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financial accounting

Questions and Answers of Financial Accounting

The expired cost with respect to a fixed asset is referred to as ______ expense.
Chinku was looking into the microfinance companies based in India. He came across, India’s biggest firm, SKS Microfinance Limited. The firm was registered as a non-banking finance company (NBFC)
You are being given the balance sheets of two well-known companies, namely, Bank of India Limited (BOI) and Reliance Industries Limited (RIL). The first one is a large state-owned bank, the other is
State whether the following statement are True or False:An increase in an asset always results in an increase in the owners’ equity.
If Prayag International Ltd. is an all equity company it will definitely mean that:(a) The current liabilities are greater than the current assets(b) Fixed assets + Working Capital = Owners’
The expiration of the cost of intangible assets is referred to as ______.
Rearrange the following current assets in order of liquidity:(a) Bank balance(b) Bills receivable(c) Cash in hand(d) Insurance prepaid(e) Loans & advances(f) Marketable securities(g)
I own a business entity, named I am a Business Man i.e., IBM. At the end of accounting year, IBM has a cash balance equal to ₹XXXXXXXX.7 Half of the cash has been kept aside for buying brands. The
In the following pages, you are being given the balance sheets of four different companies for the last two years. Please note that all the figures are in ₹ crore. Further, figures mentioned in
State whether the following statement are True or False:An increase in the assets could be equated by an increase in the liabilities.
If it was known that capital expenditures are for fixed assets (either tangible or intangible) that are by default expected to be productive assets in the long run such as leasehold land
As part of his regular business, Jheel went in for the transactions mentioned below (during the day). Fill in the blanks by indicating the direction of the change in the empty columns below (i.e.,
Start your own business with 20 different transactions. Prepare a position statement after every transaction. Did your firm earn profits or made a loss at the end of all the transactions. Make a
Big Toys Ltd. provides you with the following information relating to the financial year ending on March 31, 20X7. Prepare its balance sheet in the vertical form as at March 31, 20X7.Depreciation for
Raghav Bahl was the founding/Controlling Shareholder & Managing Director of the Network18 group until it was taken over by the Reliance group in 2014. Thus, his baby, Television Eighteen India
State whether the following statement are True or False:Losses result in an increase in the owner(s) equity.
State whether the following statement are True or False:Some companies, instead of having cash on their balance sheet, have a line of credit or bank indebtedness (i.e., negative balance in their bank
State whether the following statement are True or False:If Ms. Malini Parmar was going to buy the assets of a company, the price that he would pay for the assets is their net book value, as shown on
State whether the following statement are True or False:“Loans and advances”, a part of Current Assets, will not include advance to suppliers and vendors.
Ram decides to start a business in the local vegetable market of Jamshedpur. The case below is completely based on your roll number (Z being the last three digits of your roll number) and day of
State whether the following statement are True or False:All assets in the balance sheet are valued at their realizable value.
State whether the following statement are True or False:Inventories would include packaging material.
State whether the following statement are True or False:We cannot have long-term borrowings above the ‘historical price’ of the entities fixed assets.
State whether the following statement are True or False:The material effect of amortization and depreciation is almost the same.
State whether the following statement are True or False:Patents and copyrights in a balance sheet are typically examples of acquired fixed assets.
State whether the following statement are True or False:Current assets are liquid assets and will be converted to cash within one year or one operating cycle.
State whether the following statement are True or FalseAn increase in the owner(s) equity, in the absence of any further investment by the owners is typically effected by sale transactions.
An expense leads to the following effect on the owner’s equity.(a) Increase(b) Decrease(c) Constant(d) None of the above.
The Profit and Loss Account is a summary of _______ and _______ for an accounting period.
Classify each item listed in column A into (a) Operating Revenue (b) Non-Operating Revenue (c) Cost of goods sold (d) Selling and distribution expense (e) General
You are given profit and loss accounts of same four companies for two consecutive years. Compare the summarized profit and loss accounts of the four companies available to you and explain the nature
State whether the following statement are True or FalsePrinciple of prudence is the prime reason behind periodical measurement of accounting performance.
Discount allowed ₹6,000 was wrongly recorded as discount received by Das Brothers. What is the effect on net profit of Das Brothers?(a) Net profit is understated by ₹12,000.(b) Net profit is
Mr. Tanumoorthy was contemplating the acquisition of Kochi Oil Mills. The balance sheet of Kochi Oil Mills as of December 31, 20X0, as supplied to Mr. Tanumoorthy by the current owners, is provided
State whether the following statement are True or FalseA popcorn seller can recognize revenue when there is proof of no harm done to customer after consumption.
The energy internally consumed by NTPC (for powering its own colonies, establishments, etc.) will be reflected in the income statement as(a) Dividend(b) Cost of Goods Sold(c) Income(d) None of the
The _____________ principle tries to evaluate every transaction in terms of its impact on the owner’s equity.
The summary financial data for each transaction of the Shantanu Real Estate Brokers are presented below in the equation form. Describe the possible transactions for each entry.
Executives of Prime Rubber Industries finished their series of planning meetings and arrived at the business plan for the next financial year. The plan is summarized below:(a) The company plans to
This case is based on your Birth Day (say, PQ) and Birth Month (say, RS). You are starting a firm with a capital equal to PQRS + 1 crore. Suppose, you are having a date of birth as per official
State whether the following statement are True or FalseFor a popcorn seller expenses recognition will be different in Cash-basis and Accrual-basis.
If BHEL (erstwhile name, Bharat Heavy Electricals Limited) makes a fixed asset (say, a generator) for using it internally then it can show the cost of making this fixed asset as a:(a) Income
Advance received from customers (also known as, Unearned Revenue) would be reflected as ________ part of the Balance Sheet.
How is the income summary of the last accounting period connected with the balance sheet of the future accounting periods? Explain, preferably using the balance sheet and income summary equations.
Bong, Harry and Mallu formed a partnership to carry on the business of an ethnic store in Bangkok. They are to receive equal shares of the profits and can make drawings during a year, not exceeding
Gibbs Ltd operates a manufacturing facility to produce its key products. On 1 July 2019, the balance of an equipment account was as follows: During the 2020 financial year, Gibbs Ltd made the
Are inventories always current assets?
Kingfisher Ltd had the following noncurrent assets on its balance sheet at 30 June 2020: On 1 July 2020, the land was revalued to $300 000, and the plant and equipment was revalued to $140 000.
Eaglehawk Ltd had the following noncurrent asset on its balance sheet on 30 June 2021. The company adopts a policy of depreciating all relevant items on a straight-line basis over a 10-year period
The following data are extracted from the accounting records of DEF Limited at 30 June 2019.What is the balance of current liabilities at 30 June 2019? Equipment Accounts receivable Accounts
An airline’s property, plant and equipment account includes a plane that cost $10 million and has accumulated depreciation of $6 million. The plane can be sold for $3 million. The present value of
Which of the following meet the definition and recognition criteria for liabilities and would be included in the financial statements? If the item would be included, list the name of the
Auburn Company completed the following transactions during 2018–19. The annual accounting period ends 30 June 2019. a. Purchased inventory on credit at cost of $16 800; perpetual inventory
Explain what is likely to be included in each of the items marked with an asterisk (*). Current liabilities Payables* Revenue received in advance* Interest-bearing liabilities* Other financial
Why is it important to measure current liabilities accurately?
Why is the distinction between current and noncurrent liabilities important?
Which of the following would be included under provisions?(i). The company decides to upgrade equipment next year; the cost will be $100 000. (ii). The company receives an invoice for $10 000
Toby Limited borrowed $75 000 000 cash on the last day of the financial year (31 December 2019) to be paid back in six years. The money was used on the same day to reduce the company’s short-term
Why are each of the following items classified as liabilities: provision for warranty, provision for long service leave, unearned revenue, GST payable and income tax deductions due?
State whether the following would be recognised as a liability. If so, what account name would you use? 1. The company has a legal obligation via contract to repair any deficiencies occurring in
Why are some liabilities interest-bearing and others are not?
What are examples of provisions?
Here are three cases related to issuance of bonds. • A Ltd issued 10 000 $100 bonds and received $97.50 cash for each. • B Ltd planned to issue 10 000 $100 bonds but found that the
Provide examples of provisions for employee entitlements.
Explain the difference between a liability and a contingent liability.
Explain why contingent liabilities do not appear on the balance sheet. Give two examples of a contingent liability.
Should a provision be recognised in the following situations? 1. A furnace has a lining that needs to be replaced every five years for technical reasons. At the reporting date, the lining has
Provide an example of an instance where a lawsuit would be classified as (a) A liability or (b) A contingent liability.
Why might companies use off balance sheet financing?
During a recent year, Motorella Ltd had sales of $29 398 million. An analysis of Motorella’s product warranty payable account for the year was as follows: 1. Determine the product warranty
Precision Audio Company warrants its products for one year. The estimated product warranty is 3 per cent of sales. Assume that sales were $600 000 for January. In February, a customer received
What is the difference, if any, between liabilities and legally enforceable debts?
Warranties are honoured as part of good business practice: keep your customers happy. Whether to honour a claim, and how much cost to incur, are managerial judgements that depend on how good the
Employees take their long service leave years and years into the future. Whether there is any long service leave depends on whether the employee keeps working for the company and how long the
The shareholders’ equity section of CSR Limited’s 2017 balance sheet is shown below. 1. Provide a reason for the change in share capital. 2. Explain what is meant by non-controlling
The CEO of Redstone Ltd has just been discussing a planned new debenture issue with the financial advisers, and has come to you with some resulting accounting questions. Consider the
Which of the following transactions affect the balance of investments in the balance sheet? (i). Purchase of investments. (ii). Receipt of dividends on the investment.(iii). Sale of
What is meant by non-controlling interests in the balance sheet?
Rosno Group Limited’s 2019 balance sheet includes a line that shows that ‘Investments accounted for using the equity method increased from $30.2m to $33.4m’.1. Where in the balance sheet would
List three examples of reserves.
The following shares were held by Roxby Pty Ltd at 30 June 2019. 1. Prepare the journal entry for 30 June 2019 to reduce the shares to the lower of cost or net realisable value. 2. What is
A company decides to split its existing shares in half (i.e. replace each existing share with two shares). What impact will it have on the balance sheet?
What is the difference between liabilities and equity?
The following transactions relate to the issue of shares by Tindale Ltd. Record the above transactions in the appropriate journals, and prepare a note to the accounts showing the capital
Explain the conditions that must be met before a final cash dividend may be paid to the ordinary shareholders of a company.
Reproduced below is the shareholders’ equity section of the balance sheet of Locomotion Limited. 1. Briefly describe what information would be contained in note 23. 2. What is the
Why does a subsidiary have to be consolidated with the parent’s accounts?
The note on reserves is provided below. Explain the nature of each of the reserves. Capital Balance at start of year Transfer from retained profits Balance at end of year General Balance at
Since it is the sum of more than one company, won’t a consolidated balance sheet present a stronger financial picture than the parent’s unconsolidated balance sheet does?
What does goodwill on consolidation on the consolidated balance sheet mean?
On 30 June 2019, the following figures were extracted from the general ledger of Nora Ltd. Additional information: On 30 June 2019, the directors of Nora Ltd resolved to: a. Provide
What purpose is served by transferring amounts from retained profits to reserves, when the amounts may be transferred back if the directors so decide?
Explain the accounting differences between a bonus issue (share dividend) and a share split.
When would revenue likely be recognised for each of the following organisations? (i). A construction company that builds high-rise office buildings (ii). The student cafeteria at your
Consider a business that sells goods on credit and generally receives cash about 30 days later. Is revenue recognition at point of sale or when cash is received likely to be more relevant to users?
Discuss when each of the following businesses would be likely to recognise revenues:1. A shipbuilding company. 2. A magazine company for which yearly subscriptions are received yearly in advance
In 2019, Flimsy Construction Ltd has recognised 38 per cent of the total expected revenue from a contract to build a house extension. The total contract price is $43,000, and Flimsy expects its costs
State whether each of the following would be recognised as revenue under the Framework. 1. Issue of shares for $4 million. 2. Cash sales by a retailer of $130 000. 3. Credit sales of
What criteria are used to recognise revenue?
Compare revenue recognition under the percentage of completion and completed contract methods.

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