Accounting For Business Textbook Questions And Answers

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Accounting For Business Textbook Questions And Answers

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pstrong Chapter: /strong/pstrong /strongpstrong 7- Ratio analysis 2: liquidity, working capital and long-term financial stability -Problem: 2 gt;gt; /strong A colleague who has just started studying accounting has read in another book that companies without current ratios of 2

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Chapter:

7- Ratio analysis 2: liquidity, working capital and long-term financial stability -Problem: 2 >> A colleague who has just started studying accounting has read in another book that companies without current ratios of 2:1 and quick (acid test) ratios of 1:1 will find it difficult to meet their current liabilities as they fall due. She has just noticed your current and quick ratio calculations for Samoco plc in Question 7.1 and has concluded that the company is about to collapse. Using the infor
Answer: Amounts due for repayment the day after the year end: Samoco thus has more than enough cash in hand to cover any liabilities due on 1 June in each yea…

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5- Business Organizations and the Financing of Business -Problem: 2 >> An investor has £200,000 to invest and has to choose between three different investments:• An investment in a £200,000 bond paying 5% interest per annum• An investment in a new issue of preference shares with a par value issue price of 50 pence paying an annual dividend of 3 pence per share• An investment in a new issue of ordinary shares with a par value issue price of 25 pence

paying an annual d
Answer: Annual interest received on the bond: 200,000 5% = 10,000 Annual dividend from the investment in the …

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5- Business Organizations and the Financing of Business -Problem: 3 >> A printing company wishes to raise £3,000,000 to finance its expansion. It can do this in one of three ways: borrowing from the bank at an annual interest rate of 5; issuing ordinary shares at their par value of 40 pence, which will require an annual dividend payment of 1.9 pence per share; or issuing preference shares with a par value of 60 pence, which requires a fixed dividend of 3.15 pence per
Answer: Borrowing from the bank at 5% per annum: 3,000,000 5% = 150,000 annual cost. Ordinary share…

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2- The Statement of Financial Position -Problem: 4 >> Maria runs a small corner shop. Her statement of financial position at 31 October 2019 is shown below.The following transactions took place in the first week of November 2019:• Trade payables of £3,500 were paid from the bank account.• Maria paid £10,000 of her own money into the bank account.• Inventory of £1,200 was sold for £2,000 cash, a profit of £800 for the week.• New inventory of £2,500 wa
Answer: Notes 1. Paying trade payables from the bank account will increase the overdraft by 3,500. Money has …

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4- The Statement of Cash Flows -Problem: 5 >> Statements of financial position for Metal Bashers plc, together with extracts from the statement of profit or loss and relevant notes, are given below. Metal Bashers plc produces machine tools for industrial use.Metal Bashers plc: statements of financial position at 30 September 2019 and 30 September 2018

During the year to 30 September 2019:• Metal Bashers plc paid total dividends of £1,080,000•
Answer: (a) Metal Bashers Limited: statement of cash flows for the year ended 30 Septe…

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5- Business Organizations and the Financing of Business -Problem: 5 >> Plants Limited is looking to expand its operations in the year to 31 October 2020, but needs to raise additional finance to do so. The company proposes raising £500,000 by issuing 200,000 ordinary shares on 1 May 2020. Profits for the year to 31 October 2020 are expected to be £90,000. An interim ordinary dividend of 15 pence per share will be paid on 15 April 2020 and a final ordinary dividend of
Answer: (a) Amounts to be added to ordinary share capital and share premium in the statement of financial po…

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10- Standard Costing and Variance Analysis -Problem: 4 >> Smashers Tennis Club runs coaching courses for its junior members. Each course lasts for ten weeks and is priced at £70 for each junior member. Smashers expects each course to attract 12 junior members. Each course is allocated 20 tennis balls for each participating junior at an expected cost of £10 for 20 balls. A professionally qualified tennis coach undertakes each hour-long coaching session ov
Answer: (a) Calculation of the original expected surplus from the coaching course (b) Calculation of the exp…

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8- Product costing: absorption costing -Problem: 5 >> Metal Bashers Limited produces steel fabrications for the construction industry. Steel girders and supports are cut to size and welded in the welding department and then painted in the paint shop before proceeding to the finishing department. Details of the overheads incurred by the three production departments are given below along with information on the two additional departments, the canteen a
Answer: For part a and b. Step 1: Reallocate service department overheads to production departments. The servicing department overheads can be allocated using …

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2- The Statement of Financial Position -Problem: 2 >> The directors of Oxford Academicals Football Club Limited are discussing whether player registrations can be recognized as assets on the club’s statement of financial position. There are two groups of players. The first group consists of those players whose contracts have been bought by the club from other teams through the transfer market. The second group is made up of players who have come up t
Answer: Oxford Academicals Football Club Limited This is a further application of the criteria to determine whether entities can recognize assets on their statement of financial position or not. Looking at th…

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6- Ratio analysis 1: profitability, efficiency and performance -Problem: 3 >> Extracts from the income statements (= statements of profit or loss), statements of financial position and notes to the financial statements for Bovis Homes Group plc (years ended 31 December 2017 and 31 December 2016, www.bovishomesgroup.co.uk/investors/reportsand- presentations), Persimmon plc (years ended 31 December 2017 and 31 December 2016, https://www.persimmonhomes.com...
Answer: Ratio calculations and ratios: Bovis Homes Group plc Ratio calculations and ratios: Persimmon plc Ra…

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9- Relevant costs, marginal costing and short-term decision making -Problem: 3 >> Big Bucks University is planning to offer a series of professional accounting course classes. The fee payable for this professional accounting course is £400 per student per module. The university has already allocated lecturers currently employed at the university to each class and has determined that lecturers are being paid £60 per hour for the 60 hours required to deliver each module. The lect
Answer: Big Bucks University (a) Relevant costs The lecturer costs are not relevant to the decision on how many students to recruit as the lecturers will be p…

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10- Standard Costing and Variance Analysis -Problem: 3 >> Sanguinary Services carries out blood tests for local hospitals, surgeries and doctors. The standard cost card for each blood test is given below.The centre has fixed overheads of £72,000 per annum and plans to carry out 36,000 blood tests every year at the rate of 3,000 tests per month.In April, the following results were recorded:

Required(a) Calculate the profit that the centre expected to make
Answer: (a) The profit that the centre expected to make in April, based on the original forecast of 3,…

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2- The Statement of Financial Position -Problem: 3 >> The following balances have been extracted from the books of the limited companies Alma, Bella, Carla, Deborah and Eloise at 30 April 2019. Using the statement of financial position format presented in this chapter, draw up the statement of financial positions for the five companies at 30 April 2019.

Transcribed Image Text
Answer: Notes 1. There are no intangible assets in Alma so the total here is zero. 2. (Plant and machinery) 2,000 + (land and buildings) 4,500 = 6,500. 3. Total assets = non-current assets + current assets, s…

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7- Ratio analysis 2: liquidity, working capital and long-term financial stability -Problem: 3 >> Listed below is information relating to four companies:• Ted Baker is a global lifestyle brand that operates through three main distribution channels: retail, which includes e-commerce, wholesale and licensing, which includes territorial and product licences. The company offers a wide range of fashion and lifestyle collections.• Nichols is a producer of still and carbonated soft drinks.• The Weir
Answer: Ratio calculations Ted Baker plc Ratio calculations N…

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4- The Statement of Cash Flows -Problem: 3 >> Look up the answer to End-of-chapter questions 3.5. Using the statement of profit or loss and the statement of financial position, present the statement of cash flows for Laura for the year ended 31 August 2019 using the indirect method.

Data from Exercises 3.5.Laura was made redundant on 1 July 2018 and received £50,000 in redundancy pay. With this money, she opened a business bank account and se
Answer: Laura: statement of cash flows for the year ended 31 August 2019 Notes Information from the statemen…

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9- Relevant costs, marginal costing and short-term decision making -Problem: 5 >> Diddle Limited produces ornamental statues for gardens whose selling price, costs and contribution per unit are as follows:The same specialized clay is used in all three statues and costs £6 per kg. The company faces a shortage of this clay, with only 3,000 kg available in the next month. The board of directors is therefore considering which statues should be produced in order to maximize contribu
Answer: Step 1: calculate the quantity of limiting factor used in the production of each product: Clio: Mate…

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10- Standard Costing and Variance Analysis -Problem: 5 >> Vijay Manufacturing produces garden gnomes. The standard cost card for garden gnomes is as follows:Fixed overheads total £24,000 and are allocated to production on the basis that 24,000 gnomes will be produced each year, 2,000 each month.Vijay is reviewing the actual production and sales for the month of June. The weather has been wet and garden gnome sales have fallen from their normal levels. Co
Answer: For part a, b, and c. (d) Variance analysis and reconciliation statement: Sales price variance Sales …

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9- Relevant costs, marginal costing and short-term decision making -Problem: 4 >> Gurjit Limited produces and sells ink jet printers. The selling price and cost card for each printer are as follows:Currently, production and sales are running at 5,000 printers per annum. The fixed overhead allocated to each printer has been based on production and sales of 5,000 units. However, because of the popularity of the product and a strong advertising campaign, the directors of Gurjit Li
Answer: Gurjit Limited (a) Current profit made at a level of sales and production of 5,000 ink jet printers per annum (b) Profit expected at a level of sales and production of 10,000 ink jet printers per annu…

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9- Relevant costs, marginal costing and short-term decision making -Problem: 1 >> Define the following terms(a) Contribution(b) Relevant costs(c) Irrelevant costs(d) Sunk costs(e) Opportunity cost(f) Break-even point(g) Margin of safety(h) Target profit
Answer: (a) Contribution for one unit of production and sales is the selling price less the variable costs o…

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7- Ratio analysis 2: liquidity, working capital and long-term financial stability -Problem: 1 >> Samoco plc operates a chain of in town grocery convenience stores and edge of town supermarkets across the UK. The company is expanding rapidly and is adding new stores every year. Below are the statements of profit or loss for the company for the years ended 31 May 2019 and 31 May 2018 together with statements of financial position at those dates.Notes to the above financial statements:• Samoco p
Answer: (a) Ratios for Samoco plc As Samoco plc has no trade receivables, receivables days are zero. (b) Evaluation of the liquidity, working capital and long…

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8- Product costing: absorption costing -Problem: 4 >> Folly Limited produces novelty products. The products are produced on machines in the manufacturing department and they are then hand painted and finished in the finishing department. Folly Limited has forecast the following indirect production overheads for the year ended 31 January 2020:* The canteen is in a separate building. The canteen rent, rates, heating, lighting, insurance and staff costs
Answer: (a) Total production overheads to be allocated to the manufacturing and painting and finishing departments The first task is to determine appropriate allocation bases for overheads. Using the informat…

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2- The Statement of Financial Position -Problem: 6 >> (a) The following figures have been extracted from the books of account of Frankie Limited at 31 December 2019.

RequiredUsing the statement of financial position format presented in this chapter, draw up the statement of financial position for Frankie Limited at 31 December 2019.

(b) During January 2020, the following transactions took place:• Bought £12,200,000 of inventory on credit from supplie
Answer: (a) Frankie Limited: statement of financial position at 31 December 2019 Notes 1. Goodwill is an intangible asset, so 1,000,000 is recorded as a non-current asset under this heading. 2. (Land and buil…

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5- Business Organizations and the Financing of Business -Problem: 1 >> Which business format would be most suitable for the following businesses? Can you say why your chosen format would be most suited to each business?• An oil exploration company• A taxi driver• A family run knitwear manufacturing business• Two friends setting up a dance school
Answer: An oil exploration company will set itself up as a public limited company. It will need a lot of inv…

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12- Capital investment appraisal -Problem: 5 >> Chillers plc manufactures fridges and freezers. The company is considering the production of a new deluxe fridge-freezer. The fridge-freezer will sell for £600 and the company’s marketing department has produced a forecast for sales for the next seven years as follows:Variable costs are budgeted to be 40% of selling price. Fixed costs arising from the sale and production of the new deluxe fridge-f
Answer: Chillers plc Our first task will be to calculate the annual net cash flows arising from the production of the new deluxe fridge-freezer. Information t…

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5- Business Organizations and the Financing of Business -Problem: 6 >> At 1 July 2019 Halyson plc had 500,000 ordinary shares of 25 pence each in issue together with 300,000 7.5% preference shares of £1 each. The balance on Halyson’s retained earnings at 1 July 2019 is £5,200,000.Halyson plc is proposing a bonus issue of seven new ordinary shares for every two ordinary shares currently held. Once this bonus issue is complete, a rights issue will be made of five new o
Answer: Calculate for Halyson plc: (a) The number of bonus shares to be issued: 500,000 ordinary shares currently in issue Seven new shares for every two held …

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10- Standard Costing and Variance Analysis -Problem: 1 >> There are 30 apple trees in the orchard attached to Bill’s farm. Bill reckons that each tree will be given five doses of fertilizer each year at a cost of £4 per tree and that 10 hours of labour will be required to pick the apples from and prune each tree. Workers are paid £7.50 per hour. At the end of the apple picking season, Bill calculates that the 30 trees only received four doses of fertiliz
Answer: (a) The total expected costs of the orchard for the past year (b) The …

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12- Capital investment appraisal -Problem: 1 >> Podcaster University Press is evaluating two book proposals, one in accounting and one in economics. The directors are keen on both books but have funding for only one and they cannot decide which book to publish. Details of the two books are as follows:Accounting bookThe accounting book requires an investment of £450,000 to be made immediately. The book will produce net cash inflows of £160,000 i
Answer: Podcaster University Press Accounting book payback period: 2 years + (130 160) 12 months = 2 years and 10 months Economics book payback period: 3 years exactly Payback: considerations The Accounting b…

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11- Budgeting -Problem: 1 >> Dave is planning to start up in business selling ice cream from a van around his local neighbourhood from April to September. He wants to open a business bank account, but the bank manager has insisted that he provides a cash budget together with a budgeted statement of profit or loss for his first six months of trading and a budgeted statement of financial position at 30 September. Dave is unsure
Answer: Daves ice cream van Dave: statement of profit or loss for the six months ended 30 …

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6- Ratio analysis 1: profitability, efficiency and performance -Problem: 1 >> Cuddles Limited produces teddy bears. The statements of profit or loss for the years ended 30 April 2019 and 30 April 2018 are presented below.Other information for the two years 30 April 2019 and 30 April 2018:

Cuddles Limited had no preference shares in issue in either of the two years ended 30 April 2019 and 30 April 2018.For Cuddles Limited, calculate the following ratios for the years ended 3
Answer: Gross profit % Operating profit % Profit before tax % Profit after tax % Non-curren…

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8- Product costing: absorption costing -Problem: 6 >> Playthings Limited produces two dolls houses, the standard and the deluxe. The direct costs and overhead information relating to these two dolls houses are listed as follows.

Playthings currently absorb their total overheads into their dolls houses on the basis of machine hours. The selling price of dolls houses is total absorption cost plus 50%. The directors are concerned about a build up in the
Answer: (a) First, calculate the overhead to be allocated to each product: i. Total machine hours: 10,000 for standard + 5,000 for deluxe = 15,000 hours in total ii. Total overheads: 150,000 iii. Absorption r…

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9- Relevant costs, marginal costing and short-term decision making -Problem: 2 >> Podcaster University Press is a small publishing company producing a range of introductory textbooks on a variety of academic subjects for first year undergraduate students. The company’s marketing department is considering reducing the selling price of textbooks to generate further sales and profit. The company’s textbooks currently retail at £30 each. Variable production costs are £10 per book a
Answer: Podcaster University Press Current profit: selling 200,000 textbooks at 30 each: Contribution per bo…

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3- The Statement of Profit or Loss -Problem: 3 >> The following figures have been extracted from the accounting records of Volumes Limited, a book binder, at 30 September 2019:

Additional information• Inventory at 30 September 2019 was valued at a cost of £150,000.• Taxation on the profit for the year has been estimated to be £250,000.• All depreciation charges for the year to 30 September 2019 have been calculated in the balances above.

Required
Answer: Volumes Limited: statement of profit or loss for the year ended 30 Septemb…

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8- Product costing: absorption costing -Problem: 1 >> Mantinea Limited manufactures various kitchenware products. The following direct costs are incurred in producing a batch of 2,000 food processors.The factory overheads for the year are £3,000,000. Total machine hours for the year are 750,000 and each processor takes 4.5 hours of machine time to produce. The selling price of food processors is total absorption cost plus 50%.

RequiredCalculate the t
Answer: Absorption cost for one food processor *Overhead absorption rate: 3,000,000 750,000 machine …

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11- Budgeting -Problem: 2 >> Hena plc has a division that manufactures and sells solar panels. Demand for solar panels has picked up recently and the company is looking to increase its output. Hena plc’s division currently manufactures 600,000 solar panels annually and is looking to double this capacity. A new factory has become available at an annual rent of £600,000 per annum payable quarterly in advance. New plant and mach
Answer: Item Amount/Description Existing Solar Panels Production (Annually) 600,000 New Solar Panels Production (Annually) 600,000 (double the existing capacity) Factory Rent (Annual) 600,000 (payable quarter…

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3- The Statement of Profit or Loss -Problem: 1 >> Abi runs a market stall selling fashion clothing for cash. Her business bank account balance at 1 September 2018, the start of her most recent trading year, was £7,342. She also had inventory of £2,382 and trade payables of £3,445 on that date. She rents her market stall at an annual cost of £6,000 payable quarterly in advance from 1 September each trading year. Abi paid all the rent that was due
Answer: (a) Abis capital account balance at 1 September 2018 Remember that assets liabilities = capital (b) Abis bank account for the year to 31 August 2019 (c) Statement of profit or loss by nature for the y…

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8- Product costing: absorption costing -Problem: 3 >> Applokia Limited is a manufacturer of smart phones. The company has the following costs for the month of September:* These costs remain the same no matter how many or how few smart phones are produced and sold in the month

Required(a) For the above costs, state whether they are:• Fixed or variable• Direct production costs, production overheads or period costs(b) Draw up a table that summarizes the
Answer: Applokia Limited (a) Variable costs: these are the costs that will vary directly in line with production. If you were at all unsure about which costs …

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12- Capital investment appraisal -Problem: 2 >> Zippo Drinks Limited is considering an investment in its computerized supply chain with a view to generating cash savings from using the benefits of currently available technology. Two options are under consideration. Option 1 will cost £200,000 and operate for five years, while Option 2 will cost £245,000 and remain operational for seven years. Given the longer implementation period, Option 2 wil
Answer: Payback Option 1 has a payback period of exactly three years whereas option 2 has a payback period of just under four years. Under the payback method …

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11- Budgeting -Problem: 4 >> It is now August 2019. You have been asked by your head of department to prepare the monthly budgeted statement of profit or loss and the monthly cash budget for the 12 months ending 31 December 2020 together with a budgeted statement of financial position at that date. You have been provided with the following details to help you in this task:(a) Positive cash balances at the end of each month wi
Answer: Budgeted Statement of Profit or Loss Month Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Total Sales 60,000 70,000 185,000 90,000 108,000 132,000 10…

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12- Capital investment appraisal -Problem: 4 >> Ambulators Limited makes prams and pushchairs. The company is currently evaluating two projects that are competing for investment funds.The first project is the introduction to the market of a new pram. The new pram will require an initial investment of £3,300,000 in marketing and enhanced production facilities and each new pram will sell for £450 over the life of the product. Market research has
Answer: Ambulators Limited Before we can undertake any calculations to determine payback, the accounting rate of return, the net present value and the internal rate of return of the two proposed projects, we …

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6- Ratio analysis 1: profitability, efficiency and performance -Problem: 2 >> The following information has been extracted from the financial statements of DD plc for the years ended 30 June 2019 and 30 June 2018:Further information for the two years 30 June 2019 and 30 June 2018:• The preference shares have a par value of 50 pence each and a dividend rate of 4%.• Market values of one ordinary share:For DD plc calculate the following ratios for the years ended 30 June 2019
Answer: As DD plc has preference shares in issue, preference dividends will need to be deducted from the pro…

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5- Business Organizations and the Financing of Business -Problem: 4 >> Plants Limited runs a garden centre business selling garden plants and products to the public from its busy edge of town site. In the year to 31 October 2019, Plants Limited’s issued share capital consists of 100,000 ordinary shares of 50 pence each and 100,000 preference shares of £1 each. The preference share dividend rate is 6%. Preference dividends are payable on 31 October each year. An inter
Answer: (a) 1 par value 6% = 0 06 dividend per share 100,000 shares = 6,0…

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4- The Statement of Cash Flows -Problem: 4 >> The statements of financial position for Potters Limited, together with relevant notes, are given below. Potters Limited produces crockery for sale to shops and through its site on the internet.Potters Limited: statements of financial position at 30 June 2019 and 30 June 2018

During the year to 30 June 2019:• Potters Limited paid £2,500,000 to acquire new property, plant and equipment• Depreciatio
Answer: Potters Limited: statement of cash flows for the year ended 30 June 2019 Cash …

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3- The Statement of Profit or Loss -Problem: 5 >> Laura was made redundant on 1 July 2018 and received £50,000 in redundancy pay. With this money, she opened a business bank account and set up a small building company undertaking household and small industrial construction work. She started trading on 1 September 2018 and she has now reached her year end of 31 August 2019. She has produced a summary of payments and receipts into her business bank
Answer: (a) Lauras bank account Remember that the bank account just includes cash receipts and cash payments. If any of your figures are different from the above, check back to the information in Question 3 5 …

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3- The Statement of Profit or Loss -Problem: 4 >> The following figures have been extracted from the accounting records of Textiles Limited, a cloth manufacturer and wholesaler, at 30 June 2019:

Additional information• Audit and accountancy fees (to be charged to administration expenses) of £10,000 have not been taken into account at 30 June 2019.• Administration expenses include payments for insurance premiums of £30,000 for the 12 months to 31
Answer: Textiles Limited: statement of profit or loss for the year ended 30 June 2019 Textiles Limited: statement of financial position at 30 June 2019 Workings and notes The audit and accountancy fees for th…

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3- The Statement of Profit or Loss -Problem: 2 >> Alison runs an online gift shop, trading for cash with individual customers and offering trading on credit terms to businesses. She presents you with the following figures from her accounting records for the year ended 31 December 2019:

Alison provides you with the following additional information.• Alison valued the inventory at 31 December 2019 at a cost of £22,600.• All depreciation charges on
Answer: Alison: statement of profit or loss for the year ended 31 December 2019 Alison: statement of financial position at 31 December 2019 Notes Figures that do not change from the list of balances in the qu…

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6- Ratio analysis 1: profitability, efficiency and performance -Problem: 4 >> Using the ratios you have calculated in Question 6.3 for the three companies:• Suggest reasons for the changes in profitability over the two years for all three companies.• Evaluate the performance of the three companies from the point of view of the shareholders.

Data from Exercises 6.3Extracts from the income statements (= statements of profit or loss), statements of financial position and notes
Answer: In the answers to question 6 4, the term income statement = statement of profit or loss Bovis Homes Group plc All profitability %s for the company in 2017 are lower than the profitability %s in 2016. …

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10- Standard Costing and Variance Analysis -Problem: 2 >> Fred bakes cakes. His budget indicates that he will produce and sell 1,000 cakes during March at a selling price of £15 each. At the end of March he calculates that his selling price was £15.50 for each cake produced and sold and that he has generated £14,725 in sales. His standard cost card for each cake shows that his variable cost of production is £6 per cake.

RequiredCalculate for Fred for Mar
Answer: (a) Sales price variance Number of cakes sold: 14,725 15 50 = 950. Sales price variance: number …

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1- Introduction to accounting -Problem: 2 >> A premier league football club has received an offer for its star striker from Real Madrid. The star striker is eager to leave and join the Spanish team and the board of directors has reluctantly agreed to let him go for the transfer fee offered. The team now needs a new striker and the manager has been put in charge of identifying potential new centre forwards that the club could bid for. You hav
Answer: 1. Costs Transfer fee demanded by potential targets current clubs Weekly wages that new striker is l…

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2- The Statement of Financial Position -Problem: 1 >> Using the criteria outlined in the summary in Figure 2.2, explain why the following items are assets that entities recognize on the statement of financial position:(a) Motor vehicles purchased by an entity.(b) Inventory received from suppliers.(c) Cash and cash equivalents.Using the criteria outlined in the summary in Figure 2.2, explain why the following items are not assets and why they are not
Answer: Resources that are assets Apply the five criteria to show why the resources in the question are assets of entities and so are recognized on the statement of financial position. (a) Motor vehicles purc…

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4- The Statement of Cash Flows -Problem: 1 >> Look up the answer to End-of-chapter question 3.1. Using details of Abi’s assets and liabilities at the start of the trading year, her statement of profit or loss, her statement of financial position and her bank account summary for the year, present Abi’s statement of cash flows using both the direct and the indirect method for the year ended 31 August 2019.

Data from Exercises 3.1Abi runs a mark
Answer: Abi: statement of cash flows for the year ended 31 August 2019 using the direct method Notes 1. As Abi makes all her revenue (sales) for cash, this is …

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6- Ratio analysis 1: profitability, efficiency and performance -Problem: 5 >> From the financial press or internet, track the share price of the three companies given above for one week and calculate the average share price for each company. Using your average share price, the earnings per share and the dividends per share from the answers to Question 6.3, calculate:• Dividend yield• Price/earnings ratioUsing a share price tracker on the internet, look back to the same week
Answer: Tracking share prices for the week 23 April to 27 April 2018 Of the three companies, Bovis has the highest price earnings ratio. This may be something …

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4- The Statement of Cash Flows -Problem: 2 >> Alison runs an online gift shop, trading for cash with individual customers and offering trading on credit terms to businesses. Alison provides you with the following list of statement of financial position balances at 31 December 2018:

Alison provides you with the following additional information:• During the year to 31 December 2019, Alison spent £8,000 on buying new computer equipment and £9,60
Answer: Alison: statement of cash flows for the year ended 31 December 2019 using the indirect method Cash f…

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1- Introduction to accounting -Problem: 1 >> What accounting and other information would the managers of the following organizations require in order to assess their performance and financial position?• A charity• A secondary school• A university• A manufacturing business
Answer: Information required by the trustees of a charity: Donations received Legacies received Money received from fund-raising campaigns Ability of the char…

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7- Ratio analysis 2: liquidity, working capital and long-term financial stability -Problem: 4 >> Given the activities of each company, comment on how you would expect each company to generate its cash inflows together with an assessment of the liquidity, solvency and long-term financial stability of each company. Your answers should address the following issues, among others:• The current and quick ratios of the four companies.• The cash conversion cycles of the four companies.• Why do the in
Answer: Assessment of the cash-generating ability, liquidity and solvency of each company: Ted Baker plc The current ratio is very high because of the high levels of inventory maintained by the business. High …

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8- Product costing: absorption costing -Problem: 2 >> Printers Limited has been asked by the local university press to quote for the printing of a new book. The print run will be for 2,000 books of 400 pages each. The costing records of Printers Limited contain the following information:• Paper is bought from a local supplier. The local supplier provides paper at a price of 2,500 sheets for £9.• Printing ink costs £57.50 per gallon, which is sufficie
Answer: Printers Ltd print run Selling price for printing 2,000 books: 18,000 1 25 = 22,500 = 11 25 for each …

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11- Budgeting -Problem: 5 >> Your friend is proposing to make a bid for a manufacturing business that has come onto the market. The business makes white plastic patio chairs. The purchase price for this business is £240,000. This purchase price is made up of plant, equipment and fittings (£180,000) with a useful life of five years, an inventory of raw materials (£20,000) and finished goods (£40,000). A delivery van will be pu
Answer: To prepare a monthly cash budget and a budgeted monthly statement of profit or loss for the first six months of operations, along with a budgeted statement of financial position at the end of June, we …

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2- The Statement of Financial Position -Problem: 5 >> Andy Limited’s statement of financial position at 30 June 2019 is shown. The following transactions took place in the first week of July 2019:• 1 July 2019: paid a trade payable with a bank transfer of £2,500 and received cash of £3,000 by bank transfer from a trade receivable.• 2 July 2019: took out a bank loan (full repayment is due on 30 June 2022) with which to buy a new vehicle costing £20,00
Answer: Notes 1 July 2019: the payment of the trade payable reduces both trade payables and cash and cash eq…

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12- Capital investment appraisal -Problem: 3 >> You are considering a five-year lease on a small restaurant serving light meals, snacks and drinks. The five-year lease will cost £80,000 and the lease will have no value at the end of the five years. The costs of fitting out the restaurant will be £30,000. After five years, you expect the restaurant fittings to have a scrap value of £2,000. You anticipate that net cash inflows from the restaurant
Answer: Payback Running the restaurant yourself results in a payback period of 2 years, whereas the payback period for renting out the restaurant is just 2 years. Accounting rate of return Total depreciation …