Lecture One1.Which are the objectives of the IASB?A. To enforce IFRSsB. To issue IFRSs2. What happened in 2005 for listed companies in the EU?A. IFRSs to be used for all financial statementsB. IFRSs to be used for consolidated financial statementsCase One:A retailer commences business on 1 January and buys inventory of 20 washing machines, each costing $100. During the year he sells 17 machines at $150 each. How should the remaining machines be valued at 31 December in the following circumstances?A. He is forced down to close his business at the end of the year and the remaining machines will realise $60 each in a forced sale.B. He intends to continue his business into the next year.Case Two:Emma prints 20 T – shirts in her first month of trading (May) at a cost of $5 each. She then sells all of them for $10 each. Emma has therefore made a profit $100, by matching the revenue ($200) earned against the cost ($100) of acquiring them.If Emma only sells 18 T – shirts, it is incorrect to charge her income statement with the cost of 20 T – shirts, as she still has two T – shirts in inventory. How much profit did she earn?Case Three:A company begins trading on 1 January 20X5 and sells goods worth $100,000 during the year to 31 December. At 31 December there are accounts receivable outstanding of $150,000. Of these, the company is now doubtful whether $6,000 will ever be paid.Question Three:Sales revenue should be recognised when goods and services have been supplied; costs are incurred when goods and services have been received.Which accounting concept governs the above?A. The prudence conceptB. The materiality conceptC. The accruals conceptQuestion four:Which accounting concept requires that foreseen losses should be anticipated and taken into account immediately?A. The consistency conceptB. The accruals conceptC. The prudence conceptD. The going concern conceptLecture Two:Case One:XY Co bought a machine five years ago for $15,000. It is now worn out and needs replacing. An identical machine can be purchased for $20,000.Case Two:XY Co’s machine from the Case One can be restored to working order at a cost of $5,000. It can then be sold for $10,000. What is NRV?Case Three:Suppose XY Co buy the new machine for $20,000. It is estimated that the new machine will generate profits of $4,000 per year for its useful life of 8 years. What is its economic value?Answer: $32,000Excises(11.05.05):1. Which one of the following statements is true of the historical cost convention?A. It fails to take account of changing price levels over timeB. It records only past transactionsC. It values all assets at their cost to the business, without any adjustment for deprecationD. It has been replaced in accounting records by a system of current cost accounting.2. Which one of the following is the main aim of accounting?A. To maintain ledger accounts for every asset and liabilityB. To provide information to users of such informationC. To produce trial balanceD. To record every financial transaction individually.3. Which accounting concept or convention which, in times of rising prices, tends to understate asset values and overstate profits?A. The materiality conceptB. The prudence conceptC. The realisation conceptD. The historical cost convention4. Which accounting concept which requires assets to be valued at their net book value, rather than their ‘break –up’ value?A. The going concern conceptB. The prudence conceptC. The realisation conceptD. The historical cost convention5. Which accounting concept should be considered if the owner of a business takes goods from inventory for his own personal use?A. The prudence conceptB. The capitalisation conceptC. The money measurement conceptD. The separate entity concept6. Assets are usually valued under which basis?A. Replacement costB. Historical costC. NRV7. In times of rising prices, what effect does the use of the historical cost concept have on a co mpany’s asset values and profit?A. Asset values and profit both understatedB. Asset values and profit both overstatedC. Asset value understated and profit overstatedD. Asset values overstated and profit understated8. Listed below are some comments on accounting concepts.1. In achieving a balance between relevance and reliability, the most important consideration is satisfying as far as possible the economic decision – making needs of users.2. Materiality means that only items having a physical existence may be recognised as assets.3. The substance over form convention means that the legal form ofa transaction must always be shown in financial statements, even if this differs from the commercial effect.Which, if any, of these comments is co rrect, according to IASB’s Framework for the Preparation and Presentation of Financial Statements?A. 1 onlyB. 2 onlyC. 3 onlyD. None of them9. Which of the following most closely describes the meaning of prudence, as the term is defined in the IA SB’s Framework for the Preparation and Presentation of Financial Statements?A. Ensuring that accounting records and financial statements are free from material error.B. The use of a degree of caution in making estimates required under conditions of uncertainty.C. Understating assets and gains and overstating liabilities and losses.D. Ensuring the financial statements comply with all accounting standards and legal requirements.10. Which of the following statements about accounting concepts are correct?1. The money measurement concept is that only items capable of being measured in monetary terms can be recognised in financial statements.2. The prudence concept means that understating of assets and overstating of liabilities is desirable in preparing financial statements.3. The historical cost concept is that assets are initially recognised at their transaction cost.4. The substance over form convention is that, whenever legally possible, the economic substance of a transaction should be reflected in financial statements rather than simply its legal form.A. 1, 2 and 3B. 1, 2, and 4C. 1,3, and 4D. 2, 3, and 411. Listed below are some characteristics of financial information:1. Neutrality2. Prudence3. Completeness4. TimelinessWhich of these characteristics contribute to reliability, according to the IASB’s Framework for the Preparation and Presentation of Financial Statements?A. 1, 2, and 3 onlyB. 1, 2, and 4 onlyC. 1, 3, and 4 onlyD. 2, 3, and 4 only12. Which, if any, of the following statements about accounting concepts and the characteristics of financial information are correct?1. The concept of substance over form means that the legal form ofa transaction must be reflected in financial statements, regardless of the economic substance.2. The historical cost concept means that only items capable of being measured in monetary terms can be recognised in financial statements.3. It may sometimes be necessary to exclude information that is relevant and reliable from financial statements because it is too difficult for some users to understand.A. 1 and 2 onlyB. 2 and 3 onlyC. 1 and 3 onlyD. None of these statements are correctLecture Three:Example One:Company B bought some goods from Company A for $40; whenCompany A send out the invoice to Company B, it was printedwith $80 on, what is Company A to do?Answer: A寄$40 Credit note给BExample Two:At the beginning of 1 September, Robin Plenty had $900 in the bank.During 1 September 20X7, Robin Plenty had the following receipts and payments.(a) Cash sale: receipt of $80(b) Payment from credit customer Hay $400 less discount allowed $20(c) Payment from credit customer Been $720(d) Payment from credit customer Seed $150 less discount allowed $10(e) Cheque received for cash to provide a short – term loan from Len Dinger $1,800(f) Second cash sale: receipt of $150(g) Cash received for sale of machine $200(h) Payment to supplier Kew $120(i) Payment to supplier Hare $310Example Three:DEF operates an imprest system for petty cash. During February 2009, the following petty cash transactions took place.The amount remaining in petty cash at the end of the month was $93.50. What is the imprest amount?Answer: $93.5+(12+25+15+5+7.5)-8=150Example:State which books of prime entry the following transactions would be entered into.(a) Your business pays A Brown (a supplier) $450.00.(b) You send D Smith (a customer) an invoice for $650.(c) Your accounts manager asks you for $12 urgently in order to buy some envelopes.(d) You receive an invoice from A Brown for $300.(e) You pay D Smith $500.(f) F Jones (a customer) returns goods to the value of $250.(g) You return goods to J Green to the value of $504.(h) F Jones pays you $500.Question One:Which one of the following is not a book of prime entry.A. Sales invoiceB. Purchase day bookC. Sales day bookQuestion Two:Which of the following is a source document for petty cash.A. Purchase invoiceB. Sales invoiceC. Receipt and claim formQuestion Three:What is the purchase returns day book used to record?A. Supplier’s invoicesB. Customer’s invoicesC. Details of goods returned to suppliersD. Details of goods returned by customersQuestions Four:Petty cash is controlled under an imprest system. The imprest amount is $100. During a period, payments totalling $53 have been made. How much needs to be reimbursed at the end of the period to restore petty cash to the imprest amount?A. $100B. $53C. $47D. $50Question Five:All petty cash claims are automatically paid from petty cash.Is this statementA. TrueB. FalseLecture Four:Question One:Complete the columns to show the effects of the following transactions:Effect uponAsset Liabilities CapitalA. We pay a creditor $70 in cashB. Bought fixtures $200 paying by chequeC. Bought goods on credit $275D. The proprietor introduces another $500cash into the businessE. J Walker lends the business $200 in cashF. A debtor pays us $50 by chequeG. We return goods costing $60 to a supplierwhose bill we had not paidH. Bought additional shop premises paying$5,000 by chequeQuestion Two:Liza Doolittle runs a market stall. The opening balance is as follows:● Stall $1,800● Cash $890● Capital $2,690The consequences of the following transactions in the week to 17 July 20X6.(a) Liza Doolittle realises that she is going to need more money in the business and so she makes the following arrangements.I. She invests immediately a further $250 of her own capitalII. She persuades her uncle Henry to lend her $500immediately. Uncle Henry tells her that she can repay the loan whenever she likes, but in the meantime, she must pay him interest of $5 each week at the end of the market day. They agree that it will probably be quite a long time before the loan is eventually repaid.b) She decides to buy a second hand van to pick up flowers and plants from her supplier and bring them to her shop. She finds a car dealer, Laurie loader, who agrees to sell her a van on credit for $700. Liza agrees to pay for the van after 30 days’ trial use.c) During the week, Liza’s Uncle George telephones her to ask whether she would sell him some garden gnomes and furniture for his garden. Liza tells him that she will look for a supplier. After someinvestigations, she buys what Uncle George has asked for, paying $300 in cash to the supplier. Uncle George accepts delivery of the goods and agrees to pay $350, but he asks if she can wait until the end of the month for payment. Liza agrees.d) Liza buys flowers and plants costing $800. Of these purchases $750 are paid in cash, with the remaining $50 on seven days’credit. Liza decides to use Ethel’s services again as an assistant on market day, at an agreed wage of $40.e) On 17 July, Liza succeeds in selling all her goods earning revenue of $1,250 (all in cash). She decides to withdraw $240 for her week’s work. She also pays Ethel $40 in cash. She decides to make the interest payment to her Uncle Henry the next time she sees him.(f) We shall ignore any van expenses for the week, for the sake of relative simplicity.Required:State the accounting equation:i. After Liza and Uncle Henry have put more money into the business and after the purchase of the van.ii. After the sale of goods to Uncle George.iii. After the purchase of goods for the weekly market.iv. At the end of the day’s training on 17 July, and after withdrawals have been appointed out of profit.Lecture Five:‘T’ Accounts questions:Ron Knuckle set up a business selling keep fit equipment, trading Under the name of Buy Your Biceps Shops. He put $7,000 of his Own money into a business bank account (transaction A) and his first period of trading, the following transactions occurred.Transactions:$B Paid rent of shop for theperiod 3,500C Purchased equipment (inventories) oncredit 5,000D Raised loan frombank 1,000E Purchase of shop fittings (forcash) 2,000F Sales of equipment:cash 10,000G Sales of equipment: oncredit 2,500H Payments for trade accountspayable 5,000I Payments from trade accountsreceivable 2,500J Interest on loan(paid) 100K Other expenses (all paid incash) 1,900L Drawings1,500Question:The balance on an expense account will go to the I&Eaccount. However, the balance on a liability account is written off to capital.Is this statement correct?Answer: × 费用只是过渡账户,最后转到I&EEX2:G. Hope started in business on 1 July 2007, with $40,000 capital in cash. During the first year, the assets and liabilities of the business at 30 June 2008 were:$Freeholdpremises 7 6,000Mortgage on thepremises 50,000Inventory24,000Accountsreceivable2,800Cash at bankbalances 5,40 0Accountspayable7,600During the year, Hope withdrew $9,000 cash for his personal use but he also paid $6,000 received from the sale of his private car into the business bank account.Required:From the above information, prepare a statement of financial position at 30 June 2008 and indicating the net profit for the year.Lecture Six:Example One:Preparation of a statement of cash flowsColby Co’s income statement for the year ended 31 December 20x2 and statements of financial position at 31 December 20x1 and 31 December 20x2 were as follows:Colby Co: Income statement for the year ended 31 December 20x2$’000$’000Sales720Raw materials consumed 70Staff costs 94Depreciation 118Loss on disposal of non – currentasset 18 (300)420Interest paid(28)Profit beforetaxation392Taxation(124)Profit for theperiod268Colby Co: Statement of financial position as at 31 December20x2 20x1$’000 $’000$’000 $’000Assets:Property, plant and equipmentCost 1,5961,560Depreciation 318 1,278 224 1,336Current assets:Inventory 2420Tradereceivables 7658Bank 48 14856 134TotalAssets 1,4261,470Equity and liabilities:Capital and reservesSharecapital 360340Sharepremium 3624Retainedearnings 716 1,112 514878Non – current liabilities:non – currentloans 200 500Current liabilities:tradepayables 126taxation 102 11486 921,426 1,470During the year, the company paid $90,000 for a new piece of machinery.Dividends paid during 20x2 totalled $66,000.Required:Prepare a statement of cash flows for Colby Co for the year ended 31 December 20x2 in accordance with the requirements of IAS7, using the indirect method.Question One:Set out below are the financial statements of Shabnum Co. You are the financial controller, faced with the task of implementing IAS7 Statement of cash flows.Shabnum Co: Income statement for the year ended 31 December 20x2$’000Revenue2,553Cost ofsales ( 1,814)Grossprofit739Distributioncosts (125)Administrativeexpenses (264)350Interestreceived25Interestpaid(75)Profit beforetaxation 300Taxation(140)Profit for theperiod 160 Shabnum Co: Statements of financial position as at 31 December20x2 20x1$’000$’000AssetsNon – current assets:Property, plant andequipment 380 305Intangibleassets 250200Investments- 25Current assets:Inventories150 102Receivables390 315Short – terminvestments 50-Cash inhand 21Totalassets 1,222948Equity and liabilities:Equity:Share capital ($1 ordinaryshares) 200 150Share premiumaccount 160150Revaluationreserve 10091Retainedearnings 260180Non – current liabilities:Loan 17050Current liabilities:Tradepayables 127119Bankoverdraft 8598Taxation 120110Total equity andliabilities 1,222948The following information is available:1. The proceeds of the sale of non – current asset investments amounted to $30,000.2. Fixtures and fittings, with an original cost of $85,000 and a net book value of $45,000, were sold for $32,000 during the year.3. The following information relates to PPE31. 12. 20x2 31. 12. 20x1$’000$’000Cost 720595Accumulateddepreciation 340290NBV 3803054. 50,000 $1 ordinary shares were issued during the year at a premium of 20c per share.5. Dividends totalling $80,000 were paid during the year.Required:Prepare a statement of cash flows for the year to 31 December 20x2 using the format laid out inIAS7.Lecture SevenExample One:Perry P Louis, trading as the Umbrella Shop, ends his financial year on 30 September each year. On 1 October 20X4 he had no goods in inventory. During the year to 30 September 20X5, he purchased 30,000 umbrellas costing $60,000 from umbrella wholesalers and suppliers. He resold the umbrellas for $5 each, and sales for the year amounted to $100,000 (20,000 umbrellas). At 30 September there were 10,000 unsold umbrellas left in inventory, valued at $2 each.What was Perry P Lou is’s gross profit for the year?Answer:$ $Sales (20,000units) 100,00 0Purchases (30,000 units) 60,000Less closing inventory (10,000 units@$2) (20,000)Cost ofsales40,000Grossprofit60,000Example Two:Continue the example of the Umbrella Shop into its next accounting year, 1 October 20X5 to 30 September 20X6. During the course of this year, Perry purchased 40,000 umbrellas at a total cost of$95,000. During the year he sold 45,000 umbrellas for $23,000. At 30 September 20X6 he had 5,000 umbrellas left in inventory, which had cost $12,000.What was his gross profit for the year?Answer:$ $Sales (45,000units) 230,000Opening inventory (10,000 units) 20,000Add purchases (40,000 units) 95,000115,000Less closing inventory (5,000 units) 12,000Cost of sales(45,000units) 103,000Grossprofit 127 ,000Example Three:Gwyn Tring, trading as Clickety Clocks, imports and resells clocks. He pays for the costs of delivering the clocks from his supplier in Switzerland to his shop in Wales.He resells the clocks to other traders throughout the country, paying the costs of the carriage for the consignments from his business premises to his customers.On 1 July 20X5, he had clocks in inventory valued at$17,000. During the year to 30 June 20X6 he purchased more clocks at a cost of $75,000. Carriage inwards amounted to $2,000. Sales for the year were $162,100. Other expenses of the business amounted to $56,000 excluding carriage outwards which cost $2,500. Gwyn Tring took drawings of $20,000 from the business during the course of theyear. The value of the goods in inventory at the year end was $15,400.Required:Prepare the income statement of Clickety Clocks for the year ended 30 June 20X6.Answer:Clickety Clocks: Income Statement for the year ended 30 June 20X6 $ $Sales162,100Opening inventory 17,000Purchases 75,000Carriage inwards 2,00094,000Less closing inventory 15,400Cost of goodssold 78,600Grossprofit83,500Carriage outwards 2,500Other expenses 56,00058,500Netprofit25,000Example Four:Lucas Wagg, trading as Fairlock Fashions, ends his financial year on 31 March. At 1 April 20X5 he had goods in inventory valued at $8,800. During the year to 31 March 20X6, he purchased goods costing $48,000. Fashion goods which cost $2,100 were still held in inventory at 31 March 20X6, and Lucas Wagg believes that these could only now be sold at a sale price of $400. The goods still held in inventory at 31 March 20X6 (including the fashion goods) had an original purchase cost of $7,600. Sales for the year were $81,400.Required:Calculate the gross profit of Fairlock Fashions for the year ended 31 March 20X6.Answer:Cost ($) Realisable value ($)Fashiongoods 2,100400Other goods(balancingfigure) 5,500 5,5007,600 5,900Fairlock Fashions: Trading account for the year ended 31 March 20X6$ $Sales81,400Opening inventory 8,800Purchase 48,00056,800Less closing inventory 5,900Cost of goodssold 50 ,900Grossprofit30,500Q1:An item of inventory was purchased for $10. However, due to afall in demand, its selling price will be only $8. In addition further costs will be incurred prior to sale of $1. What is the net realisable value?A. $7B. $8C. $10D. $11 Q2.。
