Frank wood business accounting 2 11th edition pdf

However, the books sell world-wide and practices can vary. Some examiners will award zero marks, even though the answers given by the student show good knowledge of the topic. Others including ourselves would be kinder than that. In cases of this type, only one set of marks should be lost.

The one exception that may arise concerns multiple choice questions where wrong answers may be penalised as an incentive to prevent students guessing. In this case, the examining body would make this information known well in advance of the examina- tion date.

This is simply because examiners are human beings with human fail- ings, and work that can be easily marked makes them feel generous. Answer to Question 1. The day of the month is shown in brackets. Answer to Question 5. Leech, Tidy and Rock are creditors. Purchases ledger: Credits in personal accounts should be obvious.

Revenue b d e g. Answer to Question Revenue: of a ; all of b ; 2, of c ; 1, of d. Debenture interest similarly not applicable. Always provide for probable losses. Percentages using ageing schedule. Flat sum. Allowance for doubtful debts: the amount of accounts receivable on a certain date which will probably turn out to be bad debts and have to be written off eventually.

Values per balance sheet also overstated. An increase in value, without sale, does not represent realisation. For 9 months Note: Avoid very technical language as it is for a non-accountant. Keep it fairly brief. That is that the asset must have cost the business something that can easily be measured in monetary terms. It cannot therefore be included as a business asset.

Accordingly the increase in the value is also irrelevant. Assets are called current assets when they represent cash or are primarily for conversion into cash or have a short life. An example of a short-lived asset is that of the stock of oil held to power the boilers in a factory, as this will be used up in the near future. Other examples of current assets are cash itself, stocks of goods, debtors and bank balances. Other vehicles, such as a breakdown truck, have been bought for use, not resale, and are consequently non- current assets.

Some of the costs were paid for in a previous year, some items are still owed for. This means that costs do not mean items paid for in the year. Similarly, a lot of sales will still be owed for — see accounts receivable — so that this does not equal cash received in the year. Depreciation represents the part of the cost used up in the year.

As equipment may last for several years, only part will be charged against one year. The remaining value of the equipment is shown in your balance sheet. LIFO: Advantage: cost of sales nearer to current price levels.

Disadvantages: not related to actual movement of goods, therefore inventory valuations will not match up to current price levels. Descriptions per text. Sales 1, Trade accounts receivable 1, Being reversal of trade sample sent to John Grey wrongly treated as a sale. Trade samples 1, Purchases 1, Being correction of treatment of trade sample. Repairs and renewals Purchases Being correction of treatment of paint used to paint stockroom wrongly charged to purchases.

Machinery increased by 1, subject to depreciation in the balance sheet. Also electricity owing to be included as extra accrual in balance sheet. If the bank demanded payment of the overdraft, the company would face severe liquidity problems. It should probably try to reduce the level of inventory held and reduce the bank overdraft.

Credit balance on suspense account treated as sales. This implies that CD has far higher expenses than AB. Similarly the quick asset ratio is too low. AB is by far the more successful business. It is turning over its inventory more frequently and has kept expenses under control. It is also in a good liquid position and able to meet its debts. CD on the other hand is in a worse position on each factor.

Loan note holders normally have no voice in the running of the company. Higher expenses. Can this be maintained? Only then can we sensibly compare the return from the business with the return from the investment.

Demerits depend on whether branch staff are given room for initiative within the above system, or else the HO stupidly lets the system strangle all initiative. Answer to Question 2. B Time basis. C Pro rata to sales. The split of cost of sales is rather tricky. Answer to Question 7.

It should be reviewed annually for impairment. It should not be amortised. Financial statements should be drawn up on the accrual basis and on the assumption that the entity is a going concern. See Chapter 13 Section Uniform account- ing policies should be used and, if possible, the same accounting date.

Land normally is not to be depreciated. Buildings are to be depreciated over normal expected useful life. Costs of maintenance do not mean that depreciation should not be charged. The degree of obsolescence and the full physical life will have to be taken into consideration.

Straight line 25 per cent would take only four years to write cost down to nil. On the other hand, 15 per cent reducing balance would take over three times that period. If repairs and maintenance are likely to be light in early years and heavy in later years, it may make sense to use a fairly high rate using the reducing balance method. If it has, then this sum can be written off over an appropriate period.

Sales prices are only used in certain cases, e. Market value of investments at These were. Sometimes, management is accused of short-termism, for example delaying necessary capital expenditure in order to keep costs low. Non-current assets in Son and Daughter reduced by 1, Non-current assets in S2 reduced by 1, Large is therefore quite clearly a subsidiary undertaking and will be treated as such in the consolidated accounts.

This means that Medium is an associated or related undertaking. It will simply be shown as an investment. In this case, the company appears as if it may have liquidity prob- lems, possibly due to excessively high inventory. The EPS and dividend cover ratios would need to be compared to those of other companies in the same sector, as would all the other ratios calculated, before any further conclusions could be drawn.

Report to Martha The analysis of the results which are shown above indicates a major query associated with the expenses of the existing business in the second half of the year. The reasons behind these changes cannot be given since information is not given.

If this trend continues, the business will be unable to meet its liability to creditors. If this is not managed, the owner needs to be advised of the necessity of urgent action. It will give some indication if comparisons are made over a period of time as to whether the business is investing and expanding or declining, and whether a proper capital structure is in place.

The capital structure will depend on the nature of the business and the risks it is involved with, whether it is high or low geared for example. The balance sheet, being a position statement at one point in time, does not give a dynamic picture of future prospects which are essential in planning liquidity.

Examiners have been known to switch them, so always check which is which. This is a most disappointing result after experiencing such a marked increase in its sales activity. Of course this is not a surprising result since more generous credit terms were offered in in order to stimulate sales. In subsequent years it may not be possible to carry on with this policy unless it is able to raise even more long-term funds. Hence the com- pany has maintained its dividend at the same level as in Is this level necessary?

What terms are customers given? Purchases cannot be calculated for but for the later years is: Cost of goods sold Add Closing inventory 45 85 Less Opening inventory 20 45 Purchases Purchases for are taken as cost of goods sold. Revaluations of non-current assets do take place in many companies, but these are usually based on the views of professional valuers e.

Balance sheets 2 AA has substantial freehold property. Such freehold property gives a large measure of solidarity to an investment, and also provides a useful security on which to borrow money if required. BB appears to own no freehold or leasehold property — at least, no entry for either appears in its bal- ance sheet. AA may therefore have to face the cost of replacement before long.

The working capital situation in both companies is satisfactory but the need for the overdraft in AA underlines the high stock and slow-paying debtors in that company. By arithmetical deduction, Purchases is therefore 2, Purchases for is taken opening inventory not being known as same as Cost of sales. The extra sales generated of This will be largely due to cash received from the issue of loan notes.

The debtors are taking much longer to pay: This raises the question as to the creditworthiness of the businesses to whom the extra sales have been made. Every sensible effort should be made to reverse the trend in the accounts receivable ratio. There is a large cash balance which does not seem to be making a return on its funds.

This should be utilised more fully. Further informa- tion will be needed. Further information will be needed. This may indicate poorer management, or may be due to the environment in which the branch is operating — it may, for example, be in competition with a price-cutting competitor.

Control over debtors appears weak, but may be due to a need to compete. The only positive ratio result is the lower inventory turnover period. However, it could actually be an indication that mismanagement is occurring. Another example would be whether or not to invest in a new production facility. By their nature, accounting ratios take a short-term view. Shareholders are interested in the longer term. By adopting a short-term focus, managers may actually be subject to harsher and more informed criticism than would have been the case had they focused upon the longer-term interests of the company.

In addition, calculation of current costs takes time, particularly if the enter- prise has a large number of different classes of assets. All rights reserved. Permission is hereby given for the material in this publication to be reproduced for OHP transparencies and student handouts, without express permission of the Publishers, for educational purposes only. In all other cases, no part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise without either the prior written permission of the Publishers or a licence permitting restricted copying in the United Kingdom issued by the Copyright Licensing Agency Ltd, Saffron House, 6—10 Kirby Street, London ECIN 8TS.

It can be seen that there are a considerable number of questions in both text- books. About one-half of these have the answers at the back of the relevant textbook, while the remainder of the answers are contained in this manual. To illustrate the contents of each chapter, the questions can be used which have answers in the textbook.

Any students who are absent can be told what they have missed and can look up the answers themselves. Students who arrive late on the course can also be told what work to do and they can check their own progress against the answers as given. However, quite obviously work must be set, either in class or for homework, for which answers are not available to students. This manual can therefore be used to check such work.

Whilst every endeavour has been made to show workings quite fully, it must be appreciated that there are often different ways of getting to the same answer. This manual would be unduly lengthy and complicated if every version of arriving at the answer were to be shown. The methods chosen are therefore those judged to be the best from a teaching point of view. Frank Wood and Alan Sangster By writing on letterheaded paper of the institution where you teach, giving details of the course for which you use Business Accounting 1 or Business Accounting 2 with your classes, you can obtain complimentary copies of this manual.

This manual is not available for students, nor is it in any way available for sale to the general public. There will, however, be quite a lot of people reading this who are new to teaching, and who have little experience in understand- ing how the examiner views things.

If we have anything to offer, it is simply that we have, between us, been concerned with accounting education for many years and have been examiners for several external examining bodies. The Notes for Students at the start of both Business Accounting 1 and Business Accounting 2 deal with examination techniques.

Make certain the students read these. Go through these with them. If we all tell students that what these say is true, then they are more likely to believe us. You can only get them to rectify everything under this heading by insisting on them correcting a , b , c and d from early on in the course.

Do not wait until a few weeks before the examination to insist upon properly laid out and neatly constructed work. If it asks for two questions only from Section A, then it means just that. A remarkably high percentage do not follow the instructions per the rubric.

If, for example, an examiner wants a list, students will lose marks by giving explanations instead. Students must tackle the question in the prescribed way and not do it differently. The percentage of students passing examinations would rise dramatically if only we could correct this failing. A good plan is to get them to highlight the instruction that shows how the examiner wants the question to be answered, e. List the ways by which. Describe the ways by which. Write a report to the managing director about the ways by which.

Discuss how the ways by which. Explain how the ways by which. Then, get them to underline the key words in the rest of the question. They need as much practice as possible in doing this, especially for essay-type questions. At the end of this section are 20 essay questions in which we have already highlighted the instruction and underlined the key words. See if your students can do the same.

Discuss this with your students who have to tackle essay questions. Time planning is essential. Years ago, we did quite a lot of research into the results of students who had followed this advice, compared with those who ignored it. Following the advice pro- duced better results. For instance, when an examiner set a question on, say, materiality. Most of the answers simply gave exactly the same examples, word for word sometimes, that we have given in Business Accounting 1.

Examiners are looking for originality and imagination.