Questions and Answers of Advanced Financial Accounting An International

The payments set out in Table 9.9 have been made during the year in relation to a fixed asset bought at the beginning of the year:What cost figure should be used as the basis for the depreciation
Is depreciation either too subjective, or too arbitrary, to be useful?
A company has a group of fixed assets that are summarized in its accounting records as shown in Table 12.7.For tax purposes the asset balance brought forward on 1 January of year 1 is A7,000.Tax
Study Figure 13.6 in the chapter. Write a short report on Bayer’s management of its cash flows over the period reported.
The balance sheet of Dot Co. for the year ended 31 December 20X2, together with comparative figures for the previous year, is shown in Figure 13.7(all figures A000).You are informed that there were
Repeat Exercise 13.3, but this time work on the assumption that fixed assets that had originally cost A30,000, with accumulated depreciation of A12,000, had been sold during the year ended 31
A Co. owns 75 per cent of the shares in B Co., bought when the reserves of B were A200,000. The individual balance sheets of A and B as at 30.6.20X8 are given in Table 14.12. During the year, B has
P is a computer dealer. From the information in Table 16.5:(a) compute the income statements and closing balance sheets for each of the years 20X0 and 20X1 under historical cost principles, assuming
Duck Co. was formed on 1 January 20X0 with 10,000 issued A1 ordinary shares. The same day it obtained a 12 per cent loan of A8,000 and bought fixed assets for A9,000.During 20X0, the purchases and
From the historical cost accounts of Q Co., set out in Figure 16.17, prepare a set of CPP accounts for the year ended 31 December 20X8.The movement on the retail price index can be taken as
Explain and demonstrate how replacement cost accounting affects reported profit compared with historical cost.
Is replacement cost more or less prudent than historical cost?
‘Businesses should be required to publish their income statement on replacement cost lines and their balance sheet on net realizable value lines.’ Discuss. Figure 16.17 HC accounts for Q for 20X8
Explain the meaning of deprival value. Is it an improvement on pure replacement cost accounting?
Ale Properties is a small family-owned company that only has equity share capital;it has no debt capital. Its net assets at 1 January 20X1 were A1,000, and on the 31 December 20X1 the net assets were
‘Historical cost accounting is simple and reliable. We should all use it as the basis of financial reporting.’ Discuss.
Type ‘fair value accounting’ into Google or another suitable search engine. Attempt to make sense of, and summarize, what you discover.
You are given summarized information about two firms in the same line of business, namely A and B, as shown in Figure 17.9.You are required to:(a) produce a table of ratios calculated for both
Repeat Exercise 1.4 from Chapter 1. Do you think that users know what to ask for from their accountant or financial adviser?
Cross-sectional analysis (comparisons between different businesses over the same period) and trend analysis (comparisons between the same business over different periods) both suffer from significant
The details in Figure 17.10 relate to D Co. Using that information and appropriate ratios, prepare an analysed financial report on the above company. Figure 17.10 Financial statements for D Summary
Set out in Figure 17.11 are summarized balance sheets and income statements for F Co. for 20X1 and 20X2.You are required to:(a) prepare a table of ratios, covering all aspects of interpretation as
The information in Table 2.22 relates to entity F, which started business on 1 January 20X7 when A150,000 was paid in as capital.(a) Convert the above information into balance sheets at the end of
Company G has a hardware business. The balance sheet at the beginning of the financial year showed the position in Table 2.23.Show the adjustments, in the columns provided, for each of the following
The above information has been taken from the company’s books as at 31 December 20X7, but the following have not yet been allowed for:(a) Rent owing but not yet paid amounting to A1,000.(b)
The above information has been taken from the company’s books as at 31 December 20X7, but the following has not been allowed for:(a) Inventory at the end of the year is A25,000.(b) Audit fees owing
This information has been taken from the company’s books as at 31 December 20X7, but the information below has not been allowed for:(a) Inventory at 31 December 20X7 is A20,000.(b) Plant and
By reference to any of the countries in Figures 5.2 or 5.3 with which you are familiar, comment on the apparent validity of the groupings. Make notes of points for and against the particular
Bearing in mind that Section 5.5.2 of this Chapter was written in 2009, rewrite it in the context of the time when you read this book.
The following information has been extracted from the recently published accounts of company D, as set out in Figure 7.11.The ratios set out in Table 7.8 are those calculated for D, based on its
Under IFRS, the definition of a subsidiary is restricted to any entity:(a) Controlled by another enterprise.(b) In which another enterprise owns a majority of the voting shares.(c) Significantly
The equity method involves valuing an interest in an enterprise:(a) At stock market value.(b) At lower of cost and market value.(c) At proportion of net assets.(d) At cost plus dividends received.
The treatment of jointly controlled companies in consolidated financial statements in the US is to:(a) Fully consolidate them.(b) Proportionally consolidate them.(c) Hold them by the equity
Under IFRS, goodwill is calculated as the cost of the subsidiary minus:(a) The book value of the subsidiary’s identifiable net assets.(b) The fair value of the subsidiary’s identifiable net
The amortization of goodwill on consolidation is:(a) Tax-deductible in Germany but not in the US or the UK.(b) Tax-deductible in Germany and the US but not in the UK.(c) Tax-deductible in all three
The treatment of jointly controlled companies in consolidated financial statements in France is generally to:(a) Fully consolidate them.(b) Proportionally consolidate them.(c) Hold them by the equity
The writing-off of goodwill against reserves (compared with amortization) tends to:(a) Understate assets and income.(b) Overstate assets and income.(c) Understate assets and overstate income.(d)
In which country do listed parent companies not have to disclose their own individual company balance sheets to the public?(a) United Kingdom. (c) France.(b) United States. (d) Germany.
Explain the concepts of:(a) subsidiary;(b) joint venture;(c) associate;(d) trade investment which is none of the above.Outline and discuss the usual approaches to the accounting treatment in each
A Co. owns 75 per cent of the shares in B Co., bought when the reserves of B were i200,000. The individual balance sheets of A and B as at 30.6.20X2 are given in Table 14.12. During the year, B has
The balance sheets of A and B as at 31 December 20X4 are as shown in Figure 14.8.In addition:(a) A had acquired 37,500 shares in B in 20X0 when there was a debit balance on the reserves of i3,000.(b)
Two companies, A and M have balance sheets as at 31 December 20XX as shown in Table 14.13.acquired the whole of the share capital of M on the basis of a one-for-one share exchange as at the above
Under the temporal method, an historical rate of exchange is used to translate:(a) Receivables.(b) Inventories valued at net realizable value.(c) Sales.(d) Inventories valued at LIFO.(e) Long-term
When should the temporal method be used, according to IAS 21?(a) Never.(b) In most cases.(c) When a subsidiary’s functional currency is that of the parent.(d) When exchange rates are fixed.(e) When
When should the current rate method be used, according to IAS 21?(a) In all cases.(b) In all cases, unless it would fail to give a fair presentation.(c) When subsidiaries operate in their own
In consolidated financial statements prepared under which regulatory system is it least likely that gains from unsettled foreign currency receivables will be found?(a) UK system.(b) US system.(c)
IAS 21 allows a company to choose the functional currency that it would prefer.(a) True.(b) False
A foreign subsidiary’s cash balance will be translated to identical reporting currency figures whatever its functional currency is.(a) True.(b) False.
A loan is made to a company of $20,000, which is equal to i10,000 at the date of the loan during year 1. The loan is denominated in dollars. At the end of year 1 the loan is translated as i9,500, at
Home Inc. (an American company) has a wholly owned subsidiary, S, which it acquired on 1.1.X0. The balance sheets of S as at 1.1.X0 and 31.12.X0 are as set out in Figure 15.1 in foreign currency (FC)
Which of the following terms or phrases is most closely associated with current value accounting?(a) Specific price changes.(b) General price changes.(c) Inflation.(d) A change in the purchasing
Current purchasing power accounting is most closely associated with:(a) Specific price changes.(b) General price changes.(c) Changes in replacement cost.(d) Changes in net realizable value.
An asset purchased for i1,000 in 1980, when the consumer price index was 116(1977 # 100) would be restated to what amount today in constant currency terms, assuming today’s consumer price index is
During a period of inflation, a company whose monetary liabilities exceed its monetary assets has:(a) A net loss in purchasing power.(b) A net gain in purchasing power.(c) Either a net gain or a net
Historical cost balance sheets produce confusing totals, because the figures are all related to different dates. This problem is removed by the use of current purchasingpower adjustments, which leads
Under a current replacement cost system that seeks to maintain the operating capability of an enterprise, unrealized holding gains on fixed assets should be seen as not distributable but realized
Deprival value accounting can never lead to larger balance sheet numbers for assets than replacement cost accounting.(a) True.(b) False.
Adherence to the matching principle means that the historical cost basis must be used in financial statements.(a) True.(b) False.
What is the current ratio at 31.12.20X1?(a) 1.53.(b) 2.00.(c) 2.13.(d) 2.38.
What is the debtors’ collection period (in days) at 31.12.20X1?(a) 94 days.(b) 105 days.(c) 141 days.(d) 150 days.
What is the creditor’s payment period (in days) at 31.12.20X1?(a) 33 days.(b) 39 days.(c) 62 days.(d) 86 days.
What is the interest cover ratio at 31.12.20X1?(a) 1.33.(b) 2.17.(c) 3.17.(d) 13.17.
What are the earnings per share, in relation to 20X1?(a) €0.11.(b) €0.16.(c) €0.26.(d) €0.38.
What is the dividend cover, in relation to 20X1?(a) 2.2.(b) 3.2.(c) 5.2.(d) 7.6.
Accountants do not include assets on balance sheets if:(a) They are owned by someone else.(b) They are controlled by someone else.(c) They are expected to be sold soon.(d) Their replacement cost
Advertising expenditure is not capitalized because:(a) It is usually paid for in the following year.(b) It is intangible.(c) It is not clear how much future benefit will flow.(d) It is not an asset.
The market value of a listed company is not put into its balance sheet because:(a) Market value goes up and down over time.(b) Buyers of shares generally only buy a few shares.(c) Readers of
If a company’s share price falls, what happens to its PE ratio and dividend yield?P/E ratio Dividend yield(a) Increase Increase(b) Increase Decrease(c) Decrease Increase(d) Decrease Decrease
Repeat Activity 18.C in the text, but this time explain paragraphs (b), (c), (f), (g), (h)and (k) items in the reconciliation of shareholders’ equity from German GAAP to US GAAP, as given in the
The best case study of all is probably the real-world situation. This allows you to:• choose situations that are topical;• choose countries about which you are both knowledgeable and
The simplified financial statements of two companies, P and Q, are shown below at Figure 7.8.Assuming that interest is charged on the long-term loan at 10 per cent per annum, calculate the following
The summarized balance sheets of company R at the end of two consecutive financial years were as shown below, in Figure 7.9.Sales were i541,000 and i675,000 for the years ended 31 March 20X1 and
Mosca and Vespa are two sole traders with the financial statements (in euros) for the year ending 31 December as set out in Figure 7.10.Using the information contained in the financial statements,
The following information has been extracted from the recently published accounts of company D, as set out in Figure 7.11.The ratios set out in Table 7.9(overleaf) are those calculated for D, based
Business A and Business B are both engaged in retailing but seem to take a different approach to this trade according to the information available. The information consists of a table of ratios,
You are given in Figure 7.12, in summarized form, the financial statements of Non Co.for the years 20X2 and 20X3.Six months after each of the two year-ends, a dividend of i20,000 is paid in relation
Which of the following would not be included in the cost of land?(a) Commission paid to an agent for finding the land.(b) Cost of clearing an unneeded building from the land.(c) Annual property tax
A practical decision to expense small capital expenditures rather than to record them as plant assets and depreciate them is probably made on the basis of the convention of:(a) Consistency.(b)
Accountants include the following as balance sheet assets:(a) All items on which cash is spent.(b) All items that the business gets benefit from.(c) Items that have been paid for and will bring
A gain on the value of a factory building would be recorded in the income statement when:(a) It is sold.(b) Cash from the sale is received.(c) Its increased value is recorded in a balance sheet.(d)
Which of the following transactions results in an immediate increase in expenses?(a) Purchase of office equipment on credit.(b) Payment of accounts payable.(c) Payment of wages.(d) Repayment of bank
In practice, accountants record sales revenue when:(a) An order is placed by a customer.(b) Cash is received for the sales.(c) A product is finished and ready for sale.(d) An invoice or account is
A capital expenditure results in a debit to:(a) An asset account.(b) An expense account.(c) An equity account.(d) A liability account.
Depending on the circumstances, the value of an asset could reasonably be thought of as:(a) Its replacement cost.(b) Its realizable value in a market.(c) The future benefits that will flow from
The IASB Framework gives primacy of definition to:(a) Expenses and income.(b) Payments and receipts.(c) Equity.(d) Assets and liabilities.
According to the IASB’s Framework, an asset is something:(a) Owned.(b) Controlled.(c) Used.(d) Owned and controlled.
The following would not be recognized as assets under IFRS rules:(a) Research costs.(b) Costs of setting up a business.(c) Re-decoration of a building.(d) All of the above
Explain, in a way that is understandable to a non-accountant, the following terms:(a) asset.(b) liability.(c) revenue.(d) expense.(e) equity.
Please arrange the following five symbols into an equation with no minus signs in it: A, assets at end of period. L = liabilities at end of period. OE owner's equity at beginning of period. R =
A tractor held by a farm implement company for sale to farmers is a fixed asset.(a) True.(b) False.
Which of the following is properly classified as an intangible asset?(a) Debtors.(b) Accumulated depreciation.(c) Land held for future use.(d) Trademarks.
Under IAS, items should be put in a balance sheet under the heading ‘assets’ when:(a) They represent expenditures which have not yet been charged against income.(b) They meet the definition of
Under EU rules, a fixed asset is one that:(a) Could not be sold without loss.(b) Does not move.(c) Is not expected to be turned into cash within one year.(d) Is intended for continuing use in the
A company might pay more for a set of assets than the total of their apparent values as individual units because:(a) It expects future profits.(b) It believes that it is buying unidentified
In practice, leases are not generally capitalized under the rules of the following countries or standard setters:(a) US and Canada.(b) IASB.(c) Germany and Italy.(d) UK and Ireland.
Depreciation refers to the periodic allocation of the net cost of a fixed asset over its useful life.(a) True.(b) False.
The recognition of finance leases creates which of the following effects in financial statements of a lessee?(a) Net income always rises.(b) Net income always falls.(c) Net worth always falls.(d)
The net book value of a machine usually equals its market value.(a) True.(b) False.
Accelerated methods of depreciation result in lower net income in the last years of an asset’s life than does the straight-line method.(a) True.(b) False.
Which of the following would not be a basis for estimating the useful life of a piece of equipment?(a) Years of service.(b) Weight.(c) Potential production in units.(d) Hours of service.

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