Example Ltd Question Only

8/14/2019 Example Ltd Question Only

1/5

The University of Birmingham

College of Social Sciences

Birmingham Business School

Department of Accounting and Finance

Accounting Theory

(07 !7"#

$%ample &td

Introduction

Example Ltd is a question which requires students to prepare, using the same basic

transactional data, financial statements on the following bases of accounting: historical cost,

current purchasing power, replacement cost, real terms, cash flow, deprival value and currentcost. The question has been designed to aid revision of these different bases of accounting

which were covered in weeks !" of the module. The requirements listed should be attempted

in the order in which the# appear. $nswers to Example Ltd should be handed in for marking

in the lecture on the %onda# following the end of the module revision week scheduled for

week &.

'asic transactional data

Example Ltd was incorporated on ( )anuar# on which date the compan# issued &*,*** +(

ordinar# shares at par for cash. n the same da# it drew down a +*,*** long!term loan at an

interest rate of (*- per annum, the interest being pa#able on the last da# of the financial

#ear, ( /ecember. Immediatel# upon incorporation, the compan# purchased freehold land

for +*,***, plant and equipment 0including buildings1 for +2*,*** and opening inventor# of

+3,***, all for cash.

/uring the financial #ear, revenues averaged +*,*** per month, purchases averaged +(*,***

per month and other expenses +",*** per month. 4ustomers settled their accounts and

suppliers were paid one month in arrears. ther expenses were settled in the month in which

the# arose. n ( /ecember, the compan# paid the loan interest due and closing inventor#was valued at +3,***. The compan# uses straight line depreciation for all plant and

equipment 0including buildings1 and estimates that the# have a useful economic life of (*

#ears with no residual value. The compan# operates in a region of high unemplo#ment and

hence benefits from a special government subsid# to encourage emplo#ment which

effectivel# waives the compan#5s liabilit# to corporation tax for a three #ear period.


2/5

6istorical cost accounting 064$1

(. 4alculate the amount of cash and cash equivalents as at ( /ecember.

. 7repare an income statement for the #ear ended ( /ecember and a balance sheet asat that date.

. 8tate and explain the capital maintenance concept emplo#ed.

4urrent purchasing power accounting 0477$1

%ovements in the 97I were as follows:

( )anuar# * )une * 8eptember ( /ecember

97I (** (* (*; ((

4losing inventor# was purchased at average on * 8eptember.

(. 7repare a balance sheet as at ( /ecember 0in which retained earnings are the

balancing figure1.

. 7repare an income statement for the #ear ended ( /ecember 0in which the monetar#

gain or loss is the balancing figure1.

. 7rove the monetar# gain or loss arising.


3/5

4losing inventor# was purchased at average on * 8eptember. The compan# uses average

replacement cost in the income statement and considers that all holding gains are not

distributable.

(. 7repare an income statement for the #ear ended ( /ecember and a balance sheet as

at that date.

. 7rovide an anal#sis of all holding gains b# asset t#pe distinguishing between realised

and unrealised holding gains. 6ighlight the treatment of backlog depreciation.


9eal terms accounting 09T$1

%ovements on the relevant price indices were as follows:


Land (** (*.3 ! (*3

7lant and equipment (** ((* ! (*

Inventor# (** (( ((& (2

97I (** (* (*; ((

4losing inventor# was purchased at average on * 8eptember. The compan# uses averagereplacement cost in the income statement and considers that all real holding gains are

distributable.

(. 7repare a balance sheet as at ( /ecember 0in which the figure for retained earnings

is a balancing figure1.

. 7repare an income statement for the #ear ended ( /ecember.

. 7rovide an anal#sis of all real holding gains b# asset t#pe distinguishing between

realised and unrealised holding gains. 6ighlight the treatment of backlog depreciation.

2. 8tate and explain the capital maintenance concept used.

4ash flow reporting 04>91

Land and inventor# are readil# realisable assets and plant and equipment is not readil#

realisable. The relevant net realisable values as at ( /ecember were: land ! +,3**? plant

and equipment @ ;,3**? inventor# ! +,***.

(. 7repare a statement of cash flow for the #ear ending ( /ecember.


4/5

. 7repare a statement of financial position 0balance sheet1 as at ( /ecember 0in which

retained earnings is the balancing figure1.

. 7repare a statement of realisable income 0income statement1 for the #ear ending (

/ecember.

2. 7repare a statement of changes in financial position for the #ear ended ( /ecember.

3. 8tate and explain the capital maintenance concept emplo#ed.

/eprival value accounting 0/A$1

Relevant data as at 31 December are as follows:

7resent value

+

9eplacement cost

+

Bet realisable value

+

Land 3,*** (,*** ,3**

7lant and equipment 3,** ,** ;,3**

Inventor# ,;** ,"&* ,***

$ssume that all holding gains are distributable.

(. 7repare a balance sheet as at ( /ecember 0in which retained earnings is a balancing

figure1.

. 7repare an income statement for the #ear ended ( /ecember.


4urrent cost accounting 044$1

%ovements on the relevant price indices have been as follows:


Land (** (*.3 ! (*3

7lant and equipment (** ((* ! (*

Inventor# (** (( ((& (2

%onetar# working capital (** (* (*; ((


5/5

(. 4alculate the current cost operating adCustments, assuming cash is included in

monetar# working capital.

. 7repare a balance sheet as at ( /ecember.

. 4alculate the gearing adCustment, assuming that the opening balance sheet is alread#

stated in current cost terms.

2. 7repare the income statement for the #ear ended ( /ecember.

3. 9edraft the balance sheet for the #ear ended ( /ecember.

. 7rovide a detailed anal#sis of the current cost reserve.

". Explain the capital maintenance concept used.

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Example Ltd Question Only