Question: The following information relates to Malcolm

> The differentiation between the so-called capital and revenue expenditure is quite arbitrary and unnecessary.’ Discuss. Answer: 1. It is true that the classification of transactions into capital and revenue can sometimes be arbitrary, e.g. for expen

> Explain why an increase in cash during a particular accounting period does not necessarily mean that an entity has made a profit. Answer: Accounting profit is not normally the difference between cash received and cash paid during a particular period

> Donald’s transactions for the month of March 2021 are as follows: Required (a) Enter the above transactions in appropriate ledger accounts. (b) Balance each account as at 31 March 2021. (c) Extract a trial balance as at that date.

> Harry started a new business on 1 January 2020. The following transactions cover his first three months in business: (a) Harry contributed an amount in cash to start the business. (b) He transferred some of the cash to a business bank account. (c) He pai

> Do you think that auditors should be responsible for detecting fraud?

> Double-entry bookkeeping is a waste of time and money because everything has to be recorded twice.’ Discuss.

> Is Freda right? ‘My accountant has got it all wrong’, argued Freda. ‘She’s totally mixed up all her debits and credits. ’‘But what makes you say that?’ queried Dora. ‘Oh! I’ve only to look at my bank statement to see that she’s wrong,’ responded Freda. ‘

> Do you think that non-accounting managers need to know anything about double-entry bookkeeping?

> Consider the Principles of Good Regulation – for both the regulator and business as explained by the Financial Conduct Authority (the regulator of financial institutions in the United Kingdom). Discuss: (a) to what extent do you think t

> The adoption of the realization and matching rules in preparing financial accounts requires a great deal of subjective judgment. Write an essay examining whether it would be fairer, Easier and more meaningful to prepare financial accounts on a cash recei

> The following is a list of problems which an accountant may well meet in practice. Which accounting rule would the accountant most probably adopt in dealing with each of the problems? State the reasons for your choice. (a) The transfer fee of a footballe

> Compare and contrast each of these management accounting techniques and then, giving your reasons, select the one that in your opinion is most likely to be useful to a non-accounting manager: product life cycle costing; throughput accounting and value ch

> Do you think that target costing serves any useful purpose in a service entity? Answer: 1. Target costing involves: (a) determining the likely price that a product can be sold at; (b) deducting the entity’s desired profit; and (c) ensuring that the

> Do you think that environmental management accounting is of any benefit to a company? Answer: 1. Environmental accounting and reporting is at an early stage of development. So there is no consensus on what and how it should be accounted for and repo

> How far do you think that short budget forecasts would be more useful than budgets tied in with the traditional annual financial reporting system? Answer: 1. This question requires a discussion of traditional budgeting techniques and the alterations

> Activity-based management is fine in theory but impossible in practice.’ Discuss. Answer: 1. An outline of ABM should be given including a summary of its benefits and an outline of the difficulties in implementing it. 2. ABM involves the following p

> Ugh!’ snorted the chair when confronting the chief accountant. ‘Strategic management accounting is another of those techniques dreamed up by you and your mates to keep you all in a job.’ Could the chair have a point? Answer: 1. A brief explanation

> Marsh Limited has investigated the possibility of investing in a new machine. The following data have been extracted from the report relating to the project: Cost of machine on 1 January Year 6: £500,000. Life: four years to 31 December Year

> How independent do you think is the independent regulator (the Financial Reporting Council)? How will its proposed successor (the Audit, Reporting and Governance Authority (ARGA)) be more independent?

> Hewie Limited has some capital available for investment and is considering two projects, only one of which can be financed. The details are as follows: Required: Advise management on which project to accept.

> Nicole Limited is considering investing in a new machine. The machine would cost £500,000. It would have a life of five years and a nil residual value. The company uses the straight-line method of depreciation. It is expected that the machin

> Prospect Limited is considering investing in some new plant. The plant would cost £1,000,000 to implement. It would last five years and it would then be sold for £50,000. The relevant profit and loss accounts for each year durin

> Moffat District Council has calculated the following net cash flows for a proposed project costing £1,450,000: Required: Calculate the internal rate of return generated by the project. Answer: Internal rate of return: Year Net cash Disc

> We can all dream up new capital expenditure proposals’, asserted the Managing Director, ‘but where is the money coming from?’ How might the proposals be financed?

> Do any of the traditional capital investment appraisal techniques help in determining social and welfare capital expenditure proposals? Answer: 1. Most of the traditional techniques do depend on estimating future net cash flows. NCF is, however, lar

> All capital expenditure techniques are irrelevant because: (a) They cannot estimate accurately future cash flows; (b) It is difficult to select an appropriate discount rate.’ Discuss. Answer: 1. These assertions are true: it is difficult to estima

> In capital expenditure appraisal, management cannot cope with any technique that is more advanced than payback.’ How far do you think that this assertion is likely to be true? Answer: 1. The techniques that accountants may use for appraising capital

> Dynasty Limited has been involved in a research project (code named DNY) for a number of months. There is some doubt as to whether the project should be completed. If it is, then it is expected that DNY will require another 12 months’ work. The following

> Bamboo Limited is a highly specialist firm of central heating suppliers operating exclusively in the textiles industry. It has recently been asked to tender for a contract for a prospective customer. The following details relate to the proposed contract.

> The law should lay down precise formats, contents and methods for the preparation of limited liability company accounts.’ Discuss.

> Foo Limited has been asked to quote for a special order. The details are as follows: 1 Prices are to be quoted at order levels of 50,000, 100,000 and 150,000 units respectively. Foo has some surplus capacity and it could deal with up to 160,000 units. 2

> Agra Limited has been asked to quote a price for a special contract. The details are as follows: 1 The specification required a quotation for 100,000 units. 2 The direct costs per unit for the order would be: materials £3, labour £15, distribution £12. 3

> Assume that you were an IT manager in a large entity and that the services that you provide are made available to both internal and external parties. Specify how you would go about negotiating an appropriate fee for services sought by other departments w

> Many of the solutions to the problems posed in this chapter depend on being able to isolate the variable cost associated with a particular decision. In practice, is it realistic to expect that such costs can be readily identified and measured? Answer:

> This chapter has emphasized that it is managers that make decisions and not management accountants. How far do you agree with this assertion? Answer: 1. Management accountants are employed to provide a service: they advise senior management and comm

> The following information relates to Mere’s budget for the year to 31 December 2021: Note: Fixed overheads are apportioned on the basis of direct labour hours. The directors are worried about the loss that product M is budgeted to make

> Puzzled Limited would like to increase its sales during the year to 3l May 2021. To do so, it has several mutually exclusive options open to it: ● reduce the selling price per unit by 15 per cent; ● improve the product

> The following information relates to Carter Limited for the year to 30 April 2021: During 2022 the company would like to increase its sales substantially, but to do so it would have to reduce the selling price per unit by 20 per cent. The variable cost p

> The following information applies to Ayre Limited for the two years to 31 March 2021 and 2022 respectively: Required: Assuming that the cost relationships had remained as given in the question, calculate the company’s profit if the sal

> Do break-even charts and profit graphs help management to make more meaningful decisions?

> What are the limitations of regulation?

> Contribution analysis described in textbooks is too simplistic and is of little relevance to management.’ How far do you agree with this statement?

> It has been suggested that although contribution analysis is fine in theory, fixed costs cannot be ignored in practice.’ Discuss this statement.

> Mean Limited manufactures a single product, and the following information relates to the actual selling price and actual cost of the product for the four weeks to 31 March 2020: The budgeted selling price and standard cost of each unit was as follows: To

> The budgeted selling price and standard cost of a unit manufactured by Smillie Limited is as follows: Total budgeted sales: 400 units During the period to 31 December 2021, the actual sales and production details for Smillie were as follows: Required: (a

> You are presented with the following budgeted information for Doe Limited: Required: Calculate the sales variances.

> Using the data from the previous question, calculate the following performance measures: (a) Efficiency ratio (b) Capacity ratio (c) Production volume ratio.

> The following information relates to Osprey Limited: Budgeted production: 500 units. Standard hours per unit: 10. Actual production: 600 units. Budgeted fixed overhead: £125,000. Actual fixed overhead: £120,000. Actual hours worked: 4900. Required: Calcu

> You are presented with the following information for Duncan Limited: Budgeted production: 1000 units. Actual production: 1200 units. Standard specification for one unit: 10 hours at £8 per direct labour hour. Actual direct labour cost: £97,200 in 10,800

> Sales variance calculations are just another example of accountants playing around with numbers.’ Discuss.

> Do you think it is important for a CEO of a big business to have a sound understanding of finance and accounting?

> Accountants stifle managerial initiative and enterprise.’ Discuss.

> For each of the following brief scenarios, assume that you are the CPA reporting on the company’s financial statements. Using the form included with this problem, describe the reporting circumstance involved, the type or types of opinio

> For each of the following independent cases, state the highest level of deficiency that you believe the circumstances represent: a control deficiency, a significant deficiency, or a material weakness. Explain your decision in each case. Case 1: The comp

> For each of the following brief scenarios, assume that you are reporting on a client’s currentyear financial statements. Reply as to the type or types of opinion possible in the circumstance. S Unmodified—standard U Un

> Because of a very significant scope limitation, the auditors are uncertain about the propriety of the client’s accounting for deferred income taxes. The possible amounts involved are so significant that the auditors have not been able to form an opinion

> What information is provided in a public company audit report relating to critical audit matters?

> The working paper for Keystone Computers & Networks’ analytical review ratios is presented in this Appendix. a. Recalculate the 12/31/X5 ratios using Excel. b. After completing part (a), review the ratios and identify financial statement accounts that sh

> What two types of cyber security examinations are available?

> List the categories of criteria that may be included in a trust services engagement.

> A CPA’s report includes the following: “We are not aware of any material modifications that should be made in order for the information to be in conformity with accounting principles generally accepted in the United States of America, and accordingly, in

> Comment on whether you agree with the following: In a nonpublic company audit report, the second section is always titled “Basis for Opinion.”

> Jim Willingham works as a manager in the Phoenix office of an international public accounting firm. His younger brother has just taken a position as a purchasing agent for one of the public accounting firm’s Phoenix clients. Has Jim’s independence been i

> What are the titles of the sections of the public and nonpublic company audit reports presented in the chapter?

> What does a nonpublic company audit report say concerning the risk of not detecting a material misstatement resulting from fraud versus one resulting from error?

> Comment on whether you agree with the following: Today’s sophisticated information systems make auditing of samples necessary, and auditing of an entire population impossible.

> In a well-controlled IT computer system, the auditors wish to test the control of authorization of cash disbursements. What is the most efficient way that the auditors could test this control?

> In their review of audit working papers, what do managers and partners look for?

> a. Which of the following are components of the risk of material misstatement? Control Risk Detection Risk (1) Yes (2) Yes No (3) No Yes (4) No b. The risk that a material misstatement that could occur in an assertion assuming there are no related contr

> What is the purpose of a “second partner review”? What should be the extent of the second partner’s association with the engagement being reviewed?

> In their audit of accounting estimates, auditors emphasize significant assumptions. Provide characteristics of such assumptions.

> The Institute of Internal Auditors’ Code of Ethics has a number of “Principles.” What are the titles of those principles?

> Smith & Co., a local Dallas public accounting firm, is incorporated as a professional corporation, with three shareholders, all CPAs. The shareholders have developed a combination of marketing, software, and professional expertise that has allowed them t

> You are the partner on the audit of Data save Inc., a small publicly held corporation that manufactures high-speed disk drives for the computer industry. The audit of Data save had been progressing satisfactorily until you were about a month away from is

> Auditors assess the risks of material misstatement and then design further audit procedures. a. Describe the auditors’ approach to identifying and assessing the risks of material misstatement. b. Describe likely responses when an audit is considered to b

> Gordon & Moore, CPAs, were the auditors of Fox & Company, a brokerage firm. Gordon & Moore examined and reported on the financial statements of Fox, which were filed with the Securities and Exchange Commission. Several of Fox’s customers were swindled

> Bill Jones is a partner with Adel son & Co., a one office CPA firm located in Tucson, Arizona. He is the engagement partner on the audit team of NRG, LTD, a public company and he has just discovered that his wife Sophia owns 100 shares of NRG, shares wo

> The CPA firm Hank and Henry LLP is performing its first integrated audit of their recently acquired public client Wigly Corporation. Wigly has been in existence for 10 years. Wigly Corporation has two branch locations and has a monthly performed manageme

> In the audit of Wheat Inc. for the year ended December 31, you discover that the client had been drawing checks as creditors’ invoices became due but had not been mailing the checks immediately. Because of a working capital shortage, some checks have bee

> Use the Code of Professional Conduct (available at pub.aicpa.org/code of conduct) to research each of the circumstances presented in Problem 3-41 and address whether Bell & Greer’s independence is impaired. Provide the section of the Independence Rule an

> Metropolitan Corporation has a significant investment in a closely-held corporation, Wake Forest Company. Metropolitan’s investment does not enable the company to exercise significant influence over the operating and financial operations of Wake Forest

> Assume that you are auditing the financial statements of Young Manufacturing Co. Management of Young has designed a review control for cash disbursements using data analytics. The company’s software examines all disbursements for duplicate payments, unus

> Carson Inc. is a private company that manufactures heavy machinery. The company has an active audit committee and board of directors. The audit committee consists of two outside directors and Howard Kress, the company chief financial officer. The audit c

> Assume that you are auditing the financial statements of Wexler Inc. Wexler’s financial statements include a number of significant estimates. a. Describe the desired internal controls over the processes for developing accounting estimates b. Describe how

> Robert Tailor, CPA, is planning the audit of The Neighborhood Store, a local grocery cooperative. Because The Neighborhood Store is a small business operated entirely by part-time volunteer personnel, internal control is weak. Tailor has decided that he

> Many companies have implemented COSO’s enterprise risk management framework to assist them in managing risks. a. Are public companies required by the SEC to implement COSO’s enterprise risk management framework? Explain. b. Describe two of the components

> Auditors identify “significant risks” when performing their audits. a. Explain what is meant by a significant risk. b. What factors do auditors consider in assessing whether a risk is a significant risk? c. Describe how a significant risk should be treat

> Assume that you are auditing the financial statements of Wagner Pharma Co. for the year ending June 30, 20X1. Wagner has very large warehouses where it stores its numerous prescription drug products. The company tracks inventory with a radio frequency id

> Warren Manufacturing Company retains you on April 1 to perform an audit for the fiscal year ending June 30. During the month of May, you make extensive studies of internal control over inventories. All goods purchased pass through a receiving department

> Micro core Corp., a high-technology company, utilizes the following procedures for recording materials and transferring them to work in process. (1) Upon receipt of raw materials by stores, the storekeeper prepares a stock-in report with part number and

> Note: This simulation integrates concepts first presented in Chapter 5 (see Figure 5.1 for Assertions about Account Balances) and information from throughout the procedural chapters (Chapters 10 through 16) rather than only Chapter 16 coverage. This prob

> Described below are potential financial statement misstatements that are encountered by auditors in the audit of inventory and cost of goods sold. a. Management of a chain of discount department stores systematically overstates inventory quantities at se

> Howe Pharmaceutical Company produces a number of drugs that are regulated by various agencies, including, in the United States, the federal Food and Drug Administration (FDA). These agencies issue licenses that approve drugs for sale and establish specif

> International Trading Co., a client of your CPA firm, has requested your advice on the following problem. It has three clerical employees who must perform the following functions: (1) Maintain general ledger. (2) Maintain accounts payable ledger. (3) Mai

> Match the following definitions (or partial definitions) to the appropriate term. Each term may be used once or not at all.

> Wren, Inc., a nonpublic company, retains Ying and Company CPA to audit its financial statements and internal control. Sarah Smith, the senior on the audit prepared the following first draft of an unmodified report: Respond as to the accuracy of the follo

> For each term in the first column, select the partial (or compete) definition or illustration. Each partial (or complete) definition or illustration may be used only once, or not at all.

> Match each the following statements with the appropriate type of auditors’ opinion (each auditors’ report may be used once, more than once, or not at all): A. Adverse. D. Disclaimer. Q. Qualified. U. Unmodified.

> John Wilson wishes to use no statistical sampling to select a sample of his client’s 3,000 accounts receivable, which total $4,500,000. He believes that $225,000 represents a reasonable tolerable misstatement. He also has assessed both the combination of

> The auditors of Kansas Corporation wish to use a structured approach to no statistical sampling to evaluate the reasonableness of the accounts receivable. Kansas has 30,000 receivable accounts with a total book value of $5,000,000. The auditors have asse