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Accounting for Decision Makers in Management and Finance 941N1

Workshop 3 – Questions

Do questions 2.3 and 2.5 from the end of Chapter 2 Accounting and Finance for non-specialists.

1. ‘Inflation is not really a problem in accounting. In the income statement and statement of financial position all items are affected by inflation in the same way, so we are always comparing like with like. In any case with inflation running at about 2 per cent a year, the effect is negligible.’

Comment on this statement.

2. ‘The statement of financial position is pretty useless for decision making. It only shows the position at a single point in time and a past point in time, at that.’

Comment on this statement.

3. When would a statement of financial position not be prepared on a ‘going-concern’ basis?

Taking the statement of financial position in Self-assessment question 2.1, which has been prepared on a going-concern basis, how might it be affected were it to be judged that the business concerned is not a going concern? Which of the items could be affected and in what way? (The actual figures are not required.)

4. Jack is a tenant farmer, who rents his farm from Jill. The tenancy contract has ten years to run, after which time the farm will revert to Jill and Jack will retire. Jack, with Jill’s agreement, has just used his own money to have a concrete road built on the farm. This will enable him to move about the farm more effectively.

How should Jack treat this expenditure in his income statement and/or statement of financial position?

How should Jill treat it in her financial statements?

5.   

a. Categorise the above balance sheet accounts as assets, liabilities or equity and draw up a balance sheet using these accounts. Make sure you follow the appropriate layout when preparing your balance sheet. Use the vertical format.  

6. You have the following information available for the business: Assets £14,800 and equity £9,200. What is the value of the liabilities?

A. (24,000), B (5,600) c 5,600, d 24,000 

7. Which of the items in the following list are assets and which of them are liabilities? Cash at bank

mortgage on office building

fixtures

warehouse

vans

buildings

bank loan

bank overdraft

8. The business has the following assets and liabilities:

Trade payables £104,423

Short-term loans £34,202

Office equipment £24,403

Trade receivables £21,732

Inventory £11,865

Land & buildings £112,414

Calculate the total assets and liabilities for the accounting equation.