Questions and Answers of Financial Accounting For Decision Makers

Singh Enterprises, which started business on 1 January 2019, has a reporting period to 31 December and uses the straight-line method of depreciation. On 1 January 2019, the business bought a machine
The following is the income statement for Nikov and Co. for the year ended 31 December 2021, along with information relating to the preceding year.Required:Analyse the performance of the business for
Iqbal Ltd started trading on 1 July 2016. During the first five years of trading, the following occurred:Required:Assume that the company paid the maximum legal dividend each year. Under normal
Manet plc had the following share capital and reserves as at 1 June 2020:During the year to 31 May 2021, the company revalued property, plant and equipment upwards by £30 million and made a loss on
Torrent plc’s income statement for the year ended 31 December 2021 and the statements of financial position as at 31 December 2020 and 2021 are as follows:During 2021, the business spent £67
Chen plc’s income statements for the years ended 31 December 2020 and 2021 and the statements of financial position as at 31 December 2020 and 2021 are as follows:Included in ‘cost of sales’,
The following are the financial statements for Nailsea plc for the years ended 30 June 2020 and 2021There were no disposals of non-current assets in either year. Dividends were paid in 2020 and 2021
The statements of financial position of Axis plc as at 31 December 2020 and 2021 and the income statement for the year ended 31 December 2021 were as follows:1 During the year, plant (a non-current
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 process.
On 1 January 2022, 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 non-cancellable part of the
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 its
The financial statements for Harridges Ltd are given below for the two years ended 30 June 2020 and 2021. Harridges Limited operates a department store in the centre of a small town.Dividends were
Identify and discuss three ratios that are likely to be affected by a business overtrading.
At the close of share trading on 12 February 2021, investment ratios for Next plc, the UK fashion and textiles retailer, and the averages for the ‘general retailers’ section, were as follows:
Ali plc and Bhaskar plc both operate electrical stores throughout the UK. The financial statements of each business for the year ended 30 June 2021 are as follows:Ali plc paid a dividend of £135
As with many businesses, Marks and Spencer plc (M&S), the retailer, has identified a number of key performance indicators (KPIs). Typical of such businesses, M&S publishes the results for
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. In
Alice 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 followsRequired:Prepare the consolidated
Segmental information relating to Dali plc for the year to 31 December 2021 is shown below:Required:Analyse the performance of each of the three main business segments for the year and comment on
Segmental information relating to Turner plc for the year to 30 April 2021 is shown below:Required:Analyse the performance of each of the three main business segments for the year and comment on your
A large listed business wishes to improve its payroll accounting systems and is seeking outside help to do this. The external auditors are a large firm of accountants that has a consultancy arm. What
Identify five ways in which the independence of an auditor of a large listed company may be strengthened.Intermediate-level exercises
Accounting is sometimes described as ‘the language of business’. Why do you think this is the case? Is this an apt description of accounting?
The following is the statement of financial position of WW Associates as at 31 December 2017:1. The owners withdrew £23,000 of equity in cash.2. Premises were rented at an annual rental of £20,000.
‘Not-for-profit organisations are not interested in making a profit.’ Is this statement true? Does accounting and finance have a less important role to play in not-for-profit organisations than
The following is the income statement for Nikov and Co. for the year ended 31 December 2018, along with information relating to the preceding year.Required:Analyse the performance of the business for
While on holiday, Helen had her credit cards and purse stolen from the beach while she was swimming. She was left with only £40, which she had kept in her hotel room, but she had three days of her
The following is a draft set of simplified financial statements for Pear Limited for the year ended 30 September 2018:The following information is available:1. Depreciation has not been charged on
Rose Limited is a wholesaler and retailer of high-quality teas and coffees. Approximately half of sales are on credit. Abbreviated and unaudited financial statements are as follows:Since the
Iqbal Ltd started trading on 1 July 2013. During the first five years of trading, the following occurred:Required:Assume that the company paid the maximum legal dividend each year. Under normal
‘For a capital market to be efficient requires that there are certain individuals that have superior powers of prediction.’ Is this statement true?
Issues of new preference shares are extremely rare these days. Suggest reasons why this is the case.
The following information was extracted from the financial statements of I. Ching (Booksellers) plc for the year to 31 May 2018:Required:Prepare a statement of comprehensive income for the year ended
Chen plc’s income statements for the years ended 31 December 2017 and 2018 and the statements of financial position as at 31 December 2017 and 2018 are as follows:Included in ‘cost of sales’,
What are the potential benefits arising from developing a conceptual framework for accounting? What are the possible drawbacks?
Manet plc had the following share capital and reserves as at 1 June 2017:During the year to 31 May 2018, the company revalued property, plant and equipment upwards by £30 million and made a loss on
Torrent plc’s income statement for the year ended 31 December 2018 and the statements of financial position as at 31 December 2017 and 2018 are as follows:During 2018, the business spent £67
The following are the financial statements for Nailsea plc for the years ended 30 June 2017 and 2018:There were no disposals of non-current assets in either year. Dividends were paid in 2017 and 2018
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 2013.
What is the difference between the direct and indirect methods of deducing cash generated from operations? Can you see an advantage of using the indirect method rather than the direct method from the
IAS 7 carefully defines cash (and cash equivalents). Can you explain why the authors of this standard were so careful and precise in their definition?
The statements of financial position of Axis plc as at 31 December 2017 and 2018 and the income statement for the year ended 31 December 2018 were as follows:Notes:1. During the year, plant (a
The threshold for disclosure for contingent assets differs from that for contingent liabilities. Why is this the case? Can you see a problem with this difference in thresholds in the context of a
On 1 January 2019, 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 non-cancellable part of the
A provision is recognised when it is more likely than not (greater than 50 per cent chance) that an outflow of economic benefits will be needed to satisfy the obligation. This threshold established
‘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.’ Explain.
Ondamin plc produced a draft income statement that revealed a profit before tax of £65.5million. Subsequent checking of the underlying records revealed the following:1. A licence costing £10
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 records,
In the past, operating 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
Threads Limited manufactures nuts and bolts, which are sold to industrial users. The abbreviated financial statements for 2017 and 2018 are as follows:Dividends were paid on ordinary shares of
Broadbury Ltd is a family-owned clothes manufacturer. For a number of years the chairman and managing director was David Broadbury. During his period of office, sales revenue had grown steadily at a
The financial statements for Harridges Ltd are given below for the two years ended 30 June 2017 and 2018. Harridges Limited operates a department store in the centre of a small town.Dividends were
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 change
At the close of share trading on 19 February 2018, investment ratios for Next plc, the UK fashion and textiles retailer, and the averages for the ‘general retailers’ section, were as
Why might a business prefer not to have its Z-score made public?
Delta plc is a listed business in the ‘general retailers’ section of the market. Its most recent income statement and statement of financial position are outlined as follows:A dividend totalling
Ali plc and Bhaskar plc both operate electrical stores throughout the UK. The financial statements of each business for the year ended 30 June 2018 are as follows:Ali plc paid a dividend of £135
Real World 9.3 shows that the average dividend yield for businesses in electricity supply is nearly four times that of businesses in the industrial engineering sector. Why might this be the case?
SeaSwift plc builds luxury yachts for the international market. The most recently published income statement and statement of financial position are set out below. Since the business builds the
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 with.
As with many businesses, Marks and Spencer plc (M&S), the retailer, has identified a number of key performance indicators (KPIs). Typical of such businesses, M&S publishes the results for
Why is the amount for ‘non-controlling interests’ recalculated each time we prepare a statement of financial position, but ‘goodwill arising on consolidation’ is calculated just once?
There are two different approaches to calculating goodwill arising on consolidation. What factors might influence a particular company to choose one basis rather than another?
Segmental information relating to Dali plc for the year to 31 December 2018 is shown below:Required:Analyse the performance of each of the three main business segments for the year and comment on
Segmental information relating to Turner plc for the year to 30 April 2018 is shown below:Required:Analyse the performance of each of the three main business segments for the year and comment on your
An associate company is one over which the investing company has sufficient shares to enable it to exercise significant influence, but not control. Sufficient shares, in this context, is defined as
Assume that you have been asked by the chair of a large listed business to prepare a report highlighting the main areas to be used as a basis for evaluating the performance of the chief executive.
What are the benefits of separating the roles of chair and chief executive? Should such a separation be made compulsory?
A large listed business has become the target of a shareholder activist. What steps should the board of directors take in response to this event?