International Financial Reporting A Practical Guide 2nd Edition Alan Melville - Solutions

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____ In order for investors to evaluate the financial information of a company, it is vital that the financial information be exact.
____ Creation of U.S. GAAP is primarily done by the U.S. government.
____ A liability is defined as a future economic benefit that an organization owns or controls.
____ Companies face many uncertainties when preparing their financial statements.
____ Most countries require companies to follow U.S. GAAP in preparing their financial statements.
Define “expense.”
Define “revenue.”
Define “liability” and give an example of one.
Define “asset” and give an example of one.
Who creates U.S. GAAP?
Why is GAAP so important to the capital market system in the United States?
Define “U.S. GAAP.”
Give three examples of uncertainties faced by businesses.
When is a misstatement considered fraud?
What is materiality?
Why is it acceptable for financial accounting to be imprecise?
Go the U.S. Department of Labor Web site athttp://www.bls.gov/oco/ocos001.htm. Here you can learn about the profession of accounting.a. In general, what functions do accountants perform?b. Briefly list the different types of accountants and what they do.c. What education is required?d. What is a
Corporations usually provide a good amount of financial information on their Web sites. Visithttp://www.starbucks.com to access information about Starbucks.You will need to click “about us” at the top and then “investor relations” on the left.a. For what amount is Starbucks stock currently
The chapter introduced several forms of business, including a corporation, sole proprietorship, and partnership. Other forms of business exist as well. Do research to compare and contrast the following business forms:o Sole proprietorship o Partnership o Limited partnership o C corporation o S
Mark each of the following with an (F) to indicate if it is financial information or an (N) to indicate if it is nonfinancial information.Metro Corporation has:a. ____ Cash of $4,000,000b. ____ A building that cost $50,000,000c. ____ 2,000 employeesd. ____ Inventory worth $16,000,000e. ____ 500
Explain how each of the following might use the information provided by the financial accounting of Nguyen Company.a. Bank loan officer considering loaning money to Nguyen Companyb. Current employee of Nguyen Companyc. Potential employee of Nguyen Companyd. Current investor in Nguyen Companye.
Leon Williams is an investor in Springfield Corporation. On September 1, Year One, he purchased 150 shares of stock at a price of $45 per share. On October 15, Year One, Springfield distributed dividends of $1.50 per share. On December 31, Year One, Springfield’s stock is selling for $47 per
Which of the following is most likely to have a say in the policy decision of a large corporation?a) A stockholderb) A member of the board of directorsc) An employeed) A creditor
Which of the following would not be considered an example of a decision made using financial accounting information?a. An investor decided to invest in the stock of Rayburn Corporation.b. A credit analyst at Mayfield Corporation rejected a request for credit from Rayburn Corporation.c. A Rayburn
Which of the following is not a reason an investor would purchase stock in a corporation?a.a. To receive dividend paymentsb. To sell the stock for a gain if the share price increasesc. To earn a return on their investmentd. To participate in the day-to-day operations of the business
Ramon Sanchez is a loan officer at Washington Bank. He must decide whether or not to loan money to Medlock Corporation. Which of the following would Ramon most likely consider when making this decision?a. Medlock had positive cash flows last year.b. Medlock paid dividends last year.c. Medlock’s
____ An entity that loans a company money is referred to as a “shareholder.” TRUE OR FALSE
____ Accountants are the only users of the information provided by financial accounting. TRUE OR FALSE
____ Financial information is communicated in monetary terms but may be explained verbally. TRUE OR FALSE
____ Purchasing stock is typically a riskier investment than opening a savings account. TRUE OR FALSE
____ Corporations are required by law to pay dividends to their shareholders. TRUE OR FALSE
____ Investors who hold investments in a stock longer than a year may enjoy a tax benefit. TRUE OR FALSE
____ The board of directors of a corporation is elected by its shareholders. TRUE OR FALSE
____ Employees are not users of the information provided by financial accounting. TRUE OR FALSE
____ Typically, a sole proprietor will be able to raise money easier than a corporation. TRUE OR FALSE
____ Financial accounting helps with decisions made inside an organization. TRUE OR FALSE
What is financial information?
How does an investor differ from a creditor?
Why do individuals or entities choose to invest in the capital stock of corporations?
What is the board of directors of a corporation?
Why would a business want to become a corporation?
How does a business become a corporation?
List the potential users of the information provided by financial accounting.
What is financial accounting?
Floothair plc is a large international airline company with three business segments:– International airline business– Domestic airline business– Non-airline business.The company reports segment information for the year to 31 May 2009 in accordance with IAS14 Segment Reporting and the
Overton plc has not made an early application of IFRS8. The company has four business segments and has determined that its primary format for reporting segment information(in accordance with IAS14) should be business segments. The following figures relate to the year to 30 April 2009:Segment A
MacTavish plc has four operating segments. The following information relates to the year ending 31 March 2010:External Profit/(loss) Assets Revenue£000 £000 £000 Segment W 27,300 2,450 14,540 Segment X 36,100 3,150 16,490 Segment Y 6,200 (230) 3,170 Segment Z 7,800 (550) 3,800 In addition to the
(a) Explain the terms "primary reporting format" and "secondary reporting format" as used in IAS14.(b) List the main disclosures required for an entity's primary reporting format.(c) List the main disclosures required for an entity's secondary reporting format.
(a) Explain the term "operating segment" as used in international standard IFRS8.(b) List the main tests which determine whether or not a particular operating segment is reportable.
(a) Explain why the users of financial statements may find a segment report useful.(b) Identify the entities which lie within the scope of IFRS8 Operating Segments (and IAS14 Segment Reporting) and which must therefore prepare a segment report.(c) State the date from which IFRS8 takes effect and
million 12%preference shares of £1 each and 5 million ordinary shares of 20p each. On 1 April 2009 the company issued a further 500,000 ordinary shares at full market price.The preference dividend was paid in full in both the year to 30 September 2008 and the year to 30 September 2009.Required:(a)
On 1 January 2008, Greatorex plc issued £2 million of 7% convertible loan stock. The holders of this stock may choose to convert the stock to ordinary shares on 1 January 2012, 2013 or 2014. The number of ordinary shares into which the stock will be converted is as follows:Date of conversion
The issued share capital of Edwards plc consists of 800,000 ordinary shares. There are no preference shares. Some years ago, the company issued £1 million of 10%convertible loan stock, convertible in 2014 at the rate of 2 ordinary shares for every £10 of loan stock. The company's profit after tax
The profits after tax of Dawson plc are as follows:£year to 30 September 2008 50,000 year to 30 September 2009 52,800 On 1 October 2007, the company's issued share capital consisted of 150,000 ordinary shares. On 1 July 2009, the company made a 1 for 5 rights issue at 50p per share. This issue was
Canterbury plc has the following after-tax profits for its two most recent accounting periods:£000 year to 31 October 2008 330 year to 31 October 2009 341 On 1 November 2007, the company's issued share capital consisted of 500,000 ordinary shares. On 1 August 2009, the company made a 1 for 10
The profit after tax of Bateman plc for the year to 30 June 2009 was £217,500. The comparative figure for the year to 30 June 2008 was £188,000.On 1 July 2007, the company's issued share capital consisted of 100,000 ordinary shares of £1. On 1 December 2008, the company issued a further 15,000
The issued share capital of Andrews plc is £2 million. This comprises 4 million ordinary shares of 25p and 1 million 8% preference shares of £1. An extract from the company's statement of comprehensive income for the year to 31 March 2010 is as follows:£000 Profit before tax 560 Taxation
1.1 Trade payables payment period 49 days 39 days Capital gearing ratio 11% 5%Dividend yield 3% 4%Taking into account these ratios and those which you have calculated for the year to 30 September 2010, advise Brenda which of the two companies seems to be the better investment. Give reasons for your
2.1 Quick ratio (acid test)
9.5 Current ratio
Brenda is considering an investment in the ordinary shares of either Baker plc or Grant plc. Both companies operate in the same sector of industry and both prepare accounts to 30 September each year. Financial statements for the year to 30 September 2010 are shown below.Statements of comprehensive
During the year to 31 December 2009, Timberlake Ltd attempted to stimulate sales and increase its profits by reducing selling prices, holding larger inventories and giving customers longer credit. All of the company's purchases and sales are on credit terms.Summarised financial statements for the
The issued share capital of Sorensen plc consists of 1,000,000 ordinary shares of 50p each and 250,000 6% preference shares of £1 each..In the year to 31 March 2010, the company's profit after tax was £90,000. Dividends paid during the year comprised the preference dividend for the year and an
Company X is an old-established clothing retailer. The company operates from expensive city centre premises and offers a high standard of customer service. The company's customers are willing to pay top prices so as to shop in comfort and many of them take advantage of the generous credit terms
The financial statements of Roscoe Ltd for the year to 30 April 2010 are as follows:Roscoe Ltd Statement of comprehensive income for the year to 30 April 2010£000 Sales revenue 410 Cost of sales 235––––Gross profit 175 Operating expenses 115––––Profit before interest and taxation
Related party relationships are a common feature of commercial life. The objective of IAS24 Related Party Disclosures is to ensure that financial statements contain the necessary disclosures to make users aware of the possibility that financial statements may have been affected by the existence of
(a) Explain what a related party is and why transactions with related parties should be disclosed in the financial statements.(b) State, with reasons, whether or not each of the following would be regarded as a related party of Prebnez plc:(i) one of Prebnez plc's employees(ii) a shareholder
Dale Ltd is a UK company which has the pound sterling as its functional currency. The company has the following transactions in Euros (€) during the year to 31 March 2010:1 January 2010 Equipment costing €143,750 bought on credit from X 1 February 2010 Inventory costing €48,000 bought on
(a) Explain what is meant by an entity's functional currency.(b) If an entity presents its financial statements in a currency other than its functional currency, explain how the entity's financial statements are translated into the chosen presentation currency.
Apex plc owns 55% of the ordinary shares of Mitchell Ltd. Brown Ltd owns 30% of the ordinary shares of Mitchell Ltd. During the accounting period under review, there are no transactions between Apex plc and Mitchell Ltd, but there are transactions between Brown Ltd and Mitchell Ltd and between Apex
The following information relates to Z plc:(a) Alan owns 27% of the ordinary shares of Z plc. Elaine is his wife.(b) Z plc owns 60% of the ordinary shares of Y plc.(c) Z plc owns 15% of the ordinary shares of X plc.(d) Barbara is a director of Z plc. She owns 75% of the ordinary shares of W
List the main parties to which a company may be related, as specified by international standard IAS24.
million equity shares in Amok at a cost of £6.25 each.Draft statements of financial position of the three companies at 31 March 2010 are:Pumice Silverton Amok£000 £000 £000 Assets Non-current assets Property, plant and equipment 20,000 8,500 16,500 Investments 26,000 1,500––––-–
In 2006, Kappa Ltd paid £140,000 to acquire 40% of the share capital of Lambda Ltd.At that time, the retained earnings of Lambda Ltd were £100,000 and all of its assets and liabilities were carried at fair value. Neither company has issued any shares since this acquisition. Draft financial
The draft statement of financial position of Nu Ltd at 31 December 2009 and the statement of financial position of Chi Ltd at that date are as follows:Nu Ltd Chi Ltd£000 £000 Assets Non-current assets Property, plant and equipment 1,650 420 Investment in Chi Ltd, at cost 200–––––1,850
(a) Explain what is meant by the term "joint venture".(b) Distinguish between jointly controlled operations, jointly controlled assets and jointly controlled entities. Outline the accounting treatment prescribed for each of these by international standard IAS31.
The statements of financial position of Mu Ltd, Pi Ltd and Rho Ltd as at 31 July 2010 are as follows:Mu Ltd Pi Ltd Rho Ltd£000 £000 £000 Assets Non-current assets Property, plant and equipment 2,580 370 280 Investment in Pi Ltd 410 Investment in Rho Ltd 90–––––3,080 Current assets
(a) Explain what is meant by the terms "associate" and "significant influence".(b) Explain the equity method of accounting. Also explain how this differs from the consolidation approach which is used in relation to subsidiaries.
The financial statements of JJ Ltd and KK Ltd for the year to 30 June 2010 are shown below:Statements of comprehensive income for the year to 30 June 2010 JJ Ltd KK Ltd£000 £000 Sales revenue 21,545 5,328 Cost of sales 13,335 3,552–––––– ––––––Gross profit 8,210 1,776
The Managing Director of Wraymand plc has asked you to prepare the statement of comprehensive income for the group. The company has one subsidiary undertaking, Blonk Ltd. The statements of comprehensive income of the two companies for the year ended 31 March 2010 are set out below.Statements of
On 1 March 2010, YY Ltd acquired 85% of the ordinary share capital of ZZ Ltd. There are no preference shares. Both companies prepare financial statements to 31 October each year. Transactions between the two companies during the year to 31 October 2010 were as follows:(a) On 31 January 2010, YY Ltd
FF Ltd acquired 80% of the ordinary share capital of GG Ltd on 1 April 2006. On that date, the retained earnings of GG Ltd were £18,260. There are no preference shares. The statements of comprehensive income of FF Ltd and GG Ltd for the year to 31 March 2010 are as follows:FF Ltd GG Ltd£ £Sales
PP Ltd acquired 65% of the ordinary share capital of QQ Ltd on 1 January 2009. There are no preference shares. The statements of comprehensive income of the two companies for the year to 31 December 2009 are as follows:PP Ltd QQ Ltd£ £Sales revenue 345,450 186,350 Cost of sales 125,700
The following are the statements of financial position of two companies at 31 October 2010, the end of their most recent financial years:Multa plc Tuli plc£m £m Assets Non-current assets Property, plant and equipment 425 288 Investments, at cost 147 13––– –––572 301–––
The statements of financial position of CC Ltd and its two subsidiaries DD Ltd and EE Ltd as at 31 December 2009 are as follows:CC Ltd DD Ltd EE Ltd£000 £000 £000 Assets Non-current assets Property and equipment 4,761 521 411 Investment in DD Ltd 600 Investment in EE Ltd 575–––––5,936
Klarke plc acquired a subsidiary, Cameroon Ltd, on 1 October 2009. The statements of financial position of Klarke plc and Cameroon Ltd as at 30 September 2010 are as follows:Klarke Cameroon£000 £000 Assets Non-current assets Property, plant and equipment 53,181 36,762 Investment in Cameroon Ltd
The statements of financial position of TT Ltd and UU Ltd as at 31 May 2010 are as follows:TT Ltd UU Ltd£000 £000 Assets Non-current assets Property, plant and equipment 6,910 1,640 Investment in UU Ltd 1,400––––––8,310 Current assets 3,110 1,120––––––
The statements of financial position of AA Ltd and BB Ltd as at 30 April 2010 are as follows:AA Ltd BB Ltd£000 £000 Assets Non-current assets Property, plant and equipment 2,265 345 Investment in BB Ltd 800–––––3,065 Current assets 2,124 466––––– –––––5,189
On 31 December 2009, A3 Ltd paid £550,000 to acquire 80% of the ordinary share capital of A4 Ltd. The statements of financial position of the two companies just after this transaction were as follows:A3 Ltd A4 Ltd£000 £000 Assets Non-current assets Property, plant and equipment 3,700 320
At the start of business on 1 January 2010, the statements of financial position of A1 Ltd and A2 Ltd were as follows:A1 Ltd A2 Ltd£000 £000 Assets Non-current assets 510 125 Current assets 325 75–––– ––––835 200–––– ––––Equity Ordinary share capital 500 100
(a) List the main indicators of a hyperinflationary economy, as specified by IAS29.(b) Explain why IAS29 takes the view that conventional financial statements are not useful in a hyperinflationary economy.(c) Explain how each of the following items should be dealt with when preparing the restated
(a) Explain the term "historical cost accounting".(b) Summarise the strengths and weaknesses of historical cost accounting.(c) Identify and briefly explain the two main alternatives to historical cost accounting.
(a) Explain the term "holding gain" in relation to inventories.(b) On the first day of an accounting period, a company acquired inventories at a cost of £60,000. Two-thirds of these inventories were sold for £55,000 on the final day of the accounting period. The specific price index applicable to
on 1 January 2008 and 112.0 on 31 December 2009. In terms of general purchasing power, calculate the overall gain made by C Ltd with respect to this loan.
On 1 January 2008, C Ltd lent £200,000 to D Ltd at an annual interest rate of 8%. No interest was paid until 31 December 2009, when the loan was repaid in full together with two years' interest. The index of general prices was
on 31 August.Calculate the company's profit for the month of August using each of the three capital maintenance concepts listed in part (a) of this exercise.
on 1 August and
on 31 August. The specific price index applicable to the company's inventories was
on 1 August and
(a) Distinguish between nominal financial capital maintenance, general purchasing power maintenance and physical capital maintenance.(b) A company began trading on 1 August with capital of £400,000, all of which was immediately spent on acquiring inventory. On 31 August, three-quarters of this

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International Financial Reporting A Practical Guide 2nd Edition Alan Melville - Solutions

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