of July 20X1:Required:(a)
(a) How does a system of standard costing enable a business to operate on the principle of management by exception?(b) Some of the following materials and labour variances have been wrongly
Makers Ltd assembles computer games machines. Standard costs have been prepared as follows:The standard direct labour rate is £5 per hour.During May 20X5, 5,000 Gamesmasters were sold at £60 each
The following diagram reflects costs under a standard costing system. Assume that all the variances are unfavourable. State, with reasons, which rectangle(s) represent:(i) The standard cost(ii) The
What does this last statement remind you of from earlier chapters?
The following are the summarised balance sheets of P Ltd and S Ltd at 31 December 20X6.There were no additions or disposals of fixed assets by the group during the year.(b) P Limited acquired its
From the following balance sheets and further information you are to draw up a consolidated balance sheet as at 31 December 20X3.During the year Parent Ltd had sold to Subsidiary Ltd for £70,000 a
The revaluation upwards of the fixed assets by £2, and the consequent reduction of the goodwill figure by £2 brings the figures into line with how P views them. Where there are depreciation charges
From the following balance sheets and supplementary information you are to draw up a consolidated balance sheet as at 31 March 20X4.During the year Pop and Mom Ltd sold a fixed asset to Son Ltd. It
When Parental Times Ltd bought the shares of Siblings Ltd it valued the fixed assets at £120,000 instead of the figure of £90,000 as shown in the balance sheet of Siblings Ltd.Draw up a
When Parent Undertakings Ltd took control of Sons and Co Ltd it valued the fixed assets at 31.12.20X7 at £75,000 instead of £60,000 as shown.Draw up the consolidated balance sheet as at 31 December
From the following balance sheets, you are to draft a consolidated balance sheet for the group of Parent Ltd and its two subsidiaries, Sub 1 and Sub 2. Investment in Sub 1: 45,000 shares bought
Would P6 be considered the ultimate parent company of S12?
From the following balance sheets prepare a consolidated balance sheet for the group of Parenting Ltd, Sub A and Sub B. Parenting Ltd Balance Sheet as at 31 March 20X3 Investment in Sub A: 40,000
Why do you think wholly-owned subsidiaries are exempted from preparing consolidated financial statements?
On 1 April 20X1, Machinery Limited bought 80 per cent of the ordinary share capital of Components Limited. On 1 April 20X3, Machinery Limited was itself taken over by Sales Limited who purchased 75
Bryon Ltd has held 1,500,000 shares in Carlyle Ltd for many years. At the date of acquisition, the reserves of Carlyle Ltd amounted to £800,000. On 31 March 20X6 Carlyle Ltd bought 400,000 shares in
The following information relates to the Brodick group of companies for the year to 30 April 20X7:Additional information:(a) The issued share capital of the group was as follows:Brodick plc:
Why can’t we simply add together all of the separate profit and loss accounts to form the consolidated profit and loss account when the subsidiaries are partly owned and there are no intra-group
Why was the £2 unrealised profit in the stock held by S Ltd added to the consolidated figure for cost of sales in Working 2?
The following figures for the year to 30 April 20X6 have been extracted from the books and records of three companies which form a group:Profits are deemed to accrue evenly throughout the year.Other
You are presented with the following summarised information for Norbreck plc and its subsidiary, Bispham Ltd:Additional information:(a) Norbreck plc acquired 80 per cent of the shares in Bispham Ltd
The following are the trial balances of ATH Ltd, GLE Ltd, and FRN Ltd as at 31 December 20X8.ATH Ltd acquired the shares in FRN Ltd on 31 December 20X6, when the credit balance on the profit and loss
Explain the difference between the consolidated retained profits figure of £83 and the total of £109 found if you add together the retained profits of P2 Ltd and S2 Ltd.
Given a choice, why would most companies prefer to adopt acquisition accounting?
Relevant balance sheets as at 31 March 20X4 are set out below:You have recently been appointed chief accountant of Jasmin (Holdings) plc and are about to prepare the group balance sheet at 31 March
Why do you think this change in the definition of an associate was made?
At the end of 20X5, a parent company, P plc, with one subsidiary had a holding representing 10 per cent of the equity of R Ltd, a clothing company. It had cost £80,000 when purchased at the start of
If stock is removed from the analysis when calculating the acid test ratio, why isn’t the figure for debtors also removed? Debtors can be just as difficult to turn into cash.
Describe two ratios from each of the five groups of ratios, including how to calculate them.
What is the purpose in using each of the following ratios:(a) Current ratio(b) Net profit after tax : sales(c) Asset turnover(d) Interest cover(e) Dividend cover?
Using the following balance sheet and profit and loss accounts, calculate and comment on ten accounting ratios (ignore taxation): Fixed assets Equipment at cost Less Depreciation to date Current
A company has capital of 1 million ordinary shares of £1 each. It pays a dividend of 6 per cent out of its profits after tax of £480,000 on sales of £4 million. The market price of the shares is
The directors of L Ltd appointed a new sales manager towards the end of 20X2. This manager devised a plan to increase sales and profit by means of a reduction in selling price and extended credit
The following are extracts from the balance sheets as at 31 March 20X4 and 31 March 20X5 of Glebe Ltd:Required:(a) Calculate for each of the two years two ratios that indicate the liquidity position
J plc supplies and fits car tyres, exhaust pipes and other components. The company has branches throughout the country. Roughly 60 per cent of sales are for cash (retail sales). The remainder are
State whether you consider the following statements to be true or false:(a) The current cost of plant and machinery is likely to be its net realisable value.(b) A company should distribute dividends
Plant and machinery was purchased on 1 January 20X3 for £30,000, when the relevant specific price index was 90. What is the current cost value of the asset at 31 December 20X4 if the index at that
The plant and machinery, details of which are given in question 30.4, is depreciated on a straight line basis at 10 per cent per annum. The depreciation charge is based on year end values. What is
Calculate backlog depreciation at 31 December 20X5 for the plant and machinery whose details are given in question 30.5A.Data from Question 30.5AThe plant and machinery, details of which are given in
The historical cost of sales figure for Apple Ltd for the year ended 31 December 20X3 is calculated as follows:Price indices for stock are as follows:Required:Assuming that purchases occur evenly
A firm purchased machinery on 1 January 20X4 for £40,000, at which date the relevant price index for machinery was 100. Depreciation is charged on a straight line basis at 25 per cent per annum. The
The balance sheet of Seafield Ltd at 31 December 20X4 shows the following balances:The relevant price indices for trade debtors and trade creditors are:Required:Using the above information, calculate
If the relevant price indices for trade debtors and trade creditors are as follows, calculate the monetary working capital adjustment for Seafield Ltd, using the details given in question 30.9A.Data
The information given below has been extracted from the accounting records of Cedarwood Ltd for the year ended 30 June 20X4. Prepare a statement showing the current cost operating profit to 30 June
The balance sheet for Cremore Ltd at 31 December 20X3 is given below (£000):Required:Using the above information, calculate the gearing adjustment percentage: Plant and
The following information has been extracted from the accounting records of Sycamore Ltd for the year ended 30 June 20X3.Required:Prepare a current cost profit and loss account for Sycamore Ltd for
How would you value employee loyalty?
Describe how an increase in gross national product may not have a positive effect on the well-being of the country.
Why is an ongoing information system required in order to do this?
What types of measure could be used to measure social well-being? What difficulties would be discovered in trying to use accounting in measuring these?
What aspects of an organisation’s activities could be measured in a social audit?
Describe how there could be conflicts between short-term and long-term benefits.

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