Question: Montrose Glass Products Ltd manufactures three
Montrose Glass Products Ltd manufactures three ranges of high-quality paperweights – Basic, Standard and Deluxe. Its accountant has prepared a draft budget for Year 7: 
Fixed overheads are allocated to each product line on the basis of direct labour hours. The directors are concerned about the viability of the company and are currently considering the cessation of both Basic and Standard ranges, since both are apparently making losses. Required (a) If the directors close down only the manufacture of Basic paperweights, what is the effect on total profit? (b) If the directors close down only the manufacture of Standard paperweights, what is the effect on total profit? (c) What is the best decision with regard to keeping profit as high as possible?
> Explain why each of the following is recognized as a provision in the statement of financial position (balance sheet) of a telecommunications company: (a) On 15 December Year 2, the Group announced a major redundancy programmed. Provision has been made a
> The accountant of Blue Ltd discovered the following documents in a file marked ‘not yet dealt with’ at the company’s year end of 31 December Year Explain the accounting treatment required for each. (a) A supplier’s invoice for £300 was received on 21 De
> The statement of financial position (balance sheet) of a furniture retail company includes in current liabilities the item: ‘Deposits received from customers’ Explain why this item is a current liability.
> The statement of financial position (balance sheet) of an electricity company includes in current liabilities the item: ‘Prepayments by electricity consumers’ Explain why this item is a current liability.
> The following transactions relate to Computer Assembler Company during the month of May. Required: (a) Calculate the profit on sale. (b) Explain the effect of each transaction on the accounting equation. (c) Make entries in a spreadsheet summarizing t
> Discuss the problems of comparability of revenue recognition based on the following information: In the UK film and television industry, a range of accounting practices has been used in recognizing revenue. Three examples are as follows: Company A: This
> It is the policy of Hellebore Ltd to make provisions for doubtful debts at a rate of 15 per cent per annum on all debtor balances at the end of the year, after deducting any known bad debts on the same date. The following table sets out the total receiva
> Canyon Ltd uses FIFO stock valuation. Canyon has recently been acquired by a US parent company. The directors in the US wish to know what the profits of the past 5 years would have been if LIFO stock valuation had been applied. Relevant data are provided
> A fire destroyed a company’s detailed records of inventory (stock) and much of the merchandise held in inventory (stock). The company accountant was able to discover that stock at the beginning of the period was £60,000, purchases up to the date of the f
> It is the policy of Seaton Ltd to make provision for doubtful debts at a rate of 10% per annum on all debtor balances at the end of the year, after deducting any known bad debts at the same date. The following table sets out the total receivables (debtor
> A fire destroyed a company’s detailed records of inventory (stock) and much of the merchandise held in inventory (stock). The company accountant was able to discover that stock at the beginning of the period was £60,000, purchases up to the date of the f
> The Machine Grinding Company commenced business on 1 January Year 1 with capital of £80,000 contributed by the owner. The company immediately paid cash for a grinding machine costing £80,000. It was estimated to have a useful life of 6 years and at the e
> A food processing company purchased, on 1 January Year 1, a canning machine. The machine costs £24,000 and was estimated to have a 5-year life with a residual value of £2,000. Required: (a) Prepare a table of depreciation charges and net book value ove
> The Machine Grinding Company sold the machine for £40,000 at the start of Year 4 and replaced it with a new machine costing £100,000. The new machine had an estimated useful life of 8 years and an estimated residual value of £10,000 at the end of that pe
> Brian Grant set up a business selling quality electrical goods on 1 May 2001. The following represents the business transactions of the first month. 1. Brian paid £250,000 to the business bank account. 2. He obtained a 10-year business loa
> The following list of transactions relates to a television repair business, Peter (Television) Company, during July, which is its first month of business. Required: (a) Analyze the above transactions to show the two aspects of each transaction. (b) Prep
> Report and Accounts of Craigielaw plc 1. The statement of financial position (balance sheet) contains broad headings representing categories of assets and liabilities, but greater detail is found in the notes to the accounts. Follow the information in th
> 1. Look at the Property, Plant and Equipment note to the statement of financial position (balance sheet). What are the headings to the columns of figures? Explain how each heading passes the test of definition of an asset. 2. Look at the group statement
> 1. What type of business entity is Craigielaw? 2. What is the company’s business activity? 3. How many shareholders are there in Craigielaw? How many shares are there in Craigielaw? Do all shareholders own approximately an equal number of shares in the c
> 1. Scrutinise all sections of the Report and Accounts of Craigielaw plc and note all instances where accounting ratios have been mentioned. 2. What are the most frequently mentioned ratios in the Report and Accounts of Craigielaw plc? 3. Are there ratios
> 1. The ‘Statement of comprehensive income’ and the ‘Statement of changes in equity’ are intended to help the reader understand how the ownership interest has changed over the account
> 1. General types of non-current (long-term) liabilities (from Statement of financial Position. 2. Characteristics of loans: secured or unsecured? Information on Loans is contained in notes 21 and 20 on pages 33 and 34. You should be able to complete each
> 1. What is the nature and significance of individual current liability items in the financial statements? Complete the following table and write a short comment. 2. What is the effect on profit of a 10 per cent variation in estimation of each trade payab
> Report and Accounts of Craigielaw plc 1. What are the individual current asset items, by amount and as a percentage of total current assets, in the financial statements? 2. What is the effect on profit of a 10 per cent variation in the estimation of trad
> 1. What is the significance of the amount of property, plant and equipment in relation to the total assets of the company and to the business in general? Complete the table and write a short comment. 2. What is the relative significance of each type of a
> 1. List page numbers and a brief description of the evidence in the Report and Accounts that indicates that part of the document has been the subject of regulation. 2. What differences do you see between the audited and the unaudited parts of the Report
> Suggest reasons for the existence of more than one source of regulation of financial reporting by listed companies.
> Report and Accounts of Craigielaw plc 1. Read the paragraph headed ‘Directors’ Responsibilities’. What are the similarities and differences? 2. Read the ‘Report of the Auditors’ on the annual report. Compare this with the text book example. What are the
> Buchan Enterprises is considering investing in a new machine at a cost of £50,000. The respective cash flows are as follows: Year 1: 18,000 Year 2: 16,000 Year 3: 40,000 Year 4: 45,000 Year 5: 35,000 The company’s cost of capital is 12 per cent. Req
> In a calculation of the internal rate of return of a project it is found that the net present value is +£60m at 24% discount rate and −£20m at 26% discount rate. What is the Internal Rate of Return?
> Design a balanced scorecard for a restaurant business which owns three restaurants in the same town. Include three goals and three measurements of performance for each of the four aspects of the balanced scorecard, and write a short note justifying your
> Suggest three financial and three non-financial performance measures for a business which provides training in the workplace for updating word processing and computing skills. Each training course lasts two weeks and there is a standard fee charged per t
> Newcastle Patterns Ltd manufactures a single product that has the following standard cost specifications (per unit). During June, the following actual data have been recorded in the production of 1,400 units: Direct materials: 22,000 square metres at &A
> DEF Products Ltd manufactures and assembles one type of furniture unit. The following information is available for the year ended 31 August Year 7. The budgeted costs and the actual costs incurred during the year were as follows: The budgeted and actual
> (a) Define the term ‘budget’. (b) Explain how the budgetary process contributes to effective management in the areas of planning, control, communication and co-ordination and performance evaluation. (c) Motor Spares
> Kerryblue Ltd is a company manufacturing two products using one type of material and one grade of labour. Shown below is an extract from the company’s working papers for the next period’s budget. There are 12 5-day wee
> Sefton Ltd manufactures a product known as EC. The following information relates to the preparation of the budget for the year to 31 March Year 9: 1. Sales budget details for product EC are as follows: Expected selling price per unit: £100
> Explain why it is essential to have a statement of financial position (balance sheet), income statement (profit and loss account) and statement of cash flows in the annual report of a listed company.
> Smith plans to sell a single product at £10 each. His expected volume of sales for the first 2 months in business from 1 January to 28 February Year 1 is as follows: He sells his product for both cash and credit terms and estimates that 20 p
> Prepare: a production plan in units and (b) a purchases budget in £s for Houseline Ltd in Year 5, based on the following information that has been agreed by the line managers of Houseline Ltd as a basis for preparation of budgets for Year
> Farthing Ltd manufactures bicycle frames, which it sells for £40. The present machinery has a maximum capacity of 20,000 frames per year at which level net profit is £3 per frame and the contribution to sales ratio is 20%. A replacement machine is to be
> A valve-refurbishing business wishes to compare the cost of buying a component outside the business with the cost of making the component itself. The cost of outside components is £6 per item. The cost of manufacturing internally is calcul
> A business manufactures two products, namely chairs and tables, in a fixed ratio of four chairs to every one table. Sales and production volumes are always equal. The following selling prices and costs are specified: Total fixed costs of production are
> Stationery Co Ltd produces envelopes and writing pads. Weekly sales and costs are as follows: The volume of production always equals the volume of sales. Required: Draw separate break-even charts for (a) envelopes and (b) sales.
> A company produces three products that use the same manufacturing facilities. The details of the selling price and costs of each product are as follows: The fixed overhead is forecast as 450,000. The fixed overhead cost rate is £5 per direct
> Berwick Ornaments Ltd manufactures three types of souvenirs. Each souvenir has a photograph of a well-known tourist attraction in a frame made of seashells. There are three types of frames. One is in the shape of a square, the second is in the shape of a
> Continuing from the information contained in B19.4, the records at the end of August showed that there had been sales of 160 suitcases at a price of £60 each and 125 handbags at £40 each. Required: Calculate the cost of goods sold and the value of unso
> The following transactions relate to a specialist retailer of suitcases and handbags during the month of August. The retailer buys standard suitcases and handbags and carries out conversion work that involves adding decorative material to meet the needs
> Explain how the statement of financial position (balance sheet) will change for each of the following transactions? (a) The full amounts of £5,000 due from customers are received. (b) Additional items of raw materials to be held for resale are bought o
> A factory manufactures dog kennels. The production process is classified into four cost centres. In the following table of forecast information, the indirect labour and indirect materials have already been allocated to departments using departmental plan
> Anderson Company has been set up to manufacture electric grills under license. Selling prices have been based on competitive products already well-established in the market. The current year’s budget has been set as follows: Fixed produ
> Hainburn Ltd uses predetermined fixed overhead cost rates in its job costing system. The following information relates to 1 month of operation. Estimated direct labour hours for normal activity = 20,000 hours Estimated fixed overhead cost in total = £1
> A purchasing manager and a production manager are planning the material control procedures for a business that buys spare parts for motor cars and motor bikes and sells these through three shops in different parts of town. Explain the documents and proc
> Suggest a suitable type of pay scheme for each of the following groups of employees: (a) The employees work in a call centre, answering telephone calls from customers of banks. The employer wants to offer them a monthly salary but also wants to encoura
> The table in this question contains information about the monthly output level and monthly cost of paper used by a word-processing department in a lawyer’s office where documents are typed by three word-processor operators. Complete the
> The table in this question contains information about the monthly output level and monthly cost of supervising a word-processing department in a lawyer’s office where documents are typed by three word-processor operators. Complete the s
> The table below shows cost structures for three different companies at output levels of 1,000 units each. Each company has a potential range of output from 500 to 2,000 units per period. Required: Draw a graph showing the total cost of each company ove
> The Electrical Repair Company provides rewiring services for industrial buildings. Each contract for rewiring is treated as one item of product. Prepare a statement of total product cost for contract C using the following information about the contract:
> Classify each of the items in the following list as an asset, a liability or neither an asset nor a liability. Explain whether each item identified as an asset or a liability would meet the conditions for recognition of the item in the statement of finan
> E Ltd has an operating profit of £16m, which includes a depreciation charge of £2m. During the year the trading stock has increased by £1m, trade debtors have decreased by £3m and trade creditors have decreased by £2m. Prepare a statement of cash flow fr
> D Ltd has an operating profit of £12m, which includes a depreciation charge of £1m. During the year the trading stock has increased by £4m, trade debtors have increased by £3m and trade creditors have increased by £5m. Prepare a statement of cash flow fr
> The corporation tax charge in the income statement (profit and loss account) for Year 2 was £30m. The tax liability in the statement of financial position at the start of Year 2 was £6m. The tax liability in the statement of financial position at the end
> The share capital account increased by £40m during Year 4. The share premium reserve increased by £20m. What amount of cash was raised by the issue of shares?
> A vehicle costing £20m and having accumulated depreciation of £12m was sold for £5m. How will this information be reported in the statement of cash flows?
> Calculate ratios for Ed’s Enterprises and evaluate by comparison with the ratios calculated for Andrew Hunt plc.
> Calculate ratios for Andrew Hunt plc and evaluate by comparison with the industry average. Dividend proposed for the year is £150,000 or 10 pence per share. Industry average ratios Price /earnings: 15 Dividend yield: 4.3% Return on shareho
> The following financial statements relate to Charity plc: Required (a) Calculate ratios which measure: (i) liquidity and the use of working capital; (ii) management performance; and (iii) gearing. (b) Explain how each ratio would help in understanding th
> Suppose the block of offices was to be valued by a professional expert at £640,000. What effect would this information have on the reported financial statements?
> City Centre plc has owned a block of offices for many years. The building is recorded in the statement of financial position (balance sheet) at £750,000, the historical cost being £900,000 less accumulated depreciation of £150,000. The recent report of a
> Prepare a statement of financial position (balance sheet) from the following list of assets and liabilities using the accounting equation to deduce the ownership interest as the missing item.
> The following is a summarized statement of financial position (balance sheet) of West plc: The company is considering three possible changes to its capital structure: (a) Issue for cash 80 million additional ordinary shares of nominal value, 50 pence ea
> Home Bakeries Ltd receives a training grant to cover staff training costs that will be incurred evenly over the next 2 years. Explain the accounting treatment.
> Peter (Television) Ltd gives a 2-year labour and parts warranty on all television sets that it sells. The company has the following revenue for its first 2 years of trading: Based on the level of faults normal in the industry, managers make a provision o
> Metals Ltd has begun to employ an office-cleaning company on 1 January. The charge for 4 months’ worth of cleaning services is £1,200. The office-cleaning firm sends an invoice every 4 months, on 30 April, 31 August and 31 December. Metals Ltd always pay
> Black Ltd commenced trading on 1 September Year 3 and is preparing its accounts for the year ended 31 August Year 4. During its first year of trading, the company pays total telephone company invoices of £4,300. The 3-month invoice paid in July Year 4 in
> The Table Company continues trading during Year 4. The customers who were doubtful at the end of Year 3 respond to enquiries and pay the amounts due. No adjustment is made to the provision for doubtful debts at that point. At the end of Year 4, the state
> At the end of Year 3, the Table Company has a statement of financial position (balance sheet) comprising £4,000 receivables (debtors), £9,000 other assets and £13,000 ownership interest, consisting of £5,000 ownership interest at the start of the period
> A company has an inventory (stock of goods) consisting of four different groups of items. The cost and net realizable value of each group is shown in the table below. Required: Calculate the amount to be shown as the value of the companyâ€
> During its first month of operations, a business made purchases and sales as shown in the table below: All sales were made at £4 each. Required: Calculate the profit for the month and the inventory (stock) value held at the end of the mont
> Suitcases Ltd is a small company manufacturing holiday luggage. A list of balances extracted at 31 December Year 2 showed the following information: Further investigation revealed the following matters requiring action: 1. No depreciation has been charg
> (a) Prepare a spreadsheet containing a trial balance, adjustment and resulting figures for income statement (profit and loss account) and statement of financial position (balance sheet) items. (b) Present the income statement (profit and loss account) fo
> Cheesecake Ltd is a small company selling ready-to-eat cakes. A list of balances extracted at 31 December Year 2 showed the following information: Further investigation revealed the following matters requiring action: 1. No depreciation has been charged
> Keyboards Ltd is a small company manufacturing electronic musical instruments. A list of balances extracted at 31 December Year 2 showed the following information: Further investigation revealed the following matters requiring action: 1. No depreciation
> Prepare ledger accounts to report the transactions and events of questions C8.1 and C8.2. Data from C8.1: The Biscuit Manufacturing Company commenced business on 1 January Year 1 with capital of £22,000 contributed by the owner. It immediately paid cash
> Prepare ledger accounts for the transactions of Peter Gold, furniture supplier, listed in question B6.2. Data from Question B6.2: The following list of transactions relates to the business of Peter Gold, furniture supplier, during the month of April. An
> Which of the following errors would be detected at the point of listing a trial balance? (a) The bookkeeper enters a cash sale as a debit of £49 in the cash book and as a credit of £94 in the sales account. (b) The bookkeeper omits a cash sale of £23 fro
> Prepare ledger accounts for the transactions of Jane Gate’s dental practice.
> Prepare bookkeeping records for the information in question B11.2. Data from Question B11.2: General Engineering Ltd receives a government grant for £60,000 towards employee training costs to be incurred evenly over the next three years. Explain how thi
> On 1 December Year 1 a company paid £2,400 as an insurance premium to give accident cover for the 12 months ahead. The accounting year-end is 31 December. Required Prepare an accounting equation spreadsheet to show the effect of the prepayment in the yea
> On 1 January Year 1, Angela’s Employment Agency was formed. The owner contributed £300,000 in cash which was immediately used to purchase a building. It is estimated to have a 20-year life and a residual value of £200,000. During Year 1 the agency collec
> Prepare bookkeeping records for the information in question B11.1. Data from Question B11.1: The Washing Machine Repair Company gives a warranty of no-cost rectification of unsatisfactory repairs. It has revenue from repair contracts recorded as: Based
> Prepare bookkeeping records for the information in question C10.1. Data from Question C10.1: The following file of papers was found in a cupboard of the general office of Green Ltd at the end of the accounting year. Explain how each would be treated in
> Prepare bookkeeping records for the information in question B10.3. Data from Question B10.1: The accountant of Brown Ltd has calculated that the company should report in its profit and loss account a tax charge of £8,000 based on the taxable profit of t
> Prepare bookkeeping records for the information in question B10.2. Data from Question B10.1: Plastics Ltd pays rent for a warehouse used for storage. The quarterly charge for security guard services is £800. The security firm sends an invoice on 31 Marc
> Prepare bookkeeping records for the information in question B10.1. Data from Question B10.1: White Ltd commenced trading on 1 July Year 3 and draws up its accounts for the year ended 30 June Year 4. During its first year of trading the company pays tota
> Record the transactions of question B9.5 in ledger accounts for L6 Expense of insurance and L7 Prepayment. Data from Question B9.5: On 1 December Year 1 a company paid £2,400 as an insurance premium to give accident cover for the 12 months ahead. The ac
> Record the transactions of question B9.4 in ledger accounts for L1 Receivables (debtors), L2 Provision for doubtful debts, L3 Cash and L4 Profit and loss account. Data from Question B9.4: The Bed Company continues trading during Year 4. The statement of
> Record the transactions of question B9.3 in ledger accounts for L1 Receivables (debtors), L2 Provision for doubtful debts, L3 Cash and L4 Profit and loss account. Data from Question B9.3: At the end of Year 3 the Bed Company has a statement of financial
> 7. Which of the following entities is required to apply the accounting requirements of the Companies Act? (a) Partnership (b) Sole trader (c) Limited company (d) A museum owned by a local government authority 8. Consider the following comments regar
> 8. Which of the following is equal to ownership interest if it is assumed that there are no long-term liabilities? (a) Current Cassets + current liabilities (b) Non-current (fixed) assets + current assets (c) Non-current (fixed) assets + current liabi
