Questions and Answers of Managerial Accounting An Integrative Approach

Slavko Mitrovic is one of the owners of Salami 4 U, a small business that manufactures and sells organic salami and other small goods. Slavko also manages the business on a part-time basis, sharing
Explain the concepts and principles that underlie accounting.
The statements below refer to the concepts and principles underlying the recording of accounting information. Identify if they are true or false. (a) The accounting period concept states that
Explain how accounting concepts, principles and recognition criteria are interrelated and provide guidance when recording certain transactions. Provide at least one example to illustrate your answer.
A number of independent economic events are presented below and overleaf. Comment on each case. In your discussion, identify if any concepts and/or principles underlying the recording of accounting
A first-year accounting student provided the following answer to an examination question on the conceptual framework: RequiredAssume you are the teacher marking this answer.(a) For each of the
Vital Health Ltd is a vitamin shop that commenced business on 1 April 2016. Wang Jiànkang is a health fanatic and a good manager but a poor accountant. From the trial balance prepared by a part-time
A list of concepts, principles and recognition criteria are provided below. RequiredFor each of the situations provided below, identify, by number, the applicable accounting concept, principle,
A list of concepts, principles and recognition criteria are provided below. RequiredFor each of the items in the list above, prepare a journal entry (ignore GST) and explain how the journal
Each of the concepts and principles underlying the recording of accounting transactions is incorrectly stated below. Correct each of the statements.(a) The going concern principle states that if the
Explain what is meant by the reporting entity concept as proposed in the exposure draft ED/2010/2. In your answer, discuss the feature. Do you believe that the accounting entity concept is helpful?
In a recent annual general meeting of Thrifty Tyres Ltd, one of the shareholders stated: ‘the objective of general purpose financial reports is to make the directors and management accountable’.
A number of statements in relation to conceptual frameworks are provided below. Identify if they are true or false.(a) Prior to 1970 there was no generally accepted theory of financial reporting.(b)
What are the advantages or benefits of the Conceptual Framework for financial reporting? Do you believe that these benefits can actually be achieved?
A list of users and a list of financial information needs have been provided opposite. Identify the most likely information needs for each user by drawing a line between the columns to link each user
Differential reporting means applying different sets of rules for different categories of entities preparing general purpose financial reports. Identify the different categories of entities and
Toffee and More Ltd produces several varieties of candy. An action has been brought against the entity by a customer who broke a tooth while eating one of the entity’s fudge bars. The managing
Explain the objective of general purpose financial reporting as defined in the Conceptual Framework. Why is it necessary to have an objective?
Computer Games Ltd reported a profit of $50 560 for the year ending 31 December 2016. However, upon closer examination of the accounting records, the chief financial officer noticed the following
You are the accountant for Braidwood Hair Ltd. The managing director of the company has asked you to stop purchasing assets for the company and to start leasing them using finance leases. He claims
From the list below, identify which of the items are considered to be qualitative characteristics or a constraint on financial information as outlined in the Conceptual Framework.(a) Cost(b)
Compare and contrast the primary users of financial reports and their information needs as outlined in the Conceptual Framework with the other users of financial reports.
In the Conceptual Framework, the qualitative characteristics underlying financial reporting are classified as fundamental and enhancing. From the list below, identify which are fundamental and which
In the last week of semester, the accounting lecturer stated that there will definitely be a 20% essay question in the final exam on GAAP. Imagine you are preparing the summary notes to assist your
Cost is a constraint that limits the information provided by financial reporting. Explain whether fundamental or enhancing qualitative characteristics can be sacrificed to reduce costs. Justify the
The Conceptual Framework outlines a constraint on providing financial reports. Explain this constraint.
Explain why general purpose financial reports should be seen more as models of transactions and events that have occurred in relation to an entity rather than an exact depiction of transactions and
General purpose financial reports are only one source of information for users when making a variety of decisions. What other sources of information are available to users and why is it important
Provide a brief summary of each of the qualitative characteristics and the constraint on providing financial information as outlined in the Conceptual Framework.
Two qualitative characteristics that financial information should possess are relevance and faithful representation. Explain these concepts and discuss whether you believe one is more important than
The Conceptual Framework defines revenues and outlines a number of criteria for their recognition. Surfin’ Magazines Ltd identifies the following independent transactions and events:(a) Received
At what point should an entity recognise income? Provide examples to support your explanation.
What are the two basic common recognition criteria that are applied to assets, liabilities, revenues and expenses?
How is equity defined in the Conceptual Framework? Provide examples of transactions or events that affect equity. Provide examples of transactions and events that do not affect equity.
Define income and expenses as outlined in the Conceptual Framework.
There are four bases of measurement outlined in the Conceptual Framework. Briefly describe each of these. Identify common alternative measurement bases that can be found in general purpose financial
Briefly outline how the elements of GAAP are applied.
Outline three future developments in financial reporting.
Wilderness Equipment Ltd had these transactions during 2015:(a) Purchased a machine for $37 500, giving a long-term note in exchange.(b) Issued ordinary shares for $62 500 in cash.(c) Collected $20
Madonna Ltd reported profit of $200 000 for 2015. Madonna Ltd also reported depreciation expense of $35 000 and a loss of $5000 on the sale of equipment. The statement of financial position shows an
Cheong’s Chinese Herbs Ltd has Accounts Receivable of $14 000 at 1 July 2015, and $24 000 at 30 June 2016. Sales revenues were $600 000 for 2016. Bad debts written off directly against Accounts
The following information was taken from the financial statements of Peter’s of Buckingham Ltd (in millions), reported on its web site: RequiredDiscuss the change in Peter’s solvency,
Here are the financial statements of Kiwi Ltd. Additional information:1. Dividends were declared and paid.2. During the year equipment was sold for $13 000 cash. This equipment cost $19 500
Here is a statement of financial position for Big Bang Balloons Pty Ltd: Additional information:1. Profit for 2015 was $126 000. Total expenses were $1 047 600 and included cost of sales expense
Pete’s Pies Ltd reports operating expenses of $216 000 excluding depreciation expense of $18 000 for 2015. During the year prepaid expenses decreased $7920 and accrued expenses payable increased
The condensed financial data of Freshest Farmers Ltd follow. Additional information:1. New machinery costing $127 500 was purchased for cash during the year.2. Old machinery having an original
Rotorua Rides Ltd’s profit for the year is $200 000. The comparative statement of financial position shows these changes in non-cash current asset accounts: Accounts Receivable decrease $80 000,
Cameron’s Cars reported sales of $2 million for 2015. Accounts receivable increased $200 000 and accounts payable increased $400 000. Calculate cash receipts from customers, assuming that the
The statement of profit or loss of Sticky Stationery Supplies Ltd is presented here. Additional information:1. Accounts receivable increased $510 000 during the year.2. Prepaid expenses
The managing director of Fancy Fashion Pty Ltd is puzzled. During the last year, the entity experienced a loss for the period of $800 000, yet its cash increased $300 000 during the same period of
The statement of profit or loss of Yu’s Shoes Ltd reported the following condensed information.Yu’s Shoes statement of financial position contained the following comparative data at 31 March
The statement of profit or loss of Bear’s Chairs Ltd is presented here. Additional information:1. Accounts receivable increased $200 000 during the year.2. Prepaid expenses increased $150 000
Have you heard of the ‘The B Team’? The B team is a Richard Branson initiative he initiated to explore how people in business can develop a better version of capitalism that considers how people
The 2015 accounting records of Outdoor Adventures Ltd reveal the following transactions and events. RequiredPrepare the cash flows from operating activities section of the statement of cash
Identify five items that form part of the reconciliation of profit and net cash provided by operating activities.
Here are the financial statements of Mountain King Tours Ltd. The following additional data were provided:1. Dividends of $12 000 were declared and paid.2. During the year equipment was sold for
Here are the financial statements of XYZ Children’s Centre Ltd.The following additional data were provided:1. Dividends of $28 800 were declared and paid.2. During the year furniture was sold for
Christchurch Motors Pty Ltd completed its first year of operations on 30 June 2015. Its statement of profit or loss showed that the business had revenues of $170 000 and operating expenses of $80 000
The statement of profit or loss of Phillips Screwdrivers Ltd is presented here. Additional information:1. Accounts receivable decreased $300 000 during the year.2. Prepaid expenses increased
Each of these items must be considered in preparing a statement of cash flows for Vong’s Thongs Ltd for the year ended 30 June 2015. For each item, state how it should be classified in the
The following T account is a summary of the cash account of King Fisheries Pty Ltd. What amount of net cash provided (used) by financing activities should be reported in the statement of cash
The statement of profit or loss of Nguyen and Tran Ltd reported the following condensed information. Nguyen and Tran’s statement of financial position contained the following comparative data
The following data have been extracted from the financial statements of two competitors in the retail industry: Required(a) Based on the information in these financial statements, calculate the
The statement of profit or loss of Okamoto Motors Ltd is presented here.Additional information:1. Accounts receivable decreased $127 500 during the year.2. Prepaid expenses increased $42 500 during
Peebody Enterprises Ltd’s statement of profit or loss contained the condensed information below.Peebody Enterprises Ltd’s statement of financial position contained the following comparative
The T-accounts for Equipment and the related Accumulated Depreciation for Lau Pty Ltd at the end of 2015 are shown here.In addition, Lau Pty Ltd’s statement of profit or loss reported a gain on the
Condensed financial data of Takahashi Electronics Pty Ltd follow.Additional information:1. New equipment and machinery were purchased for cash during the year.2. Investments were sold at cost.3.
During 2015, Pencils and More Ltd purchased equipment but paid for it with the issue of 2 million $1 ordinary shares. Indicate how the transaction would be reported in a statement of cash flows, if
The 2016 accounting records of Home and Away Travels Ltd reveal the following transactions and events. RequiredPrepare the cash flows from the operating activities section of the statement of
Presented here is information for two entities in the shipping industry: Kang Ltd and Jang Ltd:RequiredUsing the cash-based ratios presented in this chapter, compare the (a) liquidity, (b) solvency
Below is the information relating to Simic and Nikolic Ltd for the year ended 30 June 2016.Additional information (dollar amounts expressed in full units):1. Equipment with an original cost of $500
Give an example of a cash-based ratio to measure these characteristics of an entity:(a) Liquidity(c) Profitability.(b) Solvency
The current section of Opotiki Ltd statement of financial position at 30 June 2016 is presented below.Other information:1. Profit for the year ended 30 June 2016 was $153 000.2. Depreciation expense
The following data is available for White Ltd and Wong Ltd. Required(a) Calculate all the intra-entity comparisons in relation to liquidity that the data allows for White Ltd.(b) Why is it
Here are comparative statement data for Spencer Ltd and Forrester Ltd, two competitors. All data relating to the statement of financial position are as at 30 June, the end of the reporting period for
Your parents are considering investing in David Jones Ltd (DJS) shares. They ask you, an accounting expert, to make an analysis of the entity for them. An extract from the five-year summary included
Using these data from the statement of financial position, prepare a horizontal analysis using 2015 as a base year. Accounts receivable Inventory Total assets 30 June 2017 $ 800 000 950
The financial information for Spencer Ltd is provided below. RequiredPrepare a horizontal analysis for 2017 using 2016 as the base year. Current assets Property, plant and equipment
The current ratio and the quick ratio are both measures of liquidity. Explain how the quick ratio overcomes some of the limitations of the current ratio.
Using the data presented in BE12.2, prepare a vertical analysis.Data in BE12.2,Using these data from the statement of financial position, prepare a horizontal analysis using 2015 as a base year.
The financial information for Forrester Ltd is provided below.Required(a) Prepare a schedule showing a horizontal analysis for 2017 using 2016 as the base year.(b) Explain the changes that have
Condensed financial statements for Metro Ltd are presented as follows. Additional information:1. The market price of Metro Ltd’s shares was $4.00 at 30 June 2015, $5.00 at 30 June 2016 and
Condensed financial statements for Jasmine Ltd are presented below. Additional information:1. The market price of Jasmine Ltd’s shares was $4 at 30 June 2014, $10 at 30 June 2015 and $15 at 30
Grayson Global Ltd has excess cash that it wishes to invest in the ordinary shares of Nolan E-Corp Ltd. Daniel Grayson, finance director of Grayson Global Ltd, has a copy of Nolan E-Corp Ltd’s most
Operating data for Spectre Ltd are presented here.Required(a) Prepare a schedule showing a vertical analysis for 2017 and 2016.(b) Why is it helpful to prepare horizontal and vertical analysis when
Horizontal analysis percentages for Jayden Ltd’s sales, cost of sales and expenses are presented below.Explain whether Jayden Ltd’s profit increased, decreased or remained unchanged over the
Explain how calculating current cash debt coverage for an entity overcomes a disadvantage of the current and quick ratios.
Discuss the advantages of calculating the average collection period of receivables. How does an entity determine if there is an issue with receivables collection based on the average collection
Selected financial data of two intense competitors are presented below. Required(a) For each entity, calculate the following:1. Current ratio.2. Receivables turnover.3. Average collection
Selected financial data of two intense competitors in a recent year are presented here (in millions). Required(a) For each entity, calculate the following:1. Current ratio.2. Receivables
The following data are taken from the financial statements of Bristol Ltd. Calculate for each year (a) the receivables turnover and (b) the average collection period. What conclusions about the
The statement of financial position for Jai’s Jeans Ltd is presented below.Required(a) Prepare a horizontal analysis of the statement of financial position data for Jai’s Jeans Ltd using 2016 as
Megasonic Ltd, a retail store, has an inventory turnover of 8 times. The industry average is 14 times. Does Megasonic Ltd have a problem with its inventory?
You are a loan officer at Corporate Bank. Penny Wise, manager of Leverage Ltd, is interested in a 5-year loan to expand the entity’s operations. The borrowed funds would be used to purchase new
The statement of financial position for Bondi Ltd is presented below.Required(a) Prepare a horizontal analysis of the statement of financial position data for Bondi Ltd using 2016 as a base. Show the
Presented here are incomplete financial statements of Ascot Ltd. Additional information:1. The receivables turnover for the year ended 30 June 2016 is 10 times.2. All sales are on account.3. The
The incomplete financial statements of Jade Ltd are presented below. Additional information:1. The receivables turnover for the year ended 30 June 2016 is 10 times.2. All sales are on account.3.
Presented below is a simplified statement of cash flows for Calgary Ltd. Additional information:1. Sales were $608 000.2. Current liabilities were $202 800 in 2017 and $203 500 in 2016. 3.
Selected financial statement data for Grayson Ltd are presented below.For the year, net sales were $3894 million, cost of sales was $2600 million, and cash from operations was $215
Global Ltd had the following transactions involving current assets and current liabilities during February 2016. Additional information:1. As of 1 February 2016, current assets were $200 000 and

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