MAN00012C Financial Accounting 2020-2021
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MAN00012C
BA and BSc Degree Examinations 2020-2021
Financial Accounting
Question 1
a. Briefly discuss the reason behind the IASB Conceptual Framework considering relevance and faithful representation to be the two fundamental qualitative characteristics of information to fulfill the objectives of general purpose financial statements. Use examples where necessary. (10 marks)
b. The management of Linsley plc, a supplier of water in Yorkshire, is undergoing an exercise to understand the interests of different stakeholder groups. The objective of the exercise is to improve the quality of information in its published financial statements that will enable addressing the interests of these stakeholder groups better than before.
i. Identify five stakeholder groups that may have an interest in the financial statements of Linsley plc and discuss how the information contained therein fulfills their information needs. (5 x 2 = 10 marks)
ii. Identify two stakeholder groups that may have conflicting interests in Linsley plc, explaining why this may be the case. (5 marks)
(TOTAL 25 MARKS)
Question 2
Hillary owns and manages a shoe manufacturing business in the UK. She balances the business accounts at the end of each month. As her accountant, you find the following transactions in the first month of trading:
a. She introduces capital of £300,000.
b. She pays £10,000 towards rent for the factory premises for the first month.
c. She buys a second hand stitching machine for £180,000 from Q Ltd on credit.
d. She purchases raw leather from Zebra Suppliers on credit for £100,000.
e. She sells shoes to D plc, for £70,000 on credit.
f. She returns faulty raw materials worth £25,000 to Zebra Suppliers.
g. She finds that D plc has filed for bankruptcy and the debt is now irrecoverable.
Required:
Hillary has requested you to prepare the following for her first month of trading:
1. Journal entries for the above transactions. (7 marks)
2. Post the above journal entries to “T accounts” and round off the “T accounts. ” (12 marks)
3. A trial balance at the end of the month. (6 marks)
(TOTAL 25 MARKS)
Question 3
Below is the trial balance for Kilgour plc at 31 March 2020.
|
Debit (£) |
Credit (£) |
Sales |
|
480,000 |
10% Debentures |
|
24,500 |
Retained Earnings |
|
23,000 |
Ordinary £1 shares |
|
93,000 |
Opening inventory |
49,000 |
|
Purchases |
214,000 |
|
Administration expenses |
114,600 |
|
Distribution costs |
25,000 |
|
Marketing expenses |
21,000 |
|
Office equipment - original cost |
80,000 |
|
Motor vehicles - original cost |
139,000 |
|
Accumulated depreciation - equipment |
|
28,000 |
Accumulated depreciation - motor vehicles |
|
52,000 |
Non-current investment |
42,900 |
|
Trade receivables |
70,000 |
|
Trade payables |
|
67,000 |
Bank |
12,000 |
|
TOTAL |
767,500 |
767,500 |
The following is also available:
a. Closing inventory at 31 March 2020 is £45,000.
b. Irrecoverable receivables to be written off amount to £ 5,000.
c. During the year Kilgour plc sold a motor vehicle originally costing
£9,000 for £5,000. The accumulated depreciation on the vehicle was
£6,000. The disposal proceeds had been credited to the sales a/c. d. Kilgour plc has the following depreciation policy:
i. No depreciation is charged in the year of sale.
ii. Office equipment is depreciated at 10% on a reducing balance basis. (80000-28000)*10%=5200
iii. Motor vehicles are depreciated at 20% on a straight line basis. No depreciation has yet been charged for the year ended 31 March 2020.
e. Included in administration expenses is an advance payment of rent for the period 01 April 2020 - 30 June 2020, amounting to £4,600.
f. The rate of corporation tax is 20%.
Required
Prepare a Statement of Profit or Loss for the year ended 31 March 2020 and a Statement of Financial Position as at 31 March 2020, in a form that complies with IAS 1 Presentation of Financial Statements. (25 marks)
(TOTAL 25 MARKS)
Question 4
G plc, a well-known UK retailer, is considering expanding its operations into the Republic of Ireland. The CEO has decided on an acquisition strategy as the mode of entry. She has identified 3 Irish companies in the same industrial sector for the purposes of a potential takeover. The following information is available from the recent financial statements of the 3 companies:
|
J Ltd |
M Ltd |
C Ltd |
Dividend cover (x times) |
2.6 |
0.5 |
2.25 |
Ordinary dividend % |
6.5 |
14 |
4 |
Current ratio |
0.7 |
0.75 |
1.88 |
Acid test ratio |
0.2 |
0.45 |
1.13 |
Sales/current assets |
3.6 |
3.75 |
2.05 |
Sales/non-current assets |
2.2 |
6.8 |
3.4 |
Asset turnover ratio |
0.57 |
1.85 |
0.68 |
Average number of weeks receivables outstanding |
3.25 |
2 |
3 |
Average number of weeks inventory held |
9 |
2 |
6 |
ROCE (before tax) % |
12.85 |
13.5 |
12.05 |
Gross profit % |
13.5 |
6 |
11 |
Net profit % |
7.25 |
2.88 |
7 |
Required:
a. Prepare a report for the directors of G plc. :
i. Assessing the performance of the three companies from the information provided.
ii. Identify areas which you consider require further investigation before a final decision is made.
iii. Discuss briefly why a firm's statement of financial position is unlikely to show the true market value of the business.
(3 x 5 marks = 15 marks)
b. Using examples where necessary, examine the limitations of ratios as a tool in financial decision making. (10 marks)
(TOTAL = 25 marks)
2023-08-19