Questions and Answers of Accounting For Non Accountants

Understand the potential usefulness of financial reports to various interest groups.
Understand the principal features of the analysis of trends in financial statements.
Be able to perform an analysis based on horizontal and/or vertical analysis of financial statements.
Understand the problems that can arise in comparing businesses with each other.Ronald's trading business operates from a shop in a large city centre. Extracts from Ronald’s most recent profit and
increase in gross profit = 15.2%.Which of the following is correct? A horizontal analysis of Ronald’s sales and gross profit figures shows:a) Higher than average increase in sales, and lower than
Rory’s profit and loss account statements show the following figures for the period 20X3 to 20X6 inclusive:20X6 20X5 20X4 20X3£ Ee £ ra Sales 562 064 539 409 520 665 505 500 Cost of sales (410
Inge Larsen is the principal shareholder in Larsen Locations Limited. Her company provides services to businesses that are in the process of moving from one location to another. Inge and her staff
Chapter Protection Limited is a security firm. Its profit and loss account for the year ending 31 December 20X2 is as follows:2 Turnover 188 703 Cost of sales (115 863)Gross profit 72 840
The following is a simplified extract from the balance sheet of Boots Group plc(the well known British high street chemist) at 31 March 2003 with comparative figures for 31 March 2002.2003 2003 2002
Causeway Ferguson plc is a trading company specialising in the supply of tea and coffee and related products. Jason has a small shareholding in the company that was left to him by a relative. He has
Rasheda’s sales for 20X2 were £206 400, and for 20X3 were £214 656. Her gross profit margins were 20X2 = 36.3% and 20X3 = 36.4%. Rasheda expects sales in 20X4 to increase by the same percentage
Reva has a jewellery business in a well-established shop. Her most recent profit and loss accounts show the following key figures:20X5 20X4£ £Sales 696 400 55) 702 Cost of sales (416 447)
Isaac Prentiss Limited produces parts and components for ships’ engines. The business requires a continuing investment in new machinery in order to keep production as efficient as possible. Isaac
Starkey Wilmott Limited has the following balance sheet at 31 March 20X3:Fixed assets Current assets Stock Debtors Cash at bank Creditors: amounts falling due within one year Net current assets Total
Understand the important role that cash plays in business.
Understand the distinction between profit and cash.
Be able to draw up a simple cash flow statement for a sole trader business.Fergus’s business enters into the following transactions in the year to 31 December 20X2:10:2 1033
Fergus introduces additional capital of £10 000 in cash.Purchase on credit of goods for resale for £8000.Payment received from debtor for £1800.Purchase of a new machine for use in the business.
Gilbert's business sells a fixed asset for cash proceeds of £1300. The asset originally cost £20 700, and accumulated depreciation at the point of sale was£18 210. Three of the following six
Gaston's business prepares accounts to 31 December each year. In the year ending 31 December 20X4 stock, debtors and creditors are shown in the balance sheet, with comparative figures at 31 December
Henrietta runs a business, trading as Spicer & Co. She prepares accounts to 31 March each year. By the year-end 31 March 20X4 the business has run into overdraft. Henrietta asks you to prepare a cash
Flynn's business enters into the following transactions in the year to 31 March 20X5:a Purchase of stock for cash of £1300.t ] Sale of a fixed asset with a written down value of £300. The sale
Describe the problems that can arise where a business ties up too much of its cash in stock.
Grant's business makes an operating profit of £16 632 in the year ending 30 April 20X1. One of the deductions in arriving at operating profit was depreciation of £6650.At 30 April 20X1 the balance
Gunter’s business sells an item of machinery for £2660 on 30 June 20X6. The balances at the beginning of the accounting year (1 January 20X6) for the asset were: cost = £17 700; accumulated
Hamid prepares his business financial statements to 31 May each year. Because he attended an accounting course at college he knows how to prepare profit and loss accounts and balance sheets. However,
Understand why accounting information is produced.
Be able to identify the principal groups in society who need and use accounting information.
Know about the principal characteristics and features of accounting information.
Understand the distinction between financial accounting and management accounting.
Know about the functions that accountants perform in the production of accounting information.
Appreciate the reasons why business managers should be able to understand accounting reports.
One of the following statements about the regulations governing a sole trader business is correct:a) Asole trader does not need to supply any accounting information about his or her business to
One of the following statements about the regulations governing limited company businesses is correct:a) All limited companies are obliged by company law to have an annual audit.b) A limited company
Podgorny & Weaver Limited is involved in the wholesale supply of fashion goods to retailers. The company directors have a monthly meeting to discuss strategy and to make decisions. The directors are
A group of environmental activists is interested in the activities of Burnip Chemicals plc, a company that has been regularly fined in the past for emitting toxic waste into the river running past
One of the following statements about the regulations governing partnership businesses Is correct:a) Partnerships are obliged to have an annual audit of their financial statements.b) Partnerships
Which of the following statements is correct? The stewardship function requires directors of limited companies to:a) Act at all times in the best interests of the company.b)) — Hold regular monthly
Ponderosa & Smythe plc is a shoe manufacturing business, specialising in children’s shoes. The finance director has just received the following letter from a shareholder who has recently bought
Mohsin, a bank manager, is looking at an application for a loan from Boxer Burstall Limited, a local company. The company has included a copy of its most recent annual accounts, which are for the
Understand the treatment in the profit and loss account of complexities such as discounts and returns of goods.
Appreciate and be able to apply some of the important conventions in accounting for recognition of income and expenses.
Understand the need for provisions against certain current assets, and be able to make appropriate adjustments to the profit and loss account and balance sheet.The chapter is divided into the
Consideration of some additional items that may be included in the profit and loss account — namely, returns of goods, discounts and delivery charges.
An introduction to some of the main conventions in accounting, including the important principle of matching (accruals).
Adjustments that may be required in respect of stock and debtors.
Oscar's trading company prepares accounts to 31 December. In the year to 31 December 20X1 the following trading transactions occur:if Sales 72 411 Purchases 53 005 Sales returns 361 Purchases returns
Omar imports onyx picture frames from India. He prepares accounts to 30 April each year. In the year ending 30 April 20X7 he records the following totals for trading transactions:re Sales 347 348
Poppy imports and sells display fireworks. She supplies her customers on credit terms, requiring payment of invoices within 30 days. In order to encourage early payment she offers customers a
Pookie’s business involves telephone sales, so her business phone bills are high.Her accounting year ends on 31 August, and in the year to 31 August 20X8 she has received bills for phone charges as
Patience pays a subscription to a business trade association annually in advance.The subscription is due on 30 September each year, to cover one year running from 1 October. Patience’s accounting
Simon trades in soft furnishings from shop premises in the centre of a small town in northern England. He provides basic summaries of his transactions for his accountant, Bernie, who prepares his
Ted sells belts and accessories to fashion stores around the country, buying in most of his goods from China. Long experience in the business has developed his judgement in purchasing; he needs to be
Ulrich prepares his accounts to 31 July each year. At 31 July 20X1 his debtors list totals £397 700. Included in the list is a debt of £17000 owing by Gayle Associates. Gayle Associates has
Ursula is a wholesaler trading in stationery supplies. She sells to offices and shops around the country and at any one time has up to 350 debtors due to pay her.She allows 30 days credit but finds
Briefly explain the following accounting terms, providing an illustrative example in each case:a) Recognitionb) — Accruals C) Net realisable value 170 | SECTION 2. FINANCIAL ACCOUNTING Exercises:
Olivia's trading company prepares accounts to 31 August each year. In the year ending 31 August 20X4, the following trading transactions occur:£Sales 193 306 Purchases 144.315 Sales returns 1 836
Ophelia imports glass ornaments from Norway. She prepares accounts to 30 June each year. In the year ending 30 June 20X9 she records the following totals for trading transactions:£Sales 83 722
Paolo trades in promotional goods. His customers order items like mouse mats, biros, playing cards, golf balls and so on, printed with their own logo. Paolo keeps a stock of blank goods. When he
Paula’s business expenses for 31 October 20X1 are summarised as follows:Apart from the electricity, Paolo’s records show the following items of sales and expenses for the year:£Discounts allowed
In 20X7 the gas bills for Peregrine’s business are received and paid as follows:Date received Date paid Period covered 4 March 20X7 10 March 20X7 1.12.X6-28.2.X7 6 June 20X7 20 June 20X7 [PS—
Sylvester runs a consultancy business, employing two members of staff as consultants and a secretarial assistant. Because he has done an accountancy course, he is able to prepare his own accounting
Umberto makes a provision of 1.5% against his total debtors each year. In the year to 31 August 20X7 he has used up £650 of this provision because a debtor has gone out of business. Umberto’s
Identify and explain the fundamental rule that is applied to the valuation of stock.
Understand the need for depreciation and amortisation in financial statements.
Understand the distinction between tangible and intangible fixed assets.
Be able to incorporate adjustments for depreciation and amortisation into a profit and loss account and balance sheet.
Valerie runs a small delivery business. She has a van that she replaces every four years. On 1 January 20X3 she sells her old van for £2000 and buys a new one for£14 460. She expects to be able to
Victoria owns a gym. In her financial year to 31 August 20X2 she buys a new exercise bike for £450. The date of purchase was 1 March 20X2. Victoria aims to keep gym equipment for three years. After
Vinny is expanding his electrical components business. During his accounting year ending 31 December 20X6 he buys new machinery as follows:# On 1 April a machine costing £10 300. The estimated
Vinny charges depreciation in the accounts on the basis of the number of months of ownership of the asset in an accounting year. Working to the nearest £, what is the total depreciation charge for
Having qualified as a mining engineer Violet decides that she would like to go into the gold-mining business. She spends a considerable period of time looking for mining opportunities. Finally she
Vincenzo's balance sheet at 31 August 20X7 shows the following balances in respect of fixed assets:£Buildings at cost 306 000 Less: accumulated depreciation (18 360)Net book value 287 640 Motor
Buildings at 2% per annum on cost on the straight-line basis.@ Motor vehicles at 25% per annum on the reducing balance basis.@ Fixtures and fittings (which were all purchased at the same time) over
Wilma depreciates cars on the reducing balance basis at 15% per annum.What will be the depreciation charge for the first year of ownership of the new car?a) £3 660 Dp ae est/.60 Cn £3) O40d) £4
At 1 January 20X3 William has the following balances in his books related to the fixed asset of cars:ie Cars at cost 38 370 Less: accumulated depreciation (15 540)Net book value 22 830 He acquires a
Xenia no longer needs a second van in her business, and so she decides to sell it.The van originally cost £8300 and by Xenia’s year-end of 31 March 20X4 depreciation had accumulated of £6330. She
Xanthe runs a florist’s shop. Her assistant goes out every day in the van delivering flowers. The van accumulates high mileage quickly and Xanthe usually replaces it every three years. The van cost
Ying runs a wholesale business supplying art equipment to retailers. She uses two computers to keep stock and other records — one in the office and one in the warehouse. In her accounting year
Zo6é starts up an independent fast food outlet on 1 January 20X4, trading as Zoé’s Snacks. Her accountant has advised her that she should depreciate her machinery and fixtures over a period of
Describe the effect of a charge for depreciation upon the components of the accounting equation.Exercises: answers available to lecturers
Victor adopts the straight-line method of depreciation in his accounts. He purchases a new machine on 1 June 20X4 for £13 750. He expects to keep the machine for approximately six years, at the end
Virginia runs a business that supplies food for office parties and similar functions.Food is delivered to the client’s premises in vans which have been specially adapted to take shallow trays of
Valda runs a marketing agency. She prepares her own accounts and is currently working on the profit and loss and balance sheet at 31 December 20X7. She purchased the freehold of a small office
Wally’s business owns several machines that he depreciates on the reducing balance basis at the rate of 10% per annum. His balance sheet at 31 March 20X8 shows the following balances in respect of
Wilbur's celebration cake business is flourishing. He plans to move to new premises and to employ more staff. He finds a unit on an industrial estate with a seven-year lease, for which he is required
Xavier depreciates his machinery over ten years using the straight-line method.On 31 December 20X7 he sells a machine that he has owned for exactly seven 198 | SECTION 2. FINANCIAL ACCOUNTING
Xan has a machine at net book value of £13 338 in his accounts. If he sells the machine for £15 000 he makes a profit on disposal of £1662. Using the accounting equation, what is the effect on his
Understand in outline the regulations relating to accounting by companies.
Understand the roles of directors in respect of company financial reports.
Be able to draw up a set of financial statements for a simple limited company.
Understand the need for additional financial and non-financial reporting by listed companies.
Two of the following four statements are correct:1. Directors must prepare the company’s accounts themselves.2. Directors take complete responsibility for the preparation of accounts.3. Directors
Bayliss Chandler Limited has an authorised share capital of £30 000, split into 50p shares. Two-thirds of the shares are issued. In the year ending 31 May 20X3 a dividend of 6p per share is
Peachey plc has an authorised and issued share capital of £60 000 denominated in 25p shares. On 13 May 20X6 Carina, a shareholder, sells half of her total shareholding of 8000 shares to her sister
Butterthwaite plc has issued share capital on 1 January 20X1, as follows:@ ordinary share capital: 68 000 £1 ordinary shares@ preference share capital: £20 000 6% cumulative preference shares.fat
The directors of Solar Bubble plc, a trading company, have asked the company’s chief accountant to prepare a draft profit and loss account for the year ending 31 January 20X4 in time for them to
Brighton Magnets Limited has the following balances in its books at 31 August 20xX9:£Closing stock 186 420 Delivery vans at net book value 120 000 Secretarial costs 51 498 Electricity (admin.
Two of the following statements are correct:1. Listed companies are obliged to produce a social responsibility report as part of their annual report.CHAPTER 11. FINANCIAL REPORTING BY LIMITED
Three of the following six statements are correct:1. | The audit report of a company states that the accounts are correct.2. A private limited company does not have to make any information available

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