Financial Accounting for the Hospitality, · PDF fileFinancial Accounting for the Hospitality,...

Financial Accounting for the Hospitality, Tourism and Retail Sectors

Question Pack

Each chapter of the text book contains review questions with solutions available on the web to both students and lecturers. This pack contains one additional question for each chapter of the text book as an additional resource for lecturers. An accompanying pack contains solutions to the questions and both are only available through the password protected Lecture Resources site. These questions and solutions should only be used on courses where the text book has been adopted as the main text. The questions and solutions should not be used or modified for any other purpose. © Luby & O’Donoghue (2005)

Financial Accounting for the Hospitality, Tourism and Retail Sectors Extra Review Questions

Chapter 1 Question

INDICATE WHETHER THE FOLLOWING STATEMENTS ARE TRUE OR FALSE True False

a) The recording of data or transactions is known as bookkeeping

b) A sole-trader must publish accounts for the general public

c) All Partnerships are protected by limited liability

d) ASB stands for Accounting Standards Board

e) Financial accounting involves planning, forecasting and control

f) Management accounting is not governed by legislation or accounting standards

g) Accounting regulations is through the government, EU, stock exchange and accounting standards

h) The objective of an accounting regulatory framework is to ensure adequate relevant disclosure, objectivity and comparability of accounting information to external users of financial reports.


Chapter 2 Question

INDICATE IN THE TABLE BELOW WHETHER ASSETS / LIABILITIES / CAPITAL INCREASE, DECREASE OR REMAIN UNCHANGED IN EACH OF THE TRANSACTIONS DESCRIBED.

Assets Liabilities Capital 1) Owner puts €200,000 into the

business opening a bank account 2) Bought Premises paying in cash 3) Bought fixtures and fittings on credit

from Fine Interiors Ltd 4) Purchased stock paying by cheque 5) Obtained a loan which was

immediately lodged in the bank 6) Purchases stock on credit from a

supplier 7) Gave personal equipment to the

business 8) Paid the amount outstanding relating

to fixtures and fittings by cheque

COMPLETE THE FOLLOWING TABLE WITH THE ACCOUNT TO BE DEBITED AND CREDITED

FOR EACH TRANSACTION. Transaction

Account to be debited

Account to be credited

1) The owner invested €15,000 into the business 2) Purchased office equipment on credit from ABC Ltd 3) Returned some of the office equipment as it was

unsuitable 4) Bought a used van paying by cheque 5) Paid ABC Ltd the amount outstanding by cheque 6) Received a loan from Allied Financing which was

lodged in the bank account 7) Paid a creditor by cheque 8) Withdrew money out of the bank and put it into the

cash till 9) Repaid part of the loan to Allied Financing by cheque

EXPLAIN CLEARLY, IN YOUR OWN WORDS, THE TRANSACTIONS THAT OCCURRED IN THE

FOLLOWING BANK ACCOUNT. DR Bank Account CR

1May Capital a/c €20,000 2May Machinery a/c €6,000 3May Loan a/c €5,000 5May Vehicles a/c €12,000 4May Stock Sales a/c €3,000 7May Creditors a/c €4,000 6May Debtors a/c €1,500 8May Cash a/c €500


Chapter 3 Question

COMPLETE THE FOLLOWING TABLE WITH THE ACCOUNT TO BE DEBITED AND CREDITED

FOR EACH TRANSACTION. Transaction

Account to be debited

Account to be credited

1) Paid telephone by cheque 2) Paid for computer consumables by

cheque 3) Paid utility bill by cheque 4) Paid wages by cheque 5) Received a cheque from a tenant for

rent 6) Bought postage stamps paying with

cash 7) Paid advertising costs by cheque 8) Returned some computer consumables

for a cash refund 9) Purchased stock of goods paying by

cheque 10) Purchased stock of goods on credit

from C&C Suppliers Ltd. 11) Sold goods on credit to Duffy & Sons 12) Sold goods for cash 13) Returned some of the goods purchased

from C&C Suppliers for an allowance 14) Some goods were returned for a cash

refund 15) Received cheque payment from Duffy &

Sons Ltd 16) Paid amount due to C&C Suppliers Ltd

by cheque


Chapter 4 Question

Jimmy Ward has just started a small business venture selling hand made crafts. You are requested to prepare ledger accounts for the following transactions, balance the accounts and extract a trial balance. July 1st Jimmy introduced €20,000 capital opening a bank account July 1st Jimmy paid rent of €450 by cheque July 1st Jimmy purchased initial stock amounting to €600 by cheque July 2nd Jimmy withdrew €500 from the bank for cash float July 2nd Jimmy purchased €350 stock from Glynn & Co on credit July 3rd Jimmy returned €50 stock to Glynn & Co July 3rd Jimmy bought €1000 equipment on credit from Euro Supplies Ltd July 4th Cash sales amounted to €400 July 5th Jimmy sold goods on credit to Carroll & Co for €200 July 5th Cash sales amounted to €300 July 5th Jimmy gave personal equipment worth €500 to the business July 5th Jimmy bought stationery for €50 cash July 6th Carroll & Co bought additional goods for €120 on credit July 6th Jimmy paid insurance bill €175 by cheque July 7th Jimmy paid wages €200 cash July 7th Jimmy took €50 cash for his own personal use July 7th Jimmy paid €300 by cheque to Glynn & Co July 7th Jimmy returned some of the stationery for a cash refund of €5 July 8th Jimmy purchased €800 goods paying by cheque July 8th Carroll & Co paid Jimmy €200 by cheque July 8th Postage amounted to €30 cash July 8th Cash sales amounted to €200 July 9th Goods were returned to Jimmy for a cash refund of €40 July 9th Jimmy purchased stock paying €500 by cheque July 9th Jimmy purchased furniture €560 on credit from Style Interiors Ltd July 10th A chair worth €60 purchased from Style Interiors Ltd was returned July 10th Stationery was purchased worth €25 by cheque July 10th Jimmy agreed to sublet some of the premises the tenant paying

€80 by cheque The trial balance from this question can be used to prepare a Trading, Profit and Loss account for Jimmy Ward’s first ten days trading. A physical stock check on the 10th July shows goods to the value of €1,600. A balance sheet as at July 10th can also be prepared.


Chapter 5 Question

Lakeside Holiday Village is a complex containing fifteen self catering cottages. The business involves letting cottages to both holiday makers and corporate clients. All fees are non-refundable. The business is responsible for marketing, sales, maintenance and cleaning of the complex. No goods are sold as the only retail outlet on the site is separately owned. Required a) Show diagrammatically an accounting system for the Lakeside

Holiday Village. b) Discuss how the use of computers would help Lakeside Holiday

Village.


Chapter 6 Question

James Clarkson operates a successful stationery and art supplies shop. The business is ten years in operation and has an accounting year end of 30th June. The following trial balance was prepared at the 2005 year end.

Trial Balance 30th June 2005 Debit € Credit €

Bank 19,000 Capital 500,000 Carriage inwards 10,000 Carriage out 4,500 Cash 2,000 Creditors 38,000 Debtors 5,000 Discount allowed 1,500 Discount received 19,000 Drawings 15,000 Insurance 9,500 Light and heat 5,500 Loan (to be repaid 30/9/05) 15,000 Marketing expenses 8,000 Office expenses 15,000 Premises 436,000 Purchases 150,000 Purchases returns 7,000 Rent received 20,000 Sales 380,000 Sales returns 22,000 Shop equipment 52,000 Shop fittings 88,000 Stock as at 1/7/04 13,000 Sundry expenses 3,000 Wages and salaries 120,000

979,000 979,000

Note: Closing stock value on 30th June 2005 amounted to €35,000 Required a) Trading, Profit and Loss Account for year ended 30th June 2005 b) Balance Sheet as at 30th June 2005


Chapter 7 Question

Mick Roche is considering setting up a retail outlet in Kilkenny and has a location close to Kilkenny Castle under review. As tourists regularly visit the area, Mick aims to have an Irish theme for all stock items. Potential stock items include adult and children’s arran sweaters, Irish books and stationery, general souvenirs and Irish food produce. Mick is also considering operating a small coffee shop from the premises. Required Discuss the VAT implications of operating both the outlet and the coffee shop.


Chapter 8 Question The cash book and bank statement for April shown below relate to Corporate Travel Limited.

Cash Book 01/4 Balance b/d €14,496 03/4 A Brady Ltd Cheque 17808 €4,500 03/4 Debtors a/c €24,642 03/4 ESB Cheque 17809 €1,584 10/4 Debtors a/c €20,244 06/4 K Lynch Cheque 17810 €21,375 17/4 Debtors a/c €23,331 06/4 CBT Ltd Cheque 17811 €17,610 24/4 Debtors a/c €25,977 10/4 J Moore Cheque 17812 €2,295 30/4 Asset Disposal a/c €4,500 15/4 Sunway Ltd Cheque 17813 €14,826 30/4 Debtors a/c €22,596 22/4 AC Advert Cheque 17814 €14,421 25/4 Holiway Cheque 17815 €14,025 25/4 C&C Cheque 17816 €10,200 25/4 Rent Cheque 17817 €3,600 25/4 PM Ltd Cheque 17818 €624 25/4 Eircom Cheque 17819 €2,250 29/4 ABC Ltd Cheque 17820 €1,326 29/4 P Flynn Cheque 17821 €3,207 29/4 H Willis Cheque 17822 €2,502 30/4 Balance c/d €21,441 €135,786 €135,786

Bank Statement -April

01/4 Balance €10,302 Cr 02/4 Lodgement €24,000 €34,302 Cr 02/4 Cheque 17805 €7,326 €26,976 Cr 02/4 Cheque 17808 €4,500 €22,476 Cr 02/4 Cheque 17806 €12,480 €9,996 Cr 05/4 Lodgement €24,642 €34,638 Cr 05/4 Cheque 17809 €1,584 €33,054 Cr 08/4 Cheque 17811 €17,610 €15,444 Cr 11/4 Lodgement €20,244 €35,688 Cr 11/4 Cheque 17810 €21,375 €14,313 Cr 12/4 Cheque 17812 €2,295 €12,018 Cr 17/4 Lodgement €23,661 €35,679 Cr 19/4 Cheque 17813 €14,862 €20,817 Cr 24/4 Lodgement €25,977 €46,794 Cr 24/4 Cheque 17814 €14,421 €32,373 Cr 26/4 Dividend €246 €32,619 Cr 26/4 Bank charges €62 €32,557 Cr 26/4 Cheque 17817 €3,600 €28,957 Cr 28/4 Cheque 17816 €10,200 €18,757 Cr 30/4 Direct debit €1,320 €17,437 Cr 30/4 Cheque 17819 €2,250 €15,187 Cr 30/4 Standing order €789 €14,398 Cr

The bank manager has verified that all entries in the bank statement are correct. Required a) Update the cash book as necessary b) Prepare a bank reconciliation statement at the 30 April


Chapter 9 Question

Fast Catering Limited has a financial year end due on the 31/12/2002. At the beginning of the year the company has a balance on its machinery account of €336,000 and on its provision for depreciation account of €225,000. On the 1st July 2002, the company purchased a second hand machine for €170,000. Delivery costs were €2,000 and installation cost amounted to €6,000. An additional €7,000 was spent on the 1st September on an additional part in order to improve its performance. Repairs of €3,000 were carried out on the 15th October. On the 30th September the company sold a machine (originally cost €120,000 on the 1st March 1998) for scrap of €10,000. The company provides for depreciation, using the reducing balance method, on fixed assets held at the end of its financial year at 50% per annum. Required

a) The machinery account b) The provision for depreciation of machinery account c) The disposal account d) A profit and loss extract e) A balance sheet extract


Chapter 10 Question The following data relates to debtors and provision policy of a wholesale supplier ‘Economy Supplies’ since the commencement of operations in 2001. 2001 Debtors on 31/12/2001 amounted to £80,000. Management create a provision for bad debts of 5% of debtors at the end of year. 2002 Bad debts during the year amounted to £28,000. Debtors on 31/12/2002 amounted to £95,000 after the bad debts were written off. Provision is maintained at 5% of debtors. 2003 During the year bad debts were written off amounting to £32,000. Debtors on 31/12/2003 amounted to £92,000 after the above debts were written off. It was decided to write off additional bad debts of £7,000. Provision is maintained at 5% of debtors. 2004 Bad debts during the year amounted to £22,000. Debtors on 31/12/2004 amounted to £81,000 after the above debts were written off. As well as the 5% provision for bad debts, management introduce a provision for discount on debtors of 2%. 2005 Bad debts during the year amounted to £40,000. £1,000 previously written off as bad has now been paid. Debtors on 31/12/2005 amounted to £86,000 after the above adjustments. A specific provision for bad debts of £3,500 is created to cover a client who may be put into liquidation. All other provisions are maintained. Required Show the effect on the Profit and Loss Account and Balance Sheet extracts for each of the years detailed above.


Chapter 11 Question

Sean Leahy operates as a sole-trader retailing electrical goods. You are required to prepare the financial statements for 31st December 2005 using the trial balance and additional information presented below.

Trial balance 31/12/2005

Bank 20,000 Buildings – cost 350,000 Buildings - provision for depreciation 21,000 Bad debts 5,000 Bad debts recovered 500 Capital 480,000 Carriage in 15,000 Carriage out 10,000 Cash on hand 5,000 Creditors 152,000 Debtors 250,000 Discount allowed 12,000 Discount received 40,000 Drawings 15,000 Equipment – cost 70,000 Equipment - provision for depreciation 30,000 Fixtures – cost 98,000 Fixtures - provision for depreciation 45,000 Insurance 9,000 Light & heat 13,000 Loan (due 2009) 50,000 Office expenses 60,000 Postage & Couriers 1,500 Provision for doubtful debts at 1 January 11,000 Purchases 820,000 Rent received 20,000 Repairs 12,000 Returns inwards 55,000 Returns outwards 78,000 Sales 1,128,000 Stock at 1 January 58,000 Telephone 8,000 Wages & Salaries 169,000

2,055,500 2,055,500

Additional information:

1. Stock on the 31st December amounted to €72,000 2. Depreciation for the year has to be calculated as follows

Buildings 2% p.a. straight line Equipment 20% p.a. reducing balance Fixtures 15% p.a. straight line

3. Insurance amounting to €800 relates to the owners private residence and car


4. Insurance costs €3,200 relate to the following year 5. Light and heating of €700 and telephone of €200 are

outstanding at the year end and should be accrued for 6. Interest due on loan at a rate of 6% is to be provided for 7. Provision for bad debts is maintained at 4% of year end

debtors 8. A provision for discount is to be created at a level of 5% of

year end debtors (after adjustments for bad debts)


Chapter 12 Question

John, Patrick and Peter Molloy have inherited a large country house and estate. The brothers are planning on converting the house into a country lodge and equestrian centre. Although between them they have hotel management, equestrian knowledge and marketing skills they are unfamilour with the business and legal requirements of setting up a business. Required Discuss the possible legal forms the brothers can adopt for their business.


Chapter 13 Question

Explain clearly, any FOUR of the following accounting concepts a) The Business entity concept b) The Dual aspect concept c) The Money Measurement Concept d) The Realisation Concept e) The Cost /Current Value Concept f) The Going Concern Concept g) The Accruals Concept h) The Prudence Concept i) The Consistency Concept j) The Materiality Concept


Chapter 14 Question

The following trial balance relates to Night Life Limited a company operating two night clubs in Limerick city.

Trial balance 31/1/2006 Debit Credit € € Administration costs 251,500 Bank 71,600 Buildings as per revaluation estimate 1,000,000 Creditors 88,000 Debenture Interest 11,500 Debentures 10% 240,000 Debtors 6,000 Distribution 121,400 Equipment at cost 100,000 Fixtures at cost 200,000 General reserve 70,000 Interim ordinary dividend paid 20,000 Ordinary share capital 360,000 Preference share capital (9%) 100,000 Profit and loss account (1/2/2005) 78,000 Provision for depreciation equipment (1/2/2005) 62,000 Provision for depreciation fixtures (1/2/2005) 88,000 Purchases 368,000 Revaluation reserve 180,000 Sales 876,000 Share Premium 80,000 Stock (1/2/2005) 68,000 Vat refund due 4,000 2,222,000 2,222,000

Additional Information 1. Stock as at 31/1/2006 was valued at €84,000 2. Equipment is to be depreciated on a straight line basis at the annual rate of

10% 3. Fixtures are to be depreciated on the reducing balance basis at annual rate of

20% 4. Accrue for debenture interest 5. Provide for corporation tax of €15,000 6. Transfer €18,000 to a general reserve 7. Provide for preference dividend 8. Provide for a final ordinary dividend of 6% Required a) Trading, Profit and Loss and Appropriation accounts for year

ended 31/1/2006 b) Balance Sheet as at 31/1/2006


Chapter 15 Question

The following are the summarised accounts of Celtic Restaurants Ltd, a company running a chain of restaurants located in Ireland, France and Germany.

Profit Statement 2004 2003 €'000 €'000 €'000 €'000 Turnover 11,000 8,584 Cost of Goods sold 3,190 2,146Gross Profit 7,810 6,438 Administration expenses 2,420 1,717 Selling and Distribution expenses 2,970 5,390 2,146 3,863Operating Profit 2,420 2,575 Interest 416 370Net profit before Tax 2,004 2,206 Corporation Tax 460 470Net Profit after Tax 1,544 1,736 Transfer to Reserve 1,000 500 Dividends - interim 250 250 Dividends – final 250 1,500 250 1,000Retained profits for year 44 736 Retained profit b/f 1,630 894Retained profit c/f 1,674 1,630

Balance Sheet as at

2004 2003 €'000 €'000 €'000 €'000 Fixed assets At N.B.V. 14,393 13,275 Current assets Stock 227 250 Debtors 56 50 Short-term Investments 25 12 Prepayments and accrued Income 12 10 Bank 0 320 120 442 Current liabilities Trade Creditors 290 350 Accruals and Deferred Income 15 12 Taxation 460 470 Dividends 250 250 Bank Loans and Borrowings 100 1,115 1,082 Long term liabilities Debentures 4,200 4,081 Bank Loans 1,000 5,200 1,200 5,281 8,398 7,354 Capital and Reserves Ordinary shares (nominal value 0.50 per share) 5,000 5,000 General reserve 1,724 724 Retained Profits 1,674 1,630 8,398 7,354


Additional Information 1) The authorised share capital of the company is 50,000 50p

ordinary shares 2) Included in administration expenses for the year ended 31/12/04

are the following: - Depreciation charged on assets in existence at the year end

amounting to €970,000 - Loss on sale of fixed asset of €250,000. The assets had a net

book value of €420,000 at the date of sale. Required a) Prepare a cash flow statement in accordance with FRS 1 for the

year ended 31/12/04 b) Show the movement in net debt during the year


Chapter 16 Question

The accounts shown below have been adapted from the Financial Report of Debenhams plc for 2002. Using the data calculate the key ratios that can assist in evaluating the group’s performance.

Profit Statement 2002 2001 £m £m

Turnover 1,688.5 1,606.9 Cost of sales (1,448.1) (1,376.0) Gross profit 240.4 230.9 Distribution costs (33.1) (29.7) Administrative expenses (43.5) (44.4) Operating profit 163.8 156.8 Share of trading loss in joint venture (3.8) (2.5)

Total trading profit 160.0 154.3 Net interest payable and similar charges (6.4) (8.2) Profit on ordinary activities before taxation 153.6 146.1 Taxation (44.6) (43.8) Profit for the financial year 109.0 102.3 Dividends (46.0) (43.0) Retained profit 63.0 59.3

Balance Sheet

2002 2001

Fixed assets £m £m

Intangible assets 0.2 0.2 Tangible assets 920.2 865.4 Total investments 18.8 9.9 939.2 875.5 Current assets Stocks 203.5 211.1 Debtors * see below 58.2 45.8 Cash at bank and in hand 29.4 12.9 291.1 269.8 Creditors: amounts falling due within one year Funding debt (97.0) (78.3) Other creditors * see below (286.9) (286.7) (383.9) (365.0) Creditors: amounts falling due >than one year (59.4) (59.2) Provisions for liabilities and charges (61.7) (52.5) Net assets 725.3 668.6 Shareholders’ funds – Equity interests 725.3 668.6

* 2002 2001 Trade debtors 20.1 16.9 Trade creditors 69.8 60.3 No of shares 365.9 million 367million

TRY DOWNLOADING A LATER FINANCIAL REPORT FROM THE DEBENHAMS WEBSITE

WWW.DEBENHAMS.COM AND USE THE DATA AS A BASIS FOR FURTHER RATIO CALCULATIONS.


Chapter 17 Question

You are employed as an accounts clerk at a sports & leisure centre. The centre has been divided into four departments with a manager responsible for each. The following data is available. Revenue Outdoor Sports .................... €60,000 Indoor Sports ...................... €75,000 Swimming Pool .................... €75,000 All Weather Surfaces ............ €90,000 Departmental costs Outdoor Sports .................... €10,000 Indoor Sports ...................... €38,000 Swimming Pool .................... €52,000 All Weather Surfaces ............ €44,000 Overheads yet to be apportioned: Light & Heat (split by area) ...................... €10,000 Rent & Rates (split by area)...................... €30,000 Administration (split by admin %) ............. €52,000 Advertising & marketing (split by revenue) . €12,000 Other information: Outdoor

Sports Indoor Sports

Swimming Pool

All weather surfaces

% Area 40% 15% 15% 30% % Admin 20% 35% 30% 15% Required Show the difference between using the Departmental Profit method and the Net Profit method of preparing departmental accounts by producing profit statements using both methods from the data above.

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