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financial accounting for decision makers

Questions and Answers of Financial Accounting For Decision Makers

4.8 Rose Limited operates a small chain of retail shops that sell high-quality teas and coffees.Approximately half of sales are on credit. Abbreviated and unaudited financial statements are as
4.7 Presented below is a draft set of financial statements for Chips Limited.The following additional information is available:1 Purchase invoices for goods received on 29 June 2016 amounting to
3.4 Fill in the values (a) to (f) in the following table on the assumption that there were no opening balances involved. Relating to period Paid/Received Expense/revenue for period At end of period
2.8 The statement of financial position of a business at the start of the week is as follows:During the week the following transactions took place:(a) Sold inventories for £11,000 cash; these
12.4 The board of directors of a listed company is likely to place considerable emphasis on maintaining good communications and strong relationships with its institutional shareholders.What are the
12.3 Reviewing the risk management systems within a company goes beyond the traditional role of internal audit. What changes may have to be made to the internal audit function to enable it to carry
12.2 Assume that the chairman of the board of directors of a large public listed company has asked you to develop a set of criteria against which the performance of a non-executive director could be
12.1 Identify four ways in which the independence of an auditor of a large listed company may be strengthened.
12.4 Why have institutional shareholders become more active in corporate governance issues in recent years?
12.3 A large public company wishes to improve its payroll accounting systems and is seeking outside help to do this. The external auditors of the company are a large firm of accountants that has a
12.2 What are the benefits of separating the roles of chairman and chief executive?
12.1 What are the main tasks of the board of directors?
■ discuss the importance of shareholder involvement in the corporate governance process and outline the different forms of shareholder involvement that may be found.
■ explain the main issues and problems associated with the remuneration of directors;
■ describe the audit process and the contribution of the key players to this process;
■ explain the role and composition of the board of directors and discuss the main issues surrounding the roles of chairman and non-executive director;
■ discuss the need for corporate governance rules and the principles upon which these rules are based;
11.6 Segmental information relating to Dali plc for the year to 31 December 2015 is shown below.Car parts Aircraft parts Boat parts Total £m £m £m £m Revenues from external customers 360 210 85
11.5 Refer to your answer to Exercise 11.4 above. Calculate ratios that you believe could be used to interpret the VAS for Buttons Ltd. Explain the purpose of each ratio.
11.4 The following information has been taken from the accounts of Buttons Ltd for the year ended 30 September.£Revenue 950,000 Materials (220,000)Wages and salaries (160,000)Other expenses
11.3 What problems are likely to be encountered when preparing summary financial statements for shareholders?
11.2 ‘The value added statement simply rearranges information contained within the conventional income statement. As a result it is of little value to users.’ Discuss the validity of this
11.1 It has been suggested that too much information might be as bad as too little information for users of annual reports. Explain.
11.4 What problems does a user of segmental financial statements face when seeking to make comparisons between businesses?
11.3 Can you think of any drawbacks in providing interim financial statements for users?
11.2 ‘CCA is not a method of accounting for inflation. There is really only one method and that is CPP.’ What might be the justification for such a statement?
11.1 ‘Including a VAS as part of the annual financial reports will undermine their credibility.’What might be the basis for such criticism and do you think that it is valid?
■ describe the impact of inflation on the measurement of financial position and performance and outline the two main approaches to dealing with inflation in financial statements.
■ explain the purpose of the value added statement and prepare a simple value added statement from available information;
■ discuss the role of interim financial statements and outline the key measurement and reporting requirements of IAS 34;
■ set out the advantages and disadvantages of publishing summary financial statements;
■ explain the purpose of segmental reports and describe their main features;
10.8 The statements of financial position for Maxi Ltd and Mini Ltd are set out below.Statements of financial position as at 31 March this year Maxi Ltd Mini Ltd £000 £000 ASSETS Non-current assets
10.7 A year ago Pod Ltd bought 225,000 £1 fully paid ordinary shares of Pea Ltd for a consideration of £500,000. Pea Ltd’s share capital and share premium were each the same as at today’s date.
10.6 Abridged financial statements for Harvest Limited and Wheat Limited as at 30 June this year are set out below. On 1 July last year Harvest Limited acquired 800,000 ordinary shares in Wheat
10.4 The statements of financial position of Jumbo plc and of Nipper plc, on the date that Jumbo plc bought the shares in Nipper plc, were as follows:Statements of financial position as at 31 March
10.3 Giant plc bought a majority shareholding in Jack Ltd, on 31 March. On that date the statements of financial position of the two companies were as follows:Statements of financial position as at
10.2 Arnold plc owns 75 per cent of the ordinary shares of Baker plc. The outline income statements of the two companies for the year ended on 31 December are as follows:Income statements for the
10.1 An abridged set of consolidated financial statements for Toggles plc is given below.Toggles plc Consolidated income statement for the year ended 30 June £m Revenue 172.0 Profit before taxation
10.4 What is an associate company and how should an associate company be recognised in the financial statements of a group of companies?
10.3 Quite often, when an existing company wishes to start a new venture, perhaps to produce a new product or render a new service, it will form a subsidiary company as a vehicle for the new venture.
10.2 What does a group statement of financial position show?
10.1 When does a group relationship arise and what are its consequences for accounting?
■ explain and interpret the contents of a set of group financial statements.
■ explain the nature of associate company status and its accounting implications;
■ prepare a group statement of financial position and income statement;
■ discuss the nature of groups, and explain why they exist and how they are formed;
9.8 Genesis Ltd was incorporated three years ago and has grown rapidly since then. The rapid rate of growth has created problems for the business, which the directors have found difficult to deal
9.7 The following is the statement of financial position (in abbreviated form) of Projections Ltd as at the end of this year:Statement of financial position as at 31 December£000 ASSETS Non-current
9.5 One of the main suppliers to your business is Green Ltd, a family-owned business. It is the only available supplier of certain products and your business buys 60 per cent of Green Ltd’s output.
9.4 Diversified Industries plc (DI) is a business that has interests in engineering, caravan manufacturing and a chain of shops selling car accessories. DI has recently been approached by the
9.3 Ali plc and Bhaskar plc both operate electrical stores throughout the UK. The financial statements of each business for the year ended 30 June 2016 are as follows:Statements of financial position
9.2 Telford Industrial Services plc is a medium-sized business. Extracts from the business’s financial statements appear below.Summary of statements of financial position at 31 December 2012 2013
9.1 At the close of share trading on 24 April 2015, investment ratios for Next plc, the UK fashion and home furnishings retailer, and the averages for the ‘general retailers’ section, were as
9.4 Identify and discuss three ratios that are likely to be affected by a business overtrading.
9.3 Identify and discuss three reasons why the P/E ratio of two businesses operating within the same industry may differ.
9.2 Identify and discuss three factors that might influence the level of dividend per share a company decides to pay.
9.1 What potential problems arise particularly for the external analyst from the use of statement of financial position figures in the calculation of financial ratios?
■ evaluate the use of ratios in helping to predict financial failure;
■ prepare and interpret common-size financial statements;
■ calculate and interpret key investment ratios;
8.8 The financial statements for Harridges Ltd are given below for the two years ended 30 June 2014 and 2015. Harridges Limited operates a store in the centre of a small town.Income statements for
8.7 Bradbury Ltd is a family-owned clothes manufacturer. For a number of years the chairman and managing director was David Bradbury. During his period of office, sales revenue had grown steadily at
8.6 Threads Limited manufactures nuts and bolts, which are sold to industrial users. The abbreviated financial statements for 2015 and 2016 are as follows:Income statements for the year ended 30 June
8.5 Conday and Co. Ltd has been in operation for three years and produces antique reproduction furniture for the export market. The most recent set of financial statements for the business is set out
8.4 The directors of Helena Beauty Products Ltd have been presented with the following abridged financial statements:Helena Beauty Products Ltd Income statement for the year ended 30 September 2014
8.3 Amsterdam Ltd and Berlin Ltd are both engaged in retailing, but they seem to take a different approach to it according to the following information:Ratio Amsterdam Ltd Berlin Ltd Return on
8.2 I. Jiang (Western) Ltd has recently produced its financial statements for the current year.The directors are concerned that the return on capital employed (ROCE) has decreased from 14 per cent
8.1 Set out below are ratios relating to three different businesses. Each business operates within a different industrial sector.Ratio A plc B plc C plc Operating profit margin 3.6% 9.7% 6.8%Sales to
8.4 In the chapter, it was mentioned that ratios help to eliminate some of the problems of comparing businesses of different sizes. Does this mean that size is irrelevant when interpreting and
8.3 Two businesses operate in the same industry. One has an inventories turnover period that is longer than the industry average. The other has an inventories turnover period that is shorter than the
8.2 For the current year, the average settlement period for trade receivables at Arkle plc was 60 days. This figure is much higher than in previous years. What factors may have contributed to this
8.1 Some businesses (for example, supermarket chains) operate on a low operating profit margin. Does this mean that the return on capital employed from the business will also be low?
■ calculate key ratios for assessing the profitability, efficiency, liquidity and gearing of a business;
■ explain how ratios can be used to assess the position, performance and cash flows of a business;
7.5 The draft income statement for the most recent reporting period of Barchester United Football Club plc has reported a profit before tax of £48.8 million. An examination of the underlying
7.4 Darco Instruments plc took out a finance lease for new plant on 1 June 2015. The lease period is four years and annual lease payments, which are payable in arrears, are for £3 million per year.
7.3 Consider the following:1 Under new legislation, a retail business will be obliged to fit handrails to the staircases used in its stores. The law will come into force six months after the end of
7.2 On 1 January 2016, Markon plc took out a finance lease for new plant. Details of the lease are as follows:The business has a reporting-year-end date of 31 December. The minimum lease payments are
3 An airline company has just commenced operations and has acquired three new aircraft.The law requires that these aircraft be subject to a rigorous overhaul after two years of flying.For which of
2 A cruise ship suffered an outbreak of food poisoning that affected most of its passengers.Legal proceedings have been brought against the cruise ship company and a court case has just commenced.
7.1 Consider the following:1 A motor car manufacturer offers a three-year warranty on all cars that it produces. The warranty undertakes to make good any defects arising from the manufacturing
7.4 In the past, finance lease payments were treated as an expense in the period incurred.Critics claimed, however, that this treatment could be used for creative accounting purposes.Explain how this
7.3 ‘The treatment of research and development expenditure set out in IAS 38 Intangible Assets reflects the tension between the prudence convention and the accruals convention in accounting.’
7.2 What is a contingent liability? What are the key differences between a contingent liability and a provision?
7.1 What is a contingent asset? How do the disclosure requirements for a contingent asset differ from those for a contingent liability?
■ explain the circumstances under which borrowing costs may be capitalised.
■ distinguish between a finance lease and an operating lease and describe their treatment in the financial statements;
■ discuss the main recognition criteria and reporting requirements for internally-generated intangible assets;
■ discuss the main recognition criteria for provisions, contingent liabilities and contingent assets and explain the main reporting requirements for each;
6.8 The statements of financial position of Axis plc as at 31 December 2014 and 2015 and the income statement for the year ended 31 December 2015 were as follows:Statements of financial position as
6.7 Simplified financial statements for York plc are:Income statement for the year ended 30 September 2015£m Revenue 290.0 Cost of sales (215.0)Gross profit 75.0 Operating expenses (Note 1)
6.6 The following financial statements for Blackstone plc are a slightly simplified set of published accounts. Blackstone plc is an engineering business that developed a new range of products in
6.5 The following are the financial statements for Nailsea plc for the years ended 30 June 2014 and 2015:Income statement for years ended 30 June 2014 2015 £m £m Revenue 1,230 2,280 Operating
6.4 Chen plc’s income statements for the years ended 31 December 2014 and 2015 and the statements of financial position as at 31 December 2014 and 2015 are as follows:Income statements for the
6.3 Torrent plc’s income statement for the year ended 31 December 2015 and the statements of financial position as at 31 December 2014 and 2015 are as follows:Income statement for the year ended 31
6.2 The following information has been taken from the financial statements of Juno plc for last year and the year before last:Year before last Last year £m £m Operating profit 156 187 Depreciation
6.1 How will each of the following events ultimately affect the amount of cash?(a) An increase in the level of inventories(b) A rights issue of ordinary shares(c) A bonus issue of ordinary shares(d)
6.4 What causes the profit for the reporting period not to equal the net cash inflow?
6.3 Taking each of the categories of the statement of cash flows in turn, in which direction would you normally expect the cash flow to be? Explain your answer.(a) Cash flows from operating

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