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business
principles financial accounting
Principles Of Financial Accounting 3rd Edition Ian Gillespie, Richard Lewis, Kay Hamilton - Solutions
6.3 To what extent, if any, is depreciation a process of revaluation?
6.4 If you owned a small manufacturing business, which basis of depreciation would you choose to use, and why?
6.5 So far as the following fixed assets are concerned:(a) What depreciation method do you think would be most appropriate and why?(b) Discuss the ways in which obsolescence may affect the asset:1. A delivery van used by a baker.2. A filing cabinet.3. A shop held on a 20-year lease.4. A plastic
6.1 Malcolm’s trial balance as at 30 June 20X2 was as follows:££Capital account as at 31 July 20X1 29,000 Creditors 21,000 Debtors 22,650 Cost of goods sold 144,000 Drawings 32,100 Sales 243,000 Stock 36,000 Vehicles 21,000 Wages expense 14,250 Sundry expenses 3,000 Rent expense 13,500
6 2 A- Walters, a trader, uses vans for making deliveries. The following is an extract from his balance sheet as at 31 December 20X0:£23,040 5,760 17,280 On 7 March 20X1 Walters purchased, for cash, an additional van for £10,560. On 5 July 20X2 he sold a van for £4,320 cash. It had been
6.3 On 1 July 20X1, a company owns machinery which originally cost £32,000 and against which depreciation of £12,000 has so far been provided. Depreciation is charged at the rate of 30 per cent of the reducing balance. Depreciation is provided for a full year in the year of purchase; none is
6.4 The following is an extract from the balance sheet of E. Pesenti as at 31 March 20X1:£72,000 18,000 54,000 On 2 July 20X1, Pesenti purchased a new machine for £33,000 cash. On 30 November 20X2 he sold a machine for £13,500 cash. It had been purchased in April 20X0 for £30,000. On 1 December
6.5 Charles St Clair purchased his first van, a Ford, on 1 January 20X0 for £12,000. He pur¬ chased another van, a Volvo, on 1 July 20X1 for £16,000.On 1 May 20X2 St Clair traded in the Ford in part exchange for a new van. The relevant invoice is given below:I Smooth Ltd £Purchase of Vauxhall
6.6 Simon’s trial balance at 30 April 20X3 (before the preparation of the financial statements) is as follows:Dr Cr££Sales 182,000 Cost of goods sold 93,600 General expenses 42,600 Plant and machinery, at cost 53,000- accumulated depreciation 1.5.X2 24,000 Fixtures and fittings at cost 16,000-
6.7 Laddis Ltd bought a machine for £5,700. Depreciation was provided on a straight-line basis, estimating the machine’s useful life to be six years and its residual value at £300. At the start of the third year of the machine’s life it was sold for £1,900.The company immediately replaced
12.1 What are the advantages of operating a business as a group rather than as a single company?
12.2 Discuss the factors which give rise to goodwill on consolidation.
12.3 Why do those who set the rules of accounting find it difficult to decide how to treat good¬ will on consolidation?
12.1 The following information relates to the balance sheets of Johnson Ltd and Samson Ltd at 31 December 20X6. At this date Johnson Ltd purchased all the shares of Samson Ltd.Johnson Ltd Samson Ltd 12.2£000£000£000£000 Fixed assets 1,400 580 Investment at cost 920—Current assets:Stock 640
12.2 On 31 December 20X4 Highgate Ltd purchased 100 per cent of the shares in Southgate Ltd. At that date, the retained earnings of Southgate Ltd were£3,000,000.The summarised balance sheets of the two companies at 31 December 20X6 were as follows:Highgate Ltd Southgate Ltd£000£000£000£000
12.3 Gieves Ltd purchased 80 per cent of the shares in Hawkes Ltd on 31 December 20X6. The summarised balance sheets of the companies at 31 December 20X7 were as follows:Gieves Ltd Hawkes Ltd£000£000£000£000 Fixed assets 255,000 170,000 Investment in Hawkes Ltd 160,000 Current assets:Stock
12.4 The following balance sheets are as at 31 December 20X6:H Limited SI Limited S2 Limited£000£000£000 Fixed assets 20,000 6,000 12,000 6m shares in SI Limited 11,000 8m shares in S2 Limited 14,000 Current assets 12,000 6,000 7,000 57,000 12,000 19,000 Less: Current liabilities 10,000 1,000
12.5 The profit and loss accounts of H Ltd and S Ltd for the year ended 31 December 20X5 are shown below together with their balance sheets at that date:Profit and loss accounts H Ltd S Ltd£000£000 Sales 200 180 Expenses 110 100 90 80 Dividends from S Ltd 30 _Profit before tax 120 80 Taxation 35
12.6 The following information is extracted from the balance sheets of A Ltd and B Ltd as at 31 March 20X7. At that date, A Ltd purchased all the shares in B Ltd.A Ltd B Ltd£000£000£000£000 Fixed assets 800 300 Investments in B Ltd 550-Current assets:Stock 300 160 Debtors 160 70 Bank 90 20 550
12.7 Brenda Ltd purchased 60 per cent of the shares of Ogden Ltd on 31 March 20X6. The sum¬ marised balance sheets of the two companies as at 31 March 20X7 were as follows:Brenda Ltd Ogden Ltd£000£000£000£000 Fixed assets 125,000 85,000 Investment in Ogden Ltd 75,000-Current assets Stock
explain the main purposes of accounting;
describe the main users of accounts and explain why they need accounting statements;
explain what is meant by 'planning and control';
explain the main difference between financial accounting and management accounting;
explain what 'conventions' are and describe the main ones;
explain how conventions may conflict with each other;
explain what is meant by a 'firm';
describe the sources of the various rules and regulations that govern the preparation and publication of financial accounting statements.
explain what is meant by an 'entity' and why we account for its transactions separately from those of its owner(s);
explain the logical basis of the accounting equation and why the balance sheet must balance;
explain what is meant by 'profit and loss account';
analyse transactions in terms of their effects on the balance sheet.
explain the structure of the extended accounting equation and analyse transactions in terms of their effects on the balance sheet and the profit and loss account;
explain the meaning of 'debit' and 'credit' in accounting and show how debit and credit entries increase or decrease assets, liabilities, equity, revenue and expenses;
explain what is meant by a ledger account and enter debit and credit items arising from a firm's transactions.
understand the basic principles underlying accounting systems and be familiar with the terminology;
understand the way in which the data flow through the system from the original entry to the final accounts;
explain what is meant by a 'trial balance';
calculate the balances on the ledger accounts and identify whether they are debit or credit balances;
transfer the balances to the trial balance and add up the two columns to show that they balance;
explain what is proved by a trial balance balancing and which types of error it will not show up;
prepare financial statements, i.e. profit and loss account and balance sheet, from the trial balance.
explain what is meant by 'accrual accounting';
define 'revenue' and 'expense';
define and discuss the realisation and matching conventions;
explain what is meant by 'accrued expenses' ('accruals') and 'prepaid expenses' ('prepayments');
prepare financial statements from a trial balance, including adjustments in respect of accruals (accrued expenses) and prepayments (prepaid expenses).
explain the distinction between fixed and current assets;
explain the nature of depreciation in accounting terms;
explain the straight-line and accelerated depreciation methods and make the calculations;
compare the results of using the various methods;
explain the possible justifications for the use of the different methods;
record depreciation in the books of account, including the disposal of fixed assets;
explain 'what depreciation is not';
prepare financial statements including depreciation.
explain why most firms have formal credit control systems and outline the methods used to investigate potential customers;
outline common methods of collecting overdue debts;
explain why it is necessary to create a doubtful debts account and why this complies with the prudence and matching conventions;
calculate the amount for doubtful debts and deal with bad debts recovered;
prepare financial statements including bad and doubtful debts;
understand the problems caused by having numerous personal accounts (in a manual system) and the consequent need for control accounts;
deal with the mechanics of control accounts;
understand the need for bank reconciliations and prepare such reconciliations.
describe the various methods of determining the cost of goods sold, and the stock figure;
calculate the cost of goods sold and stock figure using the two main methods;
explain the effect on the profit and loss account and balance sheet of using the methods;
define the cost or market value (COMA) rule and apply it to the financial state¬ ments;
understand the advantages of using replacement cost (where that is possible), carry out the procedures for using replacement cost and show how its use leads to a more useful calculation of the amounts which may be withdrawn from the business by its owner(s);
prepare financial statements including stock adjustments.
understand the basic notion of business partnerships;
understand the more commonly used ways of dividing the profits or losses for the period between the partners and make the necessary calculations;
understand the special features of the financial statements of partnerships;
explain what is meant by goodwill and when and why it is necessary to estimate its value;
to make the accounting adjustments required when there is a change in the composition of the partnership;
explain what is meant by joint ventures and the main principles underlying the way in which their activities are recorded in the books of the parties to the joint venture.
explain what is meant by limited liability;
define a dividend and explain how the amount of the proposed dividend is expressed;
describe the various types of share capital and discuss their characteristics;
distinguish between private and public, and quoted (or listed) and unquoted companies;
explain the differences between the financial statements of sole traders and those of limited companies and prepare the profit and loss account and balance sheet of a limited company;
explain the nature and treatment of taxation in limited company accounts.
describe the nature of a group of companies and explain the reasons for using a group structure;
define what is meant by wholly and partly owned subsidiaries;
explain the principal accounting issues involved in the preparation of a set of con¬ solidated accounts;
prepare a set of simple consolidated accounts and understand its special features;
understand the term 'goodwill' as used in accounting for groups of companies;
define an associated company and understand the main accounting issues involved in accounting for an investment in an associated company.
explain the procedures needed to construct accounting records from incomplete information;
explain how to deal with unidentified payments and drawings;
prepare accounting records from information and explanations provided;
prepare financial statements from such records.
explain the particular needs for financial statements for clubs, societies and charities;
explain and deal with the particular difficulties which may be met with in preparing such statements;
prepare financial statements for such organisations.
list the main purposes of branch accounting;
explain the two main methods of branch accounting;
prepare branch accounts under each method;
prepare (i) the branch profit and loss account under each method and (ii) the branch balance sheet where the branch maintains full accounting records;
prepare a combined balance sheet, including items in transit, where the branch maintains full accounting records.
explain why it is necessary to understand the principles of accounting before going on to use computers;
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