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introducing accounting
Accounting 3rd Edition Michael J. Jones - Solutions
A medicinal product ‘Supertab’ is produced in batches. Batch number x 308 has the following costs:Production overheads are based on labour hours at £3 per hour. 20,000 tablets are produced, but there is a wastage of 10%. Non-production overheads are £15,000 for the month. There are usually
Dodo Airways has agreed a tender for a new aircraft at £20m. The company making the product has the following cost structure for this long-term contract.Required:What is the profit Dodo should take every year? Use the formula given in this chapter. Tender Year 1 Year 2 Year 3 m m m m m m m m Sales
Serveco is a home-service computer company. There are two levels of computer service offered: basic and enhanced service. You have the following details on each. You have the following costs:Serveco requires a profit mark-up of cost plus 25%.Required:Calculate an appropriate standard call out
A company, Rugger, manufactures two products: the Try and the Conversion. The company has traditionally allocated its production overhead costs on the basis of the 100,000 direct hours used in the manufacturing department. Direct labour costs £10 per hour. The company is now considering using
What do you understand by ratio analysis? Distinguish between the main types of ratio analysis.
Do the advantages of ratio analysis outweigh the disadvantages? Discuss.
‘Each of the main financial statements provides a distinct set of financial ratios.’ Discuss this statement.
Devise a set of non-financial performance indicators which might be appropriate for monitoring: (a) The Police (b) The Post Office (now known as Royal Mail in the UK)
State whether the following are true or false. If false, explain why. (a) Gross profit ratio (b) Net profit ratio (c) Current ratio Gross profit Revenue Net profit after taxation Average capital employed Current assets inventories Current liabilities (d) Debtors collection period = Trade
The information below is from the accounts of John Parry, a sole trader.All of John Parry’s sales and purchases are on credit.Required:Calculate the following profitability and efficiency ratios: (a) Return on capital employed (b) Gross profit ratio (c) Net profit ratio (d) Trade receivables
Henry Mellett has the following extracts from his statement of financial position as at 31 March 2012: Required:Calculate the following ratios: (a) Current ratio (b) Quick ratio (c) Gearing ratio. Current Assets Inventory Trade receivables Cash 18,213 12,407 1,283 Current Liabilities Trade
Jane Edwards Ltd has prepared its statement of cash flows under the direct method. It has the following main cash flows:Required:Calculate the cash flow ratio. Cash from customers Cash paid to employees Cash paid to suppliers 125,000 18,300 Dividends paid Taxation paid 8,000 16,000 9,250 Purchase
From the following information for Clatworthy plc calculate the investment ratios as indicated:Preference dividends for the year were £20,000 and ordinary dividends were £40,000. Market price ordinary shares £1.25. Number of ordinary shares in issue are 500,000.Required:(a) Dividend yield(b)
The abridged accounts for N.O. Hope plc are given below.1. Retained earnings were after taking into account dividends of £46,000 for 2010 and £45,000 for 2012.Required:Prepare a horizontal and vertical analysis. Highlight three figures that may need further enquiry. Income Statements 2011 2012
The following two non-listed companies, Alpha Industries and Beta Industries, operate in the same industrial sector. You have extracted the following ratios from their accounts:Required:Compare the financial performance of the two companies. All other things being equal, which company would you
Anteater plc has produced the following summary accounts:Note that preference dividends of £10,000 and ordinary dividends of £40,000 have been charged to retained earnings.Required:From the above accounts prepare the following ratios: (a) Profitability ratios (b) Efficiency ratios (c) Liquidity
You are an employee of a medium-sized, light engineering company. Your managing director, Sara Potter, asks you to analyse the accounts of your company, Turn-a-Screw Ltd, with a competitor, Fix-it-Quick.Required:Using the accounts of the two companies calculate the appropriate: (a) Profitability
You have been employed temporarily by a rich local businessman, Mr Long Pocket, as his assistant. He has been told at the golf club that Sunbright Enterprises plc, a locally based company, would be a good return for his money. The last five years’ results are set out belowYou have the following
What is the role of directors, shareholders and auditors in the corporate model?
What is the decision-making model? Assess its reasonableness.
Discuss the view that if a regulatory framework did not exist it would have to be invented.
Companies often disclose ‘voluntary’ information over and above that which they are required to do. Why do you think they do this?
What is a conceptual framework and why do you think so much effort has been expended to try to find one?
‘Accounting measurement systems are the skeleton of the accounting body.’ Critically evaluate this statement.
Why is historical cost still so widely used, if it is so deeply flawed?
What is the difference between a financial capital maintenance concept and a physical capital maintenance concept?
Why do many UK companies revalue their property? How might this affect profit? Why is this practice unusual internationally?
Explain the role that the annual report plays in the corporate governance process.
Evaluate the stewardship/accountability, decision making and public relations roles of the annual report and identify any possible conflicts.
In your opinion what are the six most important sections of the annual report. Why have you chosen these sections?
Why do companies prepare group accounts?
What do you understand by the term ‘impression management’? Why do you think that managers might use the annual report for impression management?
At the start of this chapter, it was stated that ‘cash is king’ and that it is relatively easy ‘to manufacture profits, but virtually impossible to create cash’. Discuss this statement.
What is the relationship between profit and cash flow?
The direct method of preparing the statement of cash flows is the easiest to understand, but most companies use the indirect method. Why do you think this might be so?
Preparing a statement of cash fl ows using the indirect method is like being an accounting detective. Discuss this view.
State whether the following are true or false. If false, explain why:(a) Depreciation and profit from sale of property, plant and equipment are both non-cash flow items and must be added back to operating profit to arrive at operating cash flow.(b) Inventory, trade receivables and property, plant
Bingo has the following items in its accounts:(a) Dividends payable(b) Cash from loan(c) Sale of goods on credit(d) Purchase of goods for cash(e) Cash purchase of property, plant and equipment(f) Cash on sale of motor car (g) Loan repaid(h) Taxation payable(i) Receipts from share capital issue(j)
The cash flows below were extracted from the accounts of Peter Piper, a music shop owner.Required:Prepare a statement of cash flows using the direct method for the year ended 31 December 2012. Prepare a separate reconciliation statement from operating profit to operating cash flow. Loan repaid Sale
The cash flows below were extracted from the accounts of Picasso and Partners, a painting and decorating business.Required: Prepare a statement of cash flows under the indirect method for the year ended 31 December 2012. Prepare a separate reconciliation statement from operating profit to
Diana Rink Ltd, a chain of off-licences, has the following extracts from the accounts.Required:Prepare a statement which reconciles operating profit to operating cash flow. Income Statement for 2012 Statements of Financial Position as at 31 December 2011 2012 Operating profit 95,000 Current
Brian Ridge Ltd, a construction company, has extracted the following cash flows from its books as at 30 November 2012.Required:Prepare a statement of cash flows using the indirect method. The operating profit has already been adjusted for the interest paid and received (so do not adjust again!).
You have the following extracts from the income statement account and statement of financial position for Grow Hire Ltd, a transport company.There were no sales of property, plant and equipment during the year.1. Profit is after adding interest received £13,000 and deducting interest paid
You have the following information regarding taxation for Brain and Co. a software house:Required:Calculate tax paid. Income Statement (Extract) Statement of Financial Position (Extracts) From Year to 31 December 2012 as at 31 December 2011 2012 Profit before Taxation 106,508 Current Liabilities
A construction company, Expenso plc, has the following summaries from the income statement and statement of financial position for the year ended 30 September 2012:1. There were no sales of property, plant and equipment during the year.2. The dividends paid during the year were £4,105. They have
Michael Anet has the following trial balance.Required:Prepare Michael Anet’s income statement for the year ended 31 December 2012 and statement of financial position as at 31 December 2012. M. Anet Trial Balance as at 31 December 2012 Debit Credit Hotel 40,000 Van 10,000 Revenue Purchases
Paul Icasso has the following trial balance.Required:Prepare Paul Icasso’s trading and income statement for the year ended 31 March 2013 and a statement of financial position as at 31 March 2013. P. Icasso Trial Balance as at 31 March 2013 Debit Credit Hotel 50,000 Van 8,000 Revenue 35,000
Rose Ubens, buys and sells goods. Her trial balance is presented below.Note: 1. Closing inventory is £4,000 Required:Prepare Rose Ubens, income statement for the year ended 31 December 2012 and a statement of financial position as at 31 December 2012. R. Ubens Trial Balance as at 31 December 2012
Clara Onstable has prepared her trial balance as at 31 December. She has the following additional information. (a) She pays £240 rent per month. She has paid £3,600, the whole year’s rent plus three months in advance. (b) She has paid insurance costs of £480. However, she has paid £120 in
Vincent Gogh, a shopkeeper, has the following trial balance.You also have the following additional information. 1. Closing inventory as at 31 December 2012 is £9,000. 2. V. Gogh owes £350 for electricity. 3. £200 of the rent is paid in advance.Required:Prepare V. Gogh’s income statement for
Leonardo Da Vinci, who sells computers, has extracted the following balances from the accounts.You have the following additional information.1. Closing inventory of computers as at 30 September 2012 is £7,000.2. Da Vinci owes £175 for the telephone and £1,200 for electricity.3. The prepayments
Helen Ogarth is preparing her accounts for the year to 31 December 2012. On 1 January 2012 she purchased the following property, plant and equipment. Required:Prepare the appropriate extracts for the statement of financial position and income statement. Buildings Machine Motor van 100,000 50,000
Michael Atisse, a carpenter, has the following trial balance as at 31 December 2012.You have the following additional information.1. Closing inventory of tools £4,500 2. Depreciation is to be written off the property, plant and equipment as follows:Required:Prepare M. Atisse’s income statement
Clare Analetto, an antique dealer, has the following trial balance as at 31 December 2012.You also have the following notes to the accounts.1. Closing inventory of antiques is £7,000.2. Depreciation for the year is to be charged at 2% on premises, 10% on machinery, 15% on office equipment, and 25%
Michelle Angelo has trade receivables of £40,000 at the year end. However, she feels that £4,000 are irrecoverable.Required:Prepare the appropriate statement of financial position and income statement extracts.
Simon Eurat, who runs a taxi business, has the following trial balance.You have the following additional information.1. 10% of the trade receivables are considered irrecoverable.2. £800 of the insurance is prepaid.3. There is £250 owing for electricity and £300 owing for telephone.4.
Rebecca Odin has the following details of her property, plant and equipment.She charges depreciation at 2% per annum on cost for buildings, 10% per annum on cost for machinery, 25% per annum on cost for the motor car and 15% per annum on cost for the computer.Required:Prepare the appropriate
Deborah Urer owns a small bar. Her trial balance as at 30 June 2012 is set out below.You also have the following additional information.1. Closing inventory is £6,250.2. There is £200 owing for electricity and £300 of the insurance is prepaid.3. Bad debts are £25 to be written off this year.4.
Bernard Ruegel has drawn up a trial balance which is presented below. You have the following extra information:1. Closing inventory is £13,206.2. There are the following amounts owing: advertising £325, telephone £125, carriage outwards £20, general expenses £37, wages and salaries £560.3.
Why do you think that three different types of business enterprise (sole traders, partnerships and limited companies) exist?
Discuss the view that the accounts of partnerships are much like those of sole traders except for the need to share out the equity and profi t between more than one partner.
Distinguish between a private limited company and a public limited company. Is there any difference between the users of the accounts of each type of company?
Why is the distinction between capital and revenue reserves so important for a company?
State whether the following are true or false. If false, explain why. (a) Drawings are an expense recorded in the partners’ trading, profit and loss and appropriation account (i.e., a separate section of the income statement called the appropriation account). (b) Partners’ current accounts
Two partners, Peter Tom and Sheila Thumb, have the following details of their accounts for the year ended 31 December 2012.Required:Prepare the relevant income statement and statement of financial position extracts. Profit sharing ratio: 3 Tom, 1 Thumb Salaries: Tom 10,000, Thumb 30,000 Drawings:
J. Waite and P. Watcher’s trial balance as at 30 November 2012 is set out below.1. Closing inventory is £15,000.2. Salaries are £18,000 for Waite and £16,000 for Watcher.3. There is £300 owing for rent.4. Depreciation for the year is £2,000 on land and buildings and £3,000 on motor
Cherie and Tony’s trial balance as at 31 December 2012 is set out below.1. Closing inventory is £12,000.2. £197 of the other expenses was prepaid and £200 is owed for the telephone.3. Salaries will be £12,000 for Cherie and £10,000 for Tony.4. Depreciation is fixed at 2% on the cost of land
Sister and Sledge are trading in partnership, sharing profits and losses in the ratio of 2:1, respectively. The partners are entitled to salaries of Sister £6,000 per annum and Sledge £5,000 per annum. There is the following additional information:(1) Inventory as at 31 December 2012 was valued
Red Devils Ltd has the following extracts from its accounts.1. An audit fee is to be provided of £7,500.2. The debenture interest for the year has not been paid.3. The directors propose to transfer £3,500 to the general reserve 4. Corporation tax of £17,440 is to be provided on the profit for
Superprofit Ltd.1. Closing inventories are £26.2. The following had not yet been recorded in the trial balance: (a) Taxation payable £13 (b) Interest on long-term loan £4 (c) Auditors’ fees £2 (d) The authorised share capital is ordinary share capital £250, preference share capital £50.3.
Lindesay Trading plc1. Closing inventories are £13.2. The following are not recorded in the trial balance: Taxation payable £58.3. Authorised share capital was £500 for ordinary share capital and £400 for preference share capital.4. There was £45 owing for wages and salaries.5. Debenture
The following trial balance was extracted from the books of Leisureplay plc, a listed company, for the year ended 31 December 2012.(a) Inventories as at 31 December 2012 are £12,000(b) Depreciation is to be charged as follows:(i) Freehold premises 2% on cost(ii) Motor vehicles 10% on cost(iii)
You have the following summarised trial balance for Stock High plc as at 31 March 2013. Further details are provided in the notes.1. At the statement of fi nancial position date £8 is owing for taxation.2. Depreciation is to be charged at 2% on cost for land and buildings (used for administration)
The statement of financial position and income statement provide complementary, but contrasting information. Discuss.
What are the main limitations of the statement of financial position and how can they be overcome?
Is the statement of financial position of any use?
Are the different elements of the statement of financial position changing over time, for example, as manufacturing industry gives way to service industry?
State whether the following are true or false. If false, explain why.(a) A statement of fi nancial position is a collection of assets, liabilities and equity.(b) Inventory, bank and trade payables are all current assets.(c) Total net assets are property, plant and equipment plus current assets less
The following financial details are for Jane Bricker as at 31 December 2012.Required:Jane Bricker’s capital employed as at 31 December 2012. Equity 1 January 2012 Drawings 5,000 Profit 7,000 12,000
Alpa Shah has the following financial details as at 30 June 2013.Required:Alpa Shah’s total net assets as at 30 June 2013. Non-current assets Current assets 100,000 Current liabilities 30,000 50,000 Non-current liabilities 20,000
Jill Jenkins has the following financial details as at 31 December 2012.Required:Jill Jenkins’ net current assets as at 31 December 2012. Inventory 18,000 Cash 4,000 Trade receivables 8,000 Trade payables 12,000
Janet Richards has the following financial details as at 31 December 2012.Required: Janet Richards’ Statement of fi nancial position as at 31 December 2012. Land and buildings 100,000 Trade payables 15,000 Plant and machinery 60,000 Long-term loan 15,000 Inventory 40,000 Opening equity 200,000
What is a sole trader and why is it important for the sole trader to prepare a set of financial statements?
‘Profit is the figure which links the income statement and the statement of financial position.’ Discuss.
Why do we need to carry out post trial-balance adjustments when we are preparing the final accounts?
From the following accounting figures show the six steps in the accounting equation:opening assets £25,000, opening liabilities £25,000 (£15,000 third party and£10,000 equity), profit £15,000 (income £60,000, expenses £45,000).
Show the debit and credit accounts of the following transactions in the ledger and what effect (i.e., increase/decrease) they have on assets, liabilities, equity, income and expenses.The first one is done as an illustration.(a) Pay wages of £7,000(b) Introduces £10,000 equity by way of a
You have the following details for A. Bird of transactions with customers and suppliers.(a) 1 June credit purchases of £8,000, £6,000 and £5,000 from Robin, Falcon and Sparrow, respectively.(b) 4 June A. Bird returns goods unpaid of £1,000 and £2,000 to Robin and Falcon, respectively.(c) 6
Balance off the following four accounts from four different businesses at the month end. Transfer the balances for revenue and purchases to the trading account.Sales Rets. represents sales returns. Revenue B Purchases 8 June Bank 1,000 1 June Bank 500 9 June Brown 2,000 30 June Patel 9,500
John Frier has the following transactions during a six month period to 30 June.(a) Invests £10,000 in the business on 1 January.(b) Buys a motor van for £4,000 on 8 February by cheque.(c) Purchases £8,000 goods on credit from A. Miner on 10 March.(d) Pays A. Miner £3,000 on 12 April.(e) Sells
Katherine Jones sets up a small agency that markets and distributes goods. She has the following regular credit customers (Edwards, Smith and Patel) and regular suppliers of credit goods (Johnston and Singh). She has the following transactions in the first week of July.Required:Prepare Katherine
R. Poon was having a whale of a time trying to get a trial balance for his company Redwar. He had the following transactions during the month of May. He asks you to prepare the book entries and a trial balance.Required:Prepare R. Poon’s:(i) Ledger accounts.(ii) Trial balance after balancing off
Jay Shah has the following balances as at 31 December in his accounts.Required:(i) Jay Shah’s trial balance as at 31 December.(ii) An indication of which balances are assets, liabilities, equity, income or expenses. Equity 45,300 Purchases returns 500 Motor car 3,000 Bank 3,600 Building 70,000
Mary Symonds, a management consultant has the following balances from the accounts on 30 September.Required: Mary Symonds’ trial balance as at 30 September. Office 80,000 Equity 28,150 Long-term loan 3,000 Electricity 1,600 Van 3,500 Telephone 3,400 H. Mellet (trade receivable) 650 Repairs 300 R.
The following trial balance for Rajiv Sharma as at 31 December has been incorrectly prepared.Required:A corrected trial balance as at 31 December.Helpnote: If you rearrange the balances and the trial balance irritatingly still doesn’t balance, remember equity. Shop Machinery Car 55,000 45,000
Rachel Thomas’s trial balance balances as follows:Unfortunately, Rachel Thomas’s bookkeeper was not very experienced. The following transactions were incorrectly entered:(a) Purchase of a computer for £3,000 cash completely omitted.(b) Credit sales of £800 to A. Bright forgotten.(c) A
Which of the following balances extracted from the books on 31 December would be used as a basis for next year’s accounts? Equity employed 9,200 Trade receivables 700 Rent and rates 1,000 Trade payables 1,400 Buildings 7,000 Bank 600 Telephone 1,500 Inventory 1,300 Revenue Computer 100,000
Why is the income statement such an important and useful financial statement to such a variety of users?
‘There is not just one profit there are hundreds of profits.’ Do you agree with this statement, taking into account the subjectivity inherent in calculating profit?
The matching principle is essential to the calculation of accounting profit. Discuss.
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