Frank Wood’s Business Accounting 1 & 2 ELEVENTH EDITION: THE SOLUTION MANUAL

Covered areas include PART ONE: INTRODUCTION TO DOUBLE ENTRY BOOKKEEPING 1. The accounting equation and the balance sheet 2. The double entry system for assets, liabilities and capital 3. The asset of stock ...

Covered areas include PART ONE: INTRODUCTION TO DOUBLE ENTRY BOOKKEEPING 1. The accounting equation and the balance sheet 2. The double entry system for assets, liabilities and capital 3. The asset of stock 4. The effect of profit or loss on capital and the double entry system for expenses and revenues 5. Balancing of accounts 6. The trial balance PART TWO: THE FINANCIAL STATEMENTS OF SOLE TRADERS 7. Trading and profit and loss accounts: an introduction 8. Balance Sheets 9. Trading and profit and loss accounts and balance sheets: further considerations 10. Accounting Concepts PART THREE: BOOKS OF ORIGINAL ENTRY 11. Books of original entry and ledgers 12. The banking system 13. Cash books 14. The sales day book and the sales ledger 15. The purchases day book and the purchases ledger 16. The returns day books 17. The journal 18. The analytical petty cash book and the imprest system 19. Value added tax 20. Columnar day books 21. Employees' pay 22. Computers and accounting 23. Computerised accounting systems PART FOUR: ADJUSTMENTS FOR FINANCIAL STATEMENTS 24. Capital and revenue expenditure 25. Bad debts, provisions for doubtful debts, provisions for discounts on debtors 26. Depreciation of fixed assets: nature and calculations 27. Double entry records for depreciation 28. Accruals and prepayments and other adjustments for financial statements 29. The valuation of stock 30. Bank reconciliation statements 31. Control accounts 32. Errors not affecting trial balance agreement 33. Suspense accounts and errors PART FIVE: SPECIAL ACCOUNTING PROCEDURES 34. Introduction to accounting ratios 35. Single entry and incomplete records 36. Receipts and payments accounts and income and expenditure accounts 37. Manufacturing accounts 38. Departmental accounts 39. Cash flow statements 40. Joint venture accounts PART SIX: PARTNERSHIP ACCOUNTS AND COMPANY ACCOUNTS 41. Partnership accounts: an introduction 42. Goodwill for sole traders and partnerships 43. Revaluation of partnership assets 44. Partnership dissolution 45. An introduction to the financial statements of limited liability companies 46. Purchase of existing partnership and sole traders' businesses PART SEVEN: AN INTRODUCTION TO FINANCIAL ANALYSIS 47. An introduction to the analysis and interpretation of accounting statements Part 8: AN INTRODUCTION TO MANAGEMENT ACCOUNTING 48. An introduction to management accounting This solutions manual contains answers to all the questions not already answered in Business Accounting 1 and Business Accounting 2. It can be seen that there are a considerable number of questions in both textbooks. 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. The result of this is to give a high degree of flexibility in the use of the textbooks. 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. Experienced teachers and lecturers know just as much as we do about this topic. There will, however, be quite a lot of people reading this who are new to teaching, and who have little experience in understanding 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. How students lose marks 1 Lack of knowledge (obviously) but they throw away marks unnecessarily for all of the following reasons: (a) Untidy work, including columns of figures not lined up. (b) Bad handwriting. Do not make it difficult for the examiner to read and mark. (c) Lack of headings, dates, sub-totals, etc. in accounting statements. (d) Not submitting proper workings. 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. 2 Students very often do not follow the rubric on the examination paper. 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. 3 Students fail to answer the questions as set. 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.g. 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. Practice is even more essential for students for whom English is not their first language. 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. 4 Poor technique with essay questions. Business Accounting 2, Notes for students, the section headed ‘Answering essay questions’ covers this point. Discuss this with your students who have to tackle essay questions. 5 Not tackling the required number of questions. I have always found it very difficult to convince students to get hold of the idea that they will get more marks for five uncompleted questions than they will for four completed questions, when the examiner has asked for five to be attempted. Time planning is essential. 6 By not tackling the easiest questions first. 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 produced better results. 7 By simply regurgitating the contents of a textbook in essay answers. 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. Students will get excellent marks if they give their own examples. A good idea is that, for each of the concepts and conventions, they think up their own examples before the examination. There are going to be more and more questions on these things in the years ahead.Frank Wood and Alan Sangster, Business Accounting 1 & 2 Solutions Manual, 11th Edition 4 © Pearson Education Limited 2008 8 Examiners like to see answers where students realise that all accounting is not found in textbooks, but exists for the use of businesses. Get them to use examples in essay questions based on what they have observed in the businesses around them. For example, a question on ratios and interpretation will often be answered by students just using figures. They should also say why the figures have changed; what possible causes there might have been. In their life outside their studies, they should observe how accounting is carried out. They all go at one time or another to refectories, restaurants, shops, department stores, clothes shops, travel on buses and trains, etc. They should observe how the money is calculated and collected, what sort of bills or tickets are given out, how fraud or errors could occur, and so on. They can give this flavour of the real world in their answers. Believe us, they will get better marks. Essay questions – how not to misunderstand them 1 List the various pieces of information which should be shown on a sales invoice. 2 Describe what is meant by an imprest system. 3 Accounting based on historical costs can be misleading. Discuss. 4 The bookkeeper has said that if an error does not affect trial balance agreement then it cannot affect anything else very much. You are to write a report to the managing director stating whether or not you agree with the bookkeeper. 5 Give five examples of different compensating errors and explain why they cancel each other out. 6 Explain the differences between the straight line and reducing balance methods of depreciation. 7 Briefly describe the benefits to be gained from maintaining control accounts. 8 List six instances of errors which could cause the trial balance totals to disagree. 9 Name three methods of inventory valuation, and briefly describe any one of them. 10 ‘Without the use of accounting ratios, much of the accounting work already performed would be wasted.’ Discuss the amount of truth in this statement. 11 How can retail stores use accounting ratios to help them to plan future inventory levels? 12 Assess the benefits of double entry as compared with single entry methods of bookkeeping. 13 Define depreciation and describe how the annual charge is worked out using the straight line method. 14 For a firm buying goods on credit, how can it calculate the figure of purchases even though a Purchases Journal has not been kept? 15 List the differences between the income and expenditure account of a club and the income statement of a trading concern. 16 ‘It is unsatisfactory for the treasurer of a club to prepare and present to the members only the receipts and payments account as a summary of the records of the club’s activities for the year.’ Why is this true? What is the better thing to do? 17 You are to give your advice to the managing director of a company on the best manner of constructing departmental income statements. 18 How do the financial statements of a partnership vary from those of a sole trader, and why? 19 Consider the view that if profit was not calculated at all until the business was closed down, then such a calculation would be a simple and straightforward affair. 20 You are to write a letter to a friend explaining in simple terms why profit does not necessarily mean that you have cash in the bank. Practice on past full examination papers If students have not tackled past papers, under as near examination conditions as possible, they will often get quite a shock when they first sit an accounting examination. This very often is due to two main reasons: (a) There is such a lot to do in such a short time. (b) Even though there is so much to do, in professional examinations in particular, many of the questions are quite difficult with some complicated calculations or adjustments. If students can attempt, say, at least two such papers and then have their attempts marked and criticised, they will normally learn a lot from the experience. Examination questions and marking schemes We had originally intended to put here some typical examination questions and their marking schemes. However, after some considerable thought, we decided against doing so. There is no one precise mode of marking and any suggestions that we might make could perhaps create more arguments and consequent misunderstandings.Frank Wood and Alan Sangster, Business Accounting 1 & 2 Solutions Manual, 11th Edition © Pearson Education Limited 2008 5 In front of a group of people, it would be possible to do this, as we could deal with all the comments from the group and arrive at a consensus of opinion. However, the books sell world-wide and practices can vary. It can, however, be said that: (a) By and large, marking is ‘positive’, i.e. marks are awarded for what a student gets right, rather than being deducted for what a student gets wrong. (b) However, marks are deducted for untidy work, lack of headings, dates, sub-totals, etc. (c) An incorrect part of an answer, with no workings attached to it, will get nil marks. (d) Extra, unnecessary answers, resulting from students failing to follow the rubric, will not be marked. (e) Not following the examiner’s instructions will lose marks. For example, marks will be lost if, when asked for a ‘report’, a student gives a ‘list’; or if asked to ‘discuss’, a student gives only one side of the argument; or if asked to ‘define’, a student gives an ‘explanation’. 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. (f ) An error which repeats itself through an answer should lose only one set of marks. For instance, an error in the trading account will also affect balances in the profit and loss account, appropriation account and balance sheet. In cases of this type, only one set of marks should be lost. (g) Guessing by students is not normally penalised. 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 examination date. (h) The easiest marks to get, especially in an essay question, are the first few marks. (i) Good handwriting and well displayed answers will often (although theoretically they should not) get higher marks than they deserve. This is simply because examiners are human beings with human failings, and work that can be easily marked makes them feel generous.