FINANCIAL ACCOUNTING
IN PRACTICE
PRACTICAL QUESTIONS IN THE GHANAIAN
PERSPECTIVE
(FOR ANSWERS TO ALL THE QUESTIONS PLEASE GO TOhttp://ssrn.com/author=1590490 AND
PURCHASE THE WHOLE QUESTIONS AND ANSWERS)
FOR
UNDERGRADUATES & DIPLOMA
STUDENTS
COMPILED BY
MR GEORGE EKEGEY EKEHA
(MBA Fin., MBA, B.Com)
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Abstract
More often that not, our accounting practices at the corporate levels have been very different from what
actually goes on in our schools and universities. Many of our graduate students in accounting get into the
real world of work and realised that whatever they learnt in the classrooms have got not much impact on
the practice of accounting in the corporate environment. It is very pathetic to see graduates in accounting
with very good honours but cannot even conduct a simple bank reconciliation investigation when they got
to the office. It is therefore becoming a normal practices to engage a fresh university graduate in an
organisation with all the financial stress on the organisation, as a result of the recruitment process, and
then spend some amount again to train them for the work environment. It is therefore s common place to
see organisations asking for several years of work experience before taking them in the job. I have heard
various youth advocacy groups in the country complaining about these demands from the recruiting
organisation stating that it frustrates the ambition of the youth. But unfortunately, nobody seems to care
about designing a strategy that would help our nations to come out of these situations and we all just
cherish complaining.
It is my intention to bring this practical (not totally though, but I am sure it would help others to start
thinking about the solutions) questions for prospective accounting graduates to test themselves on the
realities of accounting jobs. The business or corporate environments, I agreed, differ from one industry to
another and also from one particular organisation to the other. However, there are various issues which
are very common with any accounting practice, such as taxation and VAT. There is also a generally
accepted practices in the Ghanaian business environment (and Africa as a whole) which are practicable
within every organisation.
The “Financial Accounting Practices, Question and Answers” is compiled to help aspiring accounting
professionals to engage themselves in both theory and practical questions in accounting. Most of the
questions in this book are designed to help students understand some practical activities carried out by the
account officers in the corporate environments. I hope that it would be of immense help to all those who
are currently practicing accounting and still having petty problems on the job by using it as a reference
material for their jobs. I also hope that this material would go a long way to help University students in
Accounting, Polytechnic students in DBS Accounting and aspiring Professionals in any Accounting Field
in their endeavour to helping build a good Corporate Governance for this country’s business environment
which would protect the investors’ interest and thereby encouraging more investor to invest in the
country.
Please, contact the author for any clarification on the questions
and the answers thereof.
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George Ekegey Ekeha
Table of Contents
CHAPTER 1
BASIC BOOKKEEPING AND ACCOUNTING PRINCIPLES............................ 1
Question 1 Atongo Sole Business.................................................................................................... 1
Question 2 FA Manyame Business Ventures .................................................................................. 2
Question 3 Bazzers Bombers Car Services ..................................................................................... 2
Question 4: Geeproperties Rentals .................................................................................................. 3
Question 5: Jennifer Agueliyah Boutique........................................................................................ 4
Question 6: Gifty Adams Showers Ltd ............................................................................................ 5
Question 7: Big Bright Business Ventures ...................................................................................... 5
Question 8: Reggis Amevor’s Bank Reconciliation ........................................................................ 7
Question 9: Chicken John Eateries and Drinkeries ......................................................................... 8
Question 10: Suzzy and Daryl Ventures .......................................................................................... 9
Question 11: Amaglagla Business Ventures.................................................................................. 11
Question 12: Chucker and Zooloo Car Dealers ............................................................................. 12
CHAPTER 2
INCOMPLETE RECORDS AND CONTROL ACCOUNTS .............................. 13
Question 13: Prempeh Street Groceries ......................................................................................... 13
Question 14: Kwaku Agyepong Businesses .................................................................................. 14
Question 15: Volta Star Grocery Shops......................................................................................... 15
Question 16: Blow Bambaloo Retailing Ventures......................................................................... 16
Question 17: Kokompeh Spare Parts Venture ............................................................................... 17
Question 18: Kofi Ghetto Ltd Bank Reconciliation ...................................................................... 18
Question 19: Norris Walter Ltd Control Accounts ........................................................................ 19
Question 20: Ronaldo Movete Ltd Control Accounts .................................................................. 20
Question 21: Jorgbenue Ltd Reconciliation Accounts .................................................................. 21
Question 22: Akosombo Fabrics Suspense Accounts ................................................................... 23
Question 23: John Jasper Shoes ..................................................................................................... 23
Question 24: Akwapim Botanical Gardeners ................................................................................ 24
Question 25: Ablode Tomefa Trading Company .......................................................................... 25
Question 26: Mandela Amewu Ice-cream Vendors....................................................................... 16
Question 27: Euzebius Abusuapanyi Eye Clinic ........................................................................... 28
Question 28: Johnson Azaglo Conner Shops................................................................................. 31
CHAPTER 3
MANUFACTURING ACCOUNTS AND STOCK VALUATION ..................... 33
Question 29: Gomoah Rubber Producers ...................................................................................... 33
Question 30: Kangaroo Carrier Bags Plc....................................................................................... 33
Question 31: Calippo Sweets Production ...................................................................................... 34
Question 32: Bonavester Plc .......................................................................................................... 35
Question 33: Atongo Plastic Manufacturers .................................................................................. 36
Question 34: Jerry Leggs Wellington Boots .................................................................................. 37
Question 35: Borllar Waste Kitchen Accessories .......................................................................... 40
Question 36: Jonny Wood Garden Seats ....................................................................................... 42
Question 37: Sir Johayes Importers ............................................................................................... 43
Question 38: Akasanoma Vision Ltd Manufacturers .................................................................... 44
CHAPTER 4: PARTNERSHIP ACCOUNTS .............................................................................. 45
Question 39: Aba, Borbor and Chochoo Partnership .................................................................... 45
Question 40: Aba, Borbor and Chochoo Partnership II................................................................. 45
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Question 41: Jonny, Jimmy and Jerry Business Ventures ............................................................. 45
Question 42: Messers George and Cyril Akpanaway Consultants ................................................ 46
Question 43: Azi, Nefi and Agoneh Traders ................................................................................. 46
Question 44: Piper, Dom and Jerry Trading Ventures .................................................................. 48
Question 45: Antie and Dede Chemists ......................................................................................... 49
Question 46: Olando, Jay and Simpson Confectioneries............................................................... 50
Question 47: Wawa and Mahoganey Furniture Producers ............................................................ 51
CHAPTER 5
COMPANY ACCOUNTS ..................................................................................... 54
Question 48: Amankwah Company Ltd ........................................................................................ 54
Question 49: Alluwako Company Ltd ........................................................................................... 55
Question 50: Biafra Bambara Company Ltd ................................................................................. 56
Question 51: Olusegun International Plc ....................................................................................... 57
Question 52: New Generation Hoteliers Ltd ................................................................................. 58
Question 53: Alhaji Lankan Ltd .................................................................................................... 58
Question 54: Alfa and Omega Company Ltd ................................................................................ 59
Question 55: Egue Kportufe Garages Ltd ..................................................................................... 60
Question 56: ZoomVultures Ltd, Developers of Cleaning Products ............................................. 61
Question 57: Motorway Jumpers Transportations ......................................................................... 62
Question 58: Amazing Freddy Company Ltd ................................................................................ 64
Question 59: Cazmil Public Limited Company (Plc) .................................................................... 65
Question 60: Suleman Garibah Company Ltd ............................................................................... 66
Question 61: Gasu Quofie Plc Farm Equipments .......................................................................... 67
CHAPTER 6
FUNDAMENTAL ACCOUNTING CONCEPTS ................................................ 69
Question 62: Nature and Purpose of SSAPs .................................................................................. 69
Question 63: Fundamental Accounting Concepts ......................................................................... 69
Question 64: Freddy’s Conner, Bepos and Jargoos ....................................................................... 69
Question 65: Needs of Accounts Users ......................................................................................... 69
Question 66: Atongo, The Science Student ................................................................................... 69
Question 67: Jorgbenue Gee Plc .................................................................................................... 70
Question 68: Principles of SSAP 9 ................................................................................................ 70
Question 69: Monallissa Ltd, A Processing Company .................................................................. 71
Question 70: Logba Young Plc...................................................................................................... 71
Question 71: Suzzy Selase Gee Study Notes ................................................................................. 71
Question 72: Accounting Terminologies as per SSAP2 ................................................................ 72
Question 73: Benjamin K Onimangbori Queries........................................................................... 72
Question 74: Fundamental Accounting Concepts SSAP2 ............................................................. 73
CHAPTER 7
CASH FLOW STATEMENTS ............................................................................. 74
Question 75: Darryl Amfic Company Ltd ..................................................................................... 74
Question 76: GBEBSUK Ltd......................................................................................................... 75
Question 77: Kojo Agyeman Motor Component Plc .................................................................... 76
Question 78: Selikem Garibah Plc ................................................................................................. 77
Question 79: Nzinga Chipolopolo Plc ........................................................................................... 79
Question 80: June July Engineering Business ............................................................................... 80
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CHAPTER 8
FINANCIAL STATEMENTS ANALYSIS AND INTERPRETATION ............. 83
Question 81: Divine Nooque Voluntaries Ltd ............................................................................... 83
Question 82: Gloria Suleman Ltd .................................................................................................. 85
Question 83: GeeBee Fashionable Trading Company Ltd ............................................................ 85
Question 84: Brad Pitt’s Business Ventures .................................................................................. 86
Question 85: Kantamanto Scrap Metal Merchants ........................................................................ 87
Question 86: Richard Branson Ltd ................................................................................................ 88
Question 87: Dansoman Control Ltd ............................................................................................. 89
Question 88: Kafui Akpoblu Diamonds Retailers ......................................................................... 90
Question 89: Gee Marketing Ltd ................................................................................................... 92
Question 90: GBEWAA & Co Architectural Engineers ............................................................... 93
REVISION QUESTIONS ................................................................................................................. 97
Question 91: Bamboozer Ltd, Wholesale Groceries ..................................................................... 97
Question 92: JAK WAWAA and JJR BOOM Veterinary Services .............................................. 98
Question 93: Suame Magazine International Garages Conglomerate ......................................... 100
Question 94: Logba Angry Lions Plc, Wholesaler of Alcoholic Beverages ............................... 101
Question 95: GeeMarketing & Co, Partners in Furniture & Equipment ..................................... 104
Question 96: Desmond and Tootoo Dental Practices .................................................................. 105
Question 97: Confidence Foofoo’s Restaurateurs ....................................................................... 107
Question 98: KINGDOM Furniture Assemblies ......................................................................... 109
Question 99: Alongay’s Double Glazing ..................................................................................... 111
Question 100: Amfic Yingor’s Garages ...................................................................................... 112
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Financial Accounting (Practical Questions): Ghanaian Perspective
CHAPTER 1
BASIC BOOKKEEPING AND ACCOUNTING PRINCIPLES
Question 1 Atongo Sole Business
Atongo started a grocery business on 1 January 2005 with capital of GH¢2,000 in cash. He rented
premises for GH¢600 per annum, payable quarterly in arrears, the first payment being due on 31
March 2005. Also on 1 January, he borrowed GH¢600 from a friend, Waakye, at the rate of 12%
per annum.
The following were the transactions of the business for the three months ended 31 March 2005.
6 January
9 January
16 January
20 January
24 January
30 January
4 February
6 February
9 February
13 February
18 February
25 February
26 February
27 February
1 March
4 March
12 March
14 March
15 March
18 March
26 March
29 March
31 March
31 March
Purchased a second-hand Ford van for GH¢1,300 cash
Purchased goods on credit from CFC Ghana Ltd GH¢350
Paid wages GH¢24
Purchased goods for cash GH¢180
Sold goods on credit to Gladys Tawiah GH¢210
Paid wages GH¢20
Sold goods on credit to Mrs. Agbenyegah GH¢100
Paid CFC Ghana Ltd GH¢300 cash on account
Gladys Tawiah paid GH¢210
Paid wages GH¢25
Purchased goods on credit from Chipolopolo GH¢1,120
Sold goods for cash GH¢60
Received GH¢70 from Mrs. Agbenyegah
Paid wages GH¢25
Returned defective goods to Chipolopolo and was credited GH¢40
Sold goods on credit to Gladys Tawiah GH¢350
Paid wages GH¢30
Received payment on account from Gladys Tawiah GH¢200
Sold goods for cash GH¢160
Gladys Tawiah paid GH¢125 on account
Sold goods on credit to Gladys Tawiah GH¢680
Paid wages GH¢40
Paid Chipolopolo in full settlement
Drew GH¢200 from the business
Paid rent GH¢150
Paid quarterly loan interest
At 31 March 2005 closing stock amounted to GH¢750.
Requirements
(a)
Write up the ledger accounts for three months.
(b)
Extract a trial balance at 31 March 2005
(c)
Prepare a trading and profit and loss account for the three months ended 31 March 2005 and
a balance sheet at that date.
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Question 2 FA Manyame Business Ventures
FA Manyame has been meaning to start a business for some time, but never seems to have the
energy to make any direct purchases or sales. He has some business premises but simply rents them
out to a friend, Nyamenaye. Recently, he gathered the courage and the following information is
available in respect of FA Manyame‟s sundry expenditure and income for the year ended 31
December 2004.
(a)
(b)
(c)
(d)
(e)
(f)
FA Manyame paid rent of GH¢1,500 during the year for the fifteen month period ending on
31 March 2005.
FA Manyame had paid for electricity up to date at 1 January 2004. During the year he paid
GH¢420 to cover charges from 1 January 2004 to 31 July 2004. He received further bills but
never got round to paying them. Assume that charges accrue evenly over the year.
In December 2004 FA Manyame had a rush of blood to the head and paid GH¢500 to the
Gas Board.
Gas consumed during 2004 amounted to only GH¢275.
Bank interest has been charged to the bank account as follows.
Up to 31 May 2004 (no overdraft)
GH¢Nil
1 June to 31 August 2004
GH¢14
1 September to 30 November 2004
GH¢35
The bank statements shows that GH¢51 was charged to the account on 28 February 2005 in
respect of the three months ended on that date.
Business rates
In December 2003 FA Manyame paid GH¢2,400 for the six months ended 31 March 2004.
During June 2004 He paid GH¢2,800 to cover the six months ended 30 September 2004.
In February 2005 he paid GH¢3,300 in respect of the six months ended 31 March 2005.
In March 2004 FA Manyame received GH¢2,500 from Nyamenaye for rent of the premises
in respect of the six months ended 31 March 2004.
As from 1 April 2004 FA Manyame increased the rent to GH¢6,000 per annum; during
2004 Nyamenaye paid the full amount for the year ended 31 March 2005.
Requirement
Write up the ledger accounts for each of the above items, showing all relevant balances and
transactions.
Question 3 Bazzers Bombers Car Services
Bazzers Bombers operates a down-market car hire service. On 31 December 2005 the balance on
the motor vehicles account was GH¢75,400 and the provision for depreciation account was
GH¢36,300.
When preparing the accounts for the year the following discrepancies were found.
(a)
(b)
A Skoda (cost GH¢4,000) had been bought on hire purchase. The terms of the agreement
included a deposit of GH¢500 and this was paid on 10 December 2005. The only entries
which had been made were to credit the cash book and debit the motor vehicles account in
respect of the deposit.
A Fiat, which was purchased in June 2002 for GH¢3,200, was scrapped. There were no
proceeds and no entries had been made in relation to the disposal.
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(c)
(d)
A Lada, which was purchased in March 2003 for GH¢4,400, was sold in August 2005 for
GH¢2,500. The only entry made in respect of the disposal was to debit cash and credit the
motor vehicles account with the proceeds.
No depreciation had yet been charged for the year 2005. The company charges depreciation
at 25% per annum on the cost of motor vehicles held at the year-end.
Requirement
Write up the motor vehicles account, provision for depreciation account, depreciation expenses
account and disposals account for the year ended 31 December 2005.
Question 4: Geeproperties Rentals
Geeproperties owns a block of flats, and earns a living by rental income and general dealing. On 1
January 2006 his ledger included the following balances.
Debtors‟ account
GH¢75,000
Provision for doubtful debts account
GH¢2,235
The balance on the provision account consisted of the following.
Specific provision of 100% against the debt of Charles Sulemana, a tenant
General provision of 1% against remaining debts
GH¢
1,500
735
2,235
During the year ended 31 December 2006 the following occurred.
(a)
(b)
(c)
(d)
(e)
Charles Sulemana paid Geeproperties GH¢150 and then vanished without trace to a new
world, leaving no assets.
Another tenant, Antonio Banderas, who owed GH¢900, fell into a river and was also found
to have died penniless.
Azuma Nickson returned from total obscurity and an amount of GH¢450 which
Geeproperties had written off in 2003.
Credit sales for the year amounted to GH¢167,400 and cash received from debtors (other
than Sulemana and Azuma) totaled GH¢150,000
At 31 December 2006 Geeproperties decided to provide in full against a disputed debt of
GH¢1,200 owed by Kwesi Otoo Pratt, and to maintain the 1% general provision on other
debtors.
Requirement
Write up Geeproperties‟s debtors‟ account, provision for doubtful debts account and bad debts
expense account for the year ended 31 December 2006.
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Question 5: Jennifer Agueliyah Boutique
Jennifer Agueliyah is a dealer in fancy goods. At 1 January 2007 his ledger included the following
balances.
GH¢
Debtors
17,349
Provision for doubtful debts
2,850
Creditors
16,593
The debtors at 1 January 2007 were as follows:
GH¢
S Mahama
5,700
J Baafi
5,823
The Miklin Executive Hotels
5,826
The creditors at 1 January 2007 were as follows.
GH¢
M Normenyo
5,481
James Nkomode
5,553
Obraku Sarpong
5,559
During January 2007 Agueliya‟s books of prime entry showed the following.
GH¢
Purchases day book
Sales day book
Normenyo
2,850
Mahama
James Nkomode
2,055
Baafi
Obraku Sarpong
3,360
Miklin Executive Hotels
8,265
GH¢
Cash payments book
Normenyo
James Nkomode
Obraku Sarpong
2,700
150
2,469
5,319
GH¢
150
5,280
4,995
10,425
GH¢
Cash receipts book
Baafi
Miklin Executive Hotels
5,700
5,826
11,526
The flowing information is relevant.
(1)
The opening provision for doubtful debts consisted of a 50% provision against Mahama‟s
debt. During January Mahama was run over by an invalid car in Kasoa and was found to
have died penniless.
(2)
Baafi argued about GH¢123 of her outstanding balance, saying that the goods concerned
were of the wrong design. Agueliya decided to provide for this amount as a specific
provision.
Requirements
Write up for the month of January 2007
(a)
Individual debtors‟ and creditors accounts
(b)
Sales and purchases accounts
(c)
Debtors‟ and creditors‟ ledger control accounts
(d)
Provision for doubtful debts and bad debt expense accounts
(e)
The individual debtors and creditors listings
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Question 6: Gifty Adams Showers Ltd
Gifty Adams Showers Ltd sells bathroom fittings on credit to most of its customers. In order to
control its debt collection system, the company maintains a debtors‟ ledger control account. In
preparing the accounts for the year to 30 October 2003 the accountant discovers that the total of all
the personal balances disclosed a balance of GH¢12,802, whereas the debtors‟ ledger control
account balance disclosed a balance of GH¢12,550.
Upon investigating the following errors were discovered.
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
(11)
(12)
Sales for the week ending 27 March 2003 amounting to GH¢850 had been omitted from the
control account.
A debtor‟s account balance of GH¢300 had not been included in the list of balances.
Cash received of GH¢750 had been entered in a personal account as GH¢570.
Discounts allowed totalling GH¢100 had not been entered in the control account.
A personal account balance had been undercast by GH¢200.
A contra item of GH¢400 with the creditors‟ ledger had not been entered in the control
account.
A bad debt of GH¢500 had not been entered in the control account.
Cash received of GH¢250 had been debited to a personal account.
Discounts received of GH¢50 had been debited to Adams‟ debtors‟ ledger account.
Returns inwards valued at GH¢200 had not been included in the control account.
Cash received for GH¢80 had been credited to a personal account as GH¢8.
A cheque for GH¢300 received from a customer had been dishonoured by the bank, but no
adjustment had been made in the control account.
Requirements
(a)
Prepare a corrected debtors‟ account, bringing down the amended balance at 30 October
2003.
(b)
Prepare a statement showing the adjustments that are necessary to the list of personal
account balances so that it reconciles with the amended debtors‟ ledger control account
balance.
Question 7: Big Bright Business Ventures
Big Bright, a sole trader does not maintain a set of ledgers to record his accounting transactions.
Instead, he relies on details of cash receipts/payments, bank statements and files of invoices. He
started business on 1 July 2007 with private capital of GH¢5,000 which comprised a second-hand
van valued at GH¢1,500 and GH¢3,500 cash which he deposited in a business bank account on that
date. He has not prepared any accounts since he commenced trading and you have agreed to prepare
his first set of accounts for him in respect of the eighteen months ended 31 December 2008. You
have discovered the following.
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(1)
A summary of his cash transactions from his cash book for the period was
GH¢
Receipts
Capital introduced
3,500
Cash sale receipts
21,250
Sale of motor van
850
GH¢
25,600
Payments
Cash paid to bank
Cash purchases
Postage and stationery
Motor expenses
21,350
2,160
474
919
Cash in hand at 31 December 2008
(2)
(5)
(6)
(7)
(8)
(9)
697
A summary of his bank statement shows
Receipts
Cash paid into bank
Bank loan
Credit sale receipts
Payments
Purchase of goods
Office equipment
Motor van
Drawings
Rent and rates
Light and heat
Balance are 31 December 2008
(3)
(4)
(24,903)
GH¢
GH¢
21,350
4,500
1,955
27,805
7,315
1,280
4,000
5,400
1,850
923
(20,768)
7,037
The office equipment was purchased on 1 October 2007.
The new motor van was purchased on 1 April 2008 to replace the original second-hand van
which was sold on the same date. Depreciation charges for the year on the second-hand van
can be ignored.
Big Bright expects the office equipment to last five years but to have no value at the end of
its life. The motor van bought on 1 April 2008 is expected to be used for three years and to
be sold for GH¢700 at the end of that time.
The cost of goods unsold on 31 December 2008 was GH¢1,425. Big Bright thought he
would sell these for GH¢2,650, with no item being sold for less than its original cost.
On 31 December 2008 Big Bright owed GH¢749 for goods bought on credit and was owed
GH¢431 for goods sold on credit. Of these amounts GH¢189 was due from/to Harry
Governor who is both a customer and supplier of Big Bright. A contra settlement
arrangement has been agreed by both Big Bright and Harry Governor.
Rent and rates paid includes an invoice for GH¢1,200 for the rates due for the year to 31
March 2009.
No invoice was received for light and heat in respect of November and December 2008 until
25 February 2009. This showed that the amount due for the three months ended 31 January
2009 was GH¢114.
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(10)
The bank loan was received on 1 January 2008. Interest is charged at 10% per annum on the
amount outstanding.
Requirement
Prepare Big Bright‟s trading and profit and lass account for the period ended 31 December 2008
and his balance sheet at that date.
Question 8: Reggis Amevor’s Bank Reconciliation
Reggis Amevor, a well-rounded gentleman, prides himself on keeping a positive cash balance at the
bank all the times. He becomes apoplectic on discovering that the statement of his account at the
Stanbic Bank at 31 December 2002 shows an overdraft of GH¢44. He wishes you as his accountant
to resolve the matter.
Reggis banks all receipts, and all his payments are made by cheque.
The bank statement at 31 December 2002 is as follows.
STANBIC BANK PLC
South Kaneshi Branch
Account 71239581 – R Amevor Esq
2002
1 Dec
8 Dec
15 Dec
15 Dec
19 Dec
19 Dec
27 Dec
30 Dec
30 Dec
30 Dec
30 Dec
Payments
GH¢
Balance b/f
Credits
Credits
343842
Credits
343844
Credits
343846
Charges
Cheque returned
Amount paid in by NLM
Receipts
GH¢
318
1,174
684
Balance
GH¢
734 Cr
1,052 Cr
1,542 Cr
86
925
623
703 Cr
1,326 Cr
84
44 Dr
762
69
623
Reggis‟ cash account for December 2002 is as follows.
2002
1 Dec Balance b/f
3 Dec P
5 Dec T Ltd
6 Dec M & Co
10 Dec KD Ltd
17 Dec J Ltd
24 Dec S Ltd
30 Dec MN Ltd
31 Dec TNT & Co
GH¢
50
140
178
695
479
86
623
768
85
3,104
2002
5 Dec
19 Dec
28 Dec
28 Dec
28 Dec
31 Dec
GP Ltd
TP Ltd
SR Ltd
Q
AB
Balance b/f
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GH¢
905
762
187
43
236
971
3,104
George Ekegey Ekeha
Financial Accounting (Practical Questions): Ghanaian Perspective
The cheque issued to GP Ltd on 5 December 2002 for GH¢925 was entered into the cash book as
GH¢905 in error.
Requirement
Make any necessary adjustment to the cash account and prepare a bank reconciliation statement at
31 December 2002.
Question 9: Chicken John Eateries and Drinkeries
You are given the following balance sheet: Chicken John – Balance sheet as at 30 September
2003
Cost
Depn
NBV
GH¢
GH¢
GH¢
Fixed assets
Plant
150.000
60,000
90,000
Vehicles
20,000
10,000
10.000
170,000
70,000
100,000
Current assets
Stock
10,000
Trade debtor
20,000
Bank
500
30,500
Less Current liability
Trade creditors
(12,000)
18,500
118,500
Financed by
Capital
20,000
Net profit for the year
53,600
Suspense account
44,900
118,500
Upon investigation you discover the following errors.
(1)
The balance on the bad debts provision account at 1 October 2002 had been credited to the
profit and loss account. The balance of the account at that date was GH¢1,800.
(2)
The bad debts provision account should have been made equal to 10% of trade debtors at 30
September 2003.
(3)
Depreciation is charged on plant at a rate of 20% pa on cost, and on vehicles at a rate of
50% pa on the reduced balance. The depreciation for the year to 30 September 2003 has
been correctly charged to the profit and loss account for that year, but no adjustments have
been made elsewhere.
(4)
The closing stock amounted to GH¢12,000, but the amount shown on the balance sheet was
the opening stock.
(5)
A transposition error had understated sales by GH¢900.
(6)
A new motor vehicles costing GH¢5,000 had been included in motor expenses. It is the
company‟s policy not to charge any depreciation in the year of acquisition.
(7)
Drawings amounted to GH¢10,000 had been debited to the profit and loss account.
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(8)
(9)
(10)
Discounts allowed of GH¢1,000 had been credited to the profit and loss account, and
discounts received amounting to GH¢1,500 had been debited to the profit and loss account.
A loan of GH¢5,000 had been credited to the profit and loss account.
Trade creditors had been understated by GH¢10,000.
Requirement
Prepare Chicken John‟s corrected balance sheet at September 2003. A working showing how the
suspense account is cleared should be included.
Note: Chicken John does not maintain control accounts.
Question 10: Suzzy and Daryl Ventures
The bookkeeper has prepared a preliminary trial balance of Suzzy and Daryl for the year ended 31
December as follows.
GH¢
GH¢
Capital account
110,000
Profit and loss account at 1 January
50,000
Bank loan
30,458
Debtors and creditors
77,240
60,260
Cash in hand and bank overdraft
1,000
5,036
Stocks and work in progress at 1 January
108,000
Fixed assets at cost and depreciation provision at 31 December 161,879
60,943
Depreciation for the year
15,000
Purchased and sales
300,297
400,000
Returns
4,370
4,630
Discounts allowed and received
9,760
6,740
Wages and salaries (net)
12,146
Payments of PAYE income tax
5,988
Payments of National Insurance
4,766
Creditors for PAYE at 1 January
900
Proceeds of sale of fixed assets
2,000
Rent, rates and insurance
18,036
Postage, telephone and stationery
3,009
Repairs and maintenance
2,124
Advertising
4,876
Packaging materials
924
Motor expenses
2,000
Sundry expenses
1,000
Loan interest
4,000
Accrued expenses
6,478
Suspense account
1,030
737,445
737,445
When the bookkeeper discovered that the preliminary trial balance did not balance he made it do so
by opening a suspense account and entering the amount on the appropriate side. A subsequent
investigation shows the following mistakes have been made.
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(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
(11)
(12)
(13)
(14)
A loan to the business of GH¢10,000 from the owner‟s brother, Amfic, has been added to
capital.
Accrued interest on the bank loan of GH¢458 has been credited to the bank loan account
instead of being treated as a current liability.
Bank charges of GH¢1,000 have been completely omitted from the books.
Fixed assets with an original cost of GH¢11,879 and accumulated depreciation of
GH¢10,943 have been sold for GH¢2,000. This amount is shown as a separate item in the
trial balance, and no entry has been made in the assets or provision for depreciation
accounts. Any surplus or deficit on sale should be shown in a separate account.
Deduction of GH¢6,088 for PAYE income tax and GH¢1,766 for National Insurance,
graduated pensions, etc, were made from employees‟ wages and salaries during the year.
The company‟s contribution for National Insurance amounted to GH¢3,000. No entries have
been made for these items.
In addition to allowing discount of GH¢240 and receiving discount of GH¢260, various
debtors‟ and creditors‟ accounts amounting to GH¢10,000 were set off by contra. No
entries have been made in respect of these items.
Debtors amounting to GH¢2,000 are bad and need to be written off.
A debt of GH¢1,000 written off as bad in a previous year has been recovered in full. The
amount has been credited to the debtors‟ account and deducted from the total of the other
debtors.
Goods returned from a debtor of GH¢630 have been correctly entered into the debtor‟s
account but by mistake were entered in the returns outwards journal.
A payment for stationery of GH¢234 was correctly entered in the cash book but debited in
the ledger as GH¢243.
A payment of GH¢76 for packing materials has been correctly entered in the cash book, but
no other entry has been made.
A payment of GH¢124 for advertising has been debited to repairs and maintenance.
A cheque payment of GH¢26 for insurance has been recorded in all accounts as GH¢62.
A page in the purchase account correctly totalled GH¢125,124 was carried forward to the
top of the next page as GH¢125,421.
All entries other than those given above are to be assumed to have been made correctly.
Requirements
(a)
Show the correcting entries in journal form (i.e. showing accounts and amounts debited and
credited but no supporting narrative is required) in respect of each of the mistakes
mentioned above.
(b)
Show the trial balance of the company at 31 December after these corrections have been
made.
A working, showing how the suspense account is cleared, should be included.
Note Control accounts are not maintained.
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Question 11: Amaglagla Business Ventures
James Bernerman, the bookkeeper of Amaglagla‟s business has made his usual mess of things and
produced the following attempts at a trial balance for the year ended 30 April 2002, after preparing
a draft profit and loss account.
Fixed assets
GH¢
GH¢
At cost
60,000
Provision for depreciation
31,000
Capital at 1 May 2001
35,000
Profit and loss account
12,300
Stock in trade, at cost
14,000
Debtors‟ ledger control account
9,600
Creditors‟ ledger control account
6,500
Balance at bank
1,640
85,240
85,240
As chief accountant you discovered the following during an cross checking.
(1)
A rent payment of GH¢350 in March 2002 have been debited in the debtors‟ ledger control
account.
(2)
Although instructed to do so, Bernerman had not set a debt from Walter of GH¢1,560 in the
debtors‟ ledger control account against an amount due to him in the creditors‟ ledger control
account.
(3)
Discounts allowed of GH¢ 500 during the year ended 30 April 2002 had not been recorded
in the books although correctly included the cash received book.
(4)
No entry had been made for the refund of GH¢2,620 made by cheque to Richard in March
2002, in respect of defective goods returned to Amaglagla. Richard returned the goods on
28 February 2002.
(5)
The purchases day book for February 2002 had been undercast by GH¢300.
(6)
A payment of GH¢1,000 to Boboo in January 2002 for cash purchases had been debited in
the creditors‟ ledger control account. (Note that Amaglagla does not maintain a credit
account with Boboo.)
(7)
No entries had been made in the books of the business for cash sales of GH¢2,450 on 30
April 2002 and banked on that date.
(8)
No entries had been made in the books of the business for bank charges of GH¢910 debited
in the company‟s bank account in December 2001.
(9)
The cash control account (debit column) had been overcast by GH¢1,900 in March 2002.
(10) The purchase of new fixtures and fittings for GH¢8,640 cash on 30 April 2002 had not been
recorded in the books.
(11) The purchase of stationery for GH¢1,460 cash in June 2001 had not been recorded in the
appropriate expense account.
Requirements to Prepare:
(a)
Journal entries to correct the errors
(b)
A suspense account, showing how it is cleared
(c)
(d)
A statement of adjusting to profit for the year ended 30 April 2002
A corrected balance sheet at 30 April 2002
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Question 12: Chucker and Zooloo Car Dealers
Chucker and Zooloo are in business as car dealers. Their draft account for the year ended 31 March
2008 show a net profit of GH¢9,000. They feel that this figure is lower than expected and ask you as
their accountant to investigate.
You discover the following.
(1)
Discount received in August 2008 of GH¢210 have been credited, in error, to purchases.
(2)
A debt of GH¢300 due from Francis Terrison & Co was written off as irrecoverable in the
December 2007. Since preparing the draft account, Francis Terrison & Co has settled the debt
in full.
(3)
The company‟s main warehouse was burgled in June 2007, when goods costing GH¢20,000
were
stolen. This amount has been shown in the draft accounts as an overhead item
“Loss due to burglary”. Although the insurance company denied liability originally, in the
past day or two that decision has been changed and you have been advised that GH¢14,000
will be paid in settlement.
(4)
On1 January2008 a Morris Marina car, which had cost GH¢1,800, was taken from the
showroom for the use of one of the sales representatives whilst on business. In the
showrooms this car had had a GH¢2,400 price label. Effects have not been given to the
transfer in the books although the car was not included in the trading stock valuation at 31
March 2008. The business provides for depreciation on motor vehicles at the rate of 25% of
the cost of vehicles held at the end of each financial year.
(5)
An Austin Allegro bought and received from Adjingo on 30 March 2008 at a cost of
GH¢1,200 was not recorded in the books until early April 2008. Although unsold on 31
March 2008, the car in question was not included in the stock valuation at the date.
(6)
The business is hoping to market a new car accessory product in July 2008. The new
venture is to be launched with an advertising campaign commencing in April 2008. The cost
of the campaign is GH¢5,000 and this has been debited in the profit and loss account for the
year ended 31 March 2008 and is included in current liabilities as a provision,
notwithstanding the confident expectation that the new product will be a success.
(7)
On 31 March 2008 the business paid an insurance premium of GH¢600, the renewal being
the year beginning 1 April 2008. This premium was included in the insurance charge of
GH¢1,100 debited in the draft profit and loss account.
Requirement
Prepare a settlement of adjustment to profit for the year ended 31 March 2009.
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CHAPTER 2
INCOMPLETE RECORDS AND CONTROL ACCOUNTS
Question 13: Prempeh Street Groceries
Prempeh is a grocer who had not kept a full set of books. The following was a summary of his bank
statements for the year ended 31 December 2001.
GH¢
GH¢
Amount credited by bank
35,170 Balance 1 January 2001
892
Payments to trade creditors
30,500
Rent and rates
475
Fixtures
100
Lighting and heating
210
General expenses
800
Loan interest
120
Drawings
900
Customers‟ cheque dishonoured
180
Balance 31 December 2001
993
35,170
35,170
You are given the following information:
(1)
Trading receipts consisted partly of cash and partly cheque. During the year Prempeh had
paid out of his cash takings, wages amounting to GH¢2,950 and sundry expenditure of
GH¢140. He retained GH¢3 a week pocket-money and maintained a balance of GH¢20 in
the till for change. The balance of his takings, together with cheque amounting to GH¢250,
which he had cashed out of his takings for the convenience of certain friends, was paid into
the bank.
(2)
Cheque drawn payable to trade creditors, but not presented at 1 January 2001, amounted to
GH¢280, and at 31 December 2001 to GH¢320.
(3)
All dishonoured cheque were re-presented and honoured during the year.
(4)
The loan interest was paid to Bretwum who had lent Prempeh GH¢4,000 some years ago at
a rate of interest of 3% per annum. The interest was duly paid half-yearly on 31 March and
30 September, and the loan was still outstanding at the end of the year.
(5)
Discounts allowed by trade creditors amounted to GH¢480 and those allowed to debtors
were GH¢520.
1 Jan 2001
31 Dec 2001
GH¢
GH¢
Stocks
4,500
5,800
Trade debtors
2,800
3,200 (including a debt of H¢200
to be written off)
Accrued general expenses
240
190
Rates paid in advance
40
50
Fixtures valued at
2,800
2,550 (including those purchased
During year)
Trade creditors
1,800
2,200
Creditors lighting and heating
80
70
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Requirements to Prepare:
(a)
A statement of Prempeh‟s capital at 1 January 2001
(b)
A profit and loss account for the year ended 31 December 2001
(c)
A balance sheet at that date.
Question 14: Kwaku Agyepong Businesses
Kwaku Agyepong received a legacy of GH¢20,000 on 1 January 2006 and on the same date
purchased a small retail business. The completion statement from the solicitor received the
following.
GH¢
Freehold shop property
10,000
Goodwill
2,000
Stock in trade
1,600
Trade debtors
400
Shop fixtures
2,600
Rates in advance to 31 March 2006
100
16,700
The legacy was used to discharge the amount due on completion and the balance was paid into a
newly opened business bank account.
Kwaku Agyepong had not kept proper records of his business transactions as he felt that time spent
"taping a keyboard” was wasted selling time, but was able to supply the following information.
(1)
A summary of the cash till rolls showed his shop takings for the year to be GH¢25,505; this
includes all cash received from debtors including those at 1 January 2006.
(2)
The takings were paid periodically into the bank after payment of the following cash
expenses.
GH¢
Wrapping materials
525
Staff wages and National Insurance
3,423
Purchases for resale
165
Petrol and oil
236
(3)
Personal cash drawings were estimated at GH¢20 per week and goods taken for own use at
GH¢2 per week.
(4)
A summary of the bank account showed
GH¢
GH¢
Legacy – residual balance
3,300 Purchases for resale
14,863
Sale of fixtures purchased at
Motor expenses
728
1January 2006 but not required
Delivery van (cost –1April 2006) 1,200
(cost GH¢200; depreciation Nil)
130 General expenses
625
Loan from Robin at 10% pa
2,000 Loan interest
Cash banked
19,900
(six months to 30 Sept.)
100
Private cheque
1,329
Electricity
228
Rates (year to 31 March 2007)
500
Balance per statement at
31 December 2006
5,757
25,330
25,330
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A cheque drawn on 28 December 2006 of GH¢125 for goods purchased was presented to the bank
on January 4, 2007.
(5)
During the year bad debts of GH¢223 arose and were irrecoverable. The trade debtors at 31
December 2006 amounted to GH¢637, of which GH¢100 is doubtful and for which
provision should be made.
(6)
At 31 December 2006 there were
GH¢
Stock in trade
2,360
Stock of wrapping materials
53
Trade creditors – purchases
358
Electricity accrued
50
Accountancy fees accrued
100
Cash float in till
180
(7)
The difference arising on the cash account was discussed with Kwaku Agyepong but
remained unexplained and was dealt with in an appropriate manner.
(8)
Depreciation is to be provided at the rate of 10% per annum on the fixtures and at the rate of
20% on the van.
Requirement
Prepare a trading and profit and loss account for the year ended 31 December 2006 and a balance
sheet at the date.
Question 15: Volta Star Grocery Shops
Volta Star runs a retail grocery shop, but many of his accounting records were lost when coffee was
spilt over the back-up diskettes. On examining Volta Star‟s books you find that his recorded assets
and liabilities on 31 December 2006 were
GH¢
Shop fittings
500
Van
400
Stock
3,627
Trade debtors
1,960
Trade creditors
1,508
An analysis of his bank pass book gives the following information.
GH¢
Balance at 1 January 2007
479
Payments to trade creditors
Receipts from debtors
1,006 Purchase of new van on
Cash banked
15,537
30 September 2007
Sale of van on 30 September
Rent, nine months to
2007
300
30 September 2007
Rates, eighteen months to
31 March 2008
Sundry expenses
Van expenses
Advertising
Balance at 31 December 2007
1,674
Drawings
18,996
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GH¢
16,594
1,000
225
360
446
60
219
92
18,996
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Financial Accounting (Practical Questions): Ghanaian Perspective
An analysis of his cash transactions printout gives the following information.
GH¢
GH¢
Balance at 1 January 2007
21
Wages and salaries
1,524
Cash sales
16,419 paid into bank
15,537
Receipt from debtors
2,317 Van expenses
168
Proceeds of surrender of life
Advertising
84
Insurance policy (private)
142
Drawings
1,351
Sundry expenses
119
Payments to creditors
104
Balance at 31 December 2007
12
18,899
18,899
You are informed of the following in addition to the above.
(1)
On 31 December 2007 stock at cost was GH¢4,651, debtors were GH¢2,000 and creditors
were GH¢1,543. There was also an unpaid account of GH¢41 for sundry expenses.
(2)
There was an unpaid account of GH¢37 for sundry expenses outstanding on 31 December
2006.
(3)
Depreciation is to be provided on shop fittings at 10% reducing balance, and on motor vans
at 20% reducing balance, on closing balances.
(4)
During 2007 Volta Star has taken groceries from the shop costing GH¢156 for his own use.
He has not paid for these.
(5)
A provision for doubtful debts should be raised (at the beginning and end of the year) of 5%
of the debtors. During the year bad debts amounting to GH¢42 have been written off, and
are not included in the figure of debtors on 31 December 2007.
Requirements
(a)
Prepare a statement of affairs at 31 December 2007.
(b)
Prepare a trading and profit and loss account for the year ended 31 December 2007 and a
balance sheet at the date.
Question 16: Blow Bambaloo Retailing Ventures
Blow Bambaloo, a retailer, adds 25% of the cost of all goods purchased for resale to arrive at his
selling prices.
His financial position at 30 June 2005 was as follows.
Assets
GH¢
Plant and machinery (NBV)
5,000
Stock
3,825
Debtors
7,175
Cash at bank
2,200
Liabilities
Creditors
3,000
Loan from Z (interest free)
2,000
During the year ended 30 June 2006 the following transactions took place.
(1)
Paid GH¢11,675 for goods for resale (cheque).
(2)
Repaid GH¢500 of the loan from Z (cheque).
(3)
Purchased a van for GH¢700 (cheque) on the last day of the year.
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(4)
(5)
(6)
(7)
Withdrew from the bank GH¢80 per month for personal expenses.
Paid into the bank a legacy of GH¢300.
Paid by cheque income tax of GH¢600 (treat as drawings).
Withdrew an unspecified amount of cash from takings prior to banking.
At 30 June 2006 stocks at cost was GH¢4,000, debtors totalled GH¢7,000 and creditors were
GH¢3,500; the balance at bank amounted to GH¢1,950. Depreciation of plant was 10% per annum
on the reducing balance. No depreciation is to be provided on the van.
Requirement
Prepare a trading and profit and loss account for the year ended 30 June 2006 and a balance sheet at
that date.
Question 17: Kokompeh Spare Parts Venture
Kokompeh was a sole trader in a retail business, all sales being made for cash. His balance sheet at
31 March 2003 was as follows.
GH¢
GH¢
GH¢
Capital account
6,180 Fixtures and fittings
1,750
Creditors
Stock at cost
4,200
Trade
380
Balance at bank
760
Expenses
170
cash in hand
20
550
6,730
6,730
Exactly ten weeks later, on the night of 9 June 2003, a fire occurred which completely destroyed all
his stock, fixtures and fittings, and accounts computer, leaving only a file of unpaid invoices which
he had retained at home.
He had not insured against loss of profits but his fire insurance policy included cover of his stock,
at cost, not exceeding GH¢5,000, cash up to GH¢50, and fixtures and fittings at agreed figure of
GH¢1,500.
The cash in hand on 31 March 2003 and all takings up to the close of business on 9 June 2003 had
been banked with the exception of
(1)
GH¢20 per week paid to an assistant as wages
(2)
GH¢25 per week drawn by Kokompeh for personal expenses
(3)
GH¢10 retained as a cash float and which had been lost in the fire.
All payments for goods and business expenses, other than wages, were made by cheque.
The selling price of his goods was obtained by adding 40% to the cost price.
Duplicate bank statements were obtained from the bank and an analysis of the ten week period
ended 9 June 2003 showed the following.
GH¢
Receipts
Cash banked
4,600
Payments
Creditors for goods
3,200
Expenses
480
Unpaid invoices on 9 June 2003 amounted to GH¢320 for goods and GH¢60 for expenses.
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Requirements
(a)
Prepare a statement setting out the claim for loss of stock.
(b)
Prepare a profit and loss account for the ten weeks ended 9 June 2003 and a balance sheet at
that date, assuming that the claims for loss of stock, cash and fixtures and fittings are
admitted.
Question 18: Kofi Ghetto Ltd Bank Reconciliation
The enthusiastic young accountant of Kofi Ghetto Ltd has closed off the books for the year ended
31 December 2007 and prepared draft accounts before receiving the December bank statements
which have been delayed by computerization.
The net profit for the year before taxation is shown as GH¢58,616 and cash at bank appears as
GH¢12,208.
The bank statements for December, showing a credit balance ofGH¢13,528 have now been received
and checked with the cash book, and the draft accounts have been checked by the accountant‟s
assistant.
The points set out below have arisen as a result of the checking procedures.
(1)
Cheques drawn entered in the cash book in December but not presented for payment by 31
December totalled GH¢1,879.
(2)
Amounts received from customers and banked in December but not credited on the bank
statements by 31 December totalled GH¢684.
(3)
Bank charges of GH¢197 debited on the bank statements in December had not been entered
in the cash book.
(4)
The bank had wrongly credited the company‟s accounts in December with a cheque for
GH¢1,102 drawn in favour of Kofi Ghetto Building Components Ltd, an entirely different
company.
(5)
A cheque for GH¢1,500 received from a customer and paid into the bank in December was
not honoured on presentation and was debited on the bank statements. The fact that it had
been returned was not known to the person writing up the cash book. It is agreed that the
GH¢1,500 must be regarded as irrecoverable.
(6)
A balance of GH¢2,400 due from a customer at 31 December and included in debtors is
now reported by the company‟s solicitors to be a bad deb. In preparing the draft accounts, a
bad debt provision was created equivalent to 5% of debtors.
(7)
A cheque paid for rates in respect of six months ending 31 March 2008 had been entered
wrongly in cash book as GH¢2,912 and posed to the debit of rates account in the nominal
ledger. The correct amount as debited on the bank statement is GH¢2,192.
(8)
Goods costing GH¢2,400 have been invoiced to an agent and included in sales and debtors
at an amount which includes a 20% profit margin on sales value. The agent still held the
goods in a saleable condition at 31 December 2007.
(9)
The discount column on the debit side of the cash book for December has been totalled to a
figure which exceeds the correct figure by GH¢1,977. This error has not prevented the
balancing of the books due to the fact that in the ledger account of a supplier the credit
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balance has been arrived after including an amount ofGH¢1,977 in the addition of the credit
side of the account, which was in fact the account number.
Requirements
(a)
(b)
Produce a bank reconciliation at 31 December 2007.
Prepare statements showing the necessary adjustments to
(i)
(ii)
(iii)
the cash book for the ended 31 December 2007
the profit and loss account for the year ended 31 December 2007
assets, liabilities and shareholders‟ funds in the balance sheet at 31 December 2007.
(The balance sheet statement should show a reconciliation of the adjustments made.)
Question 19: Norris Walter Ltd Control Accounts
Norris Walter Ltd is a company which advertises wines and spirits through the mail and delivers
direct to customers.
For the year ended 31 December 2001 the balances have been extracted from the company‟s
debtors‟ ledgers and the aggregate net figure of debtors amounts to GH¢78,615.
However, the debtors‟ ledger control account for the year shows a balance of GH¢79,604. The sales
ledger has not yet been integrated with the computerized nominal ledger, and hence is not
simultaneously updated.
A thorough investigation reveals the matters set out below:
(1)
(2)
(3)
(4)
(5)
(6)
(7)
A consignment of wines sent to an agent on a “sale or return” basis, and which remained
unsold at the year-end has been included in the sales daybook for November 2001 at the
pro-forma invoice value, but the amount has not been posted to the debtors‟ ledger. The proforma invoice value included a mark-up of GH¢275 representing 33 1/3% on cost.
Wines are quoted at a price which includes delivery, but in the case of some October 2001
invoices delivery costs totalling GH¢325 have been added in error to the quoted prices, and
these invoices have passed through the sales records in the normal manner.
Cash of GH¢115 paid to a customer to settle a credit balance owing to him has been
correctly posted to the relevant debtors‟ ledger account but has been analysed incorrectly in
the cash book with the result that it has been included in the total of creditors‟ ledger
payments.
A special discount of GH¢19 allowed to a customer has been correctly entered in the
discounts column of cash book but posted to the debtors‟ ledger account as GH¢91.
A customer was issued with credit note of GH¢54 for wines returned by him in September.
He subsequently asked for a copy of this credit note. Both the original and the copy have
been entered in the sales returns book but only one credit entry has been made in the
customer‟s ledger account.
A credit balance of GH¢86 standing on the account of a customer has been listed as a debit
balance of GH¢68 in extracting the list of debtor‟s ledger balances.
The debtors‟ ledger account of one customer contains credit entries in fact totalling
GH¢1,840. As a result of a casting error, this total was originally shown as GH¢1,890 but
then carried forward to the next page of the account as GH¢1,980.
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Requirements
(a)
(b)
Prepare the corrected debtors‟ ledger control account.
Set out an amended total of the list of debtors‟ ledger balances.
Question 20: Ronaldo Movete Ltd Control Accounts
Ronaldo and Movete plc is a company specialized in the manufacturing and sale of security
systems. The accounts for the year ended 30 September 2004 are in the course of preparation. The
debtors‟ total account controlling sales in the South Western area of the country has been prepared
on a microcomputer accounts packages by an inexperience assistant in the form set out below.
GH¢
GH¢
Debtors at 1 October 2003 (agreed
Cash received
632,429
with the total list of balances
Transfer to creditors‟ ledger
2,010
extracted from the ledger)
94,202 Sales returns VAT inclusive figure
14,260
Sales invoiced for the year
556,780 Bad debts
1,955
Discounts allowed
5,840 Debtors at 30 September 2004
6,168
656,822
656,822
The total of the balances as extracted and listed from the South Western area ledger is GH¢83,310.
Investigation brings out the facts given below.
Note Points (a) to (e) relate to the control accounts only.
(a)
Sales
The following is a summary of the sales sheets for the year.
GH¢
Sales exclusive of VAT
556,780
Value added tax
83,517
640,297
(b)
Sales returns
For the last month of the year, returns were GH¢1,950 but there is a mistake in the addition
of the total column of one sheet resulting in a total which is GH¢420 lower than the correct
figure. Moreover, including in the total of GH¢14,260 representing returns for the year, the
figure of GH¢1,950 was taken as GH¢1,590.
(c)
Transfer
The transfer of GH¢2,010 to the creditors‟ ledger is in respect of cash received from a
supplier for an overpayment to him.
(d)
Bad debts
The figure of GH¢1,955 as shown in the bad debts account is made up as follows.
GH¢
Bad debts written out of the debtors‟ ledger in 2003/04
2,500
Less Bad debts recovered in respect of a debt written out of the
Ledger in 2001/02
(2,045)
455
General bad debt provision against debts remaining on the ledger 1,500
1,955
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(e)
Cash received
(f)
The total of GH¢632,429 includes the bad debt recovered, and also a cheque for GH¢1,685
which was first received from a customer in September 2003 and entered in the records in
that month. In October 2003 it was dishonoured and debited on the bank statement. It was
presented again and duly honoured. It therefore appeared on both sides of the cashbook in
October 2003.
List of balances
The total of GH¢83,310 includes a debit balance of GH¢540 standing on an account in the
name of a director. It is agreed that this will not be paid but should be transferred to the
director‟s emoluments accounts.
A ledger sheet relating to the North Eastern area has been mis-filed in the South Western
area at the time when the balances were extracted. It shows a credit balance of GH¢1,120.
Requirement
Prepare an amended debtors‟ ledger control account relating to the South Western area for the year
ended 30 September 2004 showing the reconciliation of the debtors‟ figure with the totals list
extracted from the ledger.
Question 21: Jorgbenue Ltd Reconciliation Accounts
The bookkeeper of Jorgbenue Ltd, Mr Mawusi, prepares a monthly bank reconciliation statement
together with reconciliation of the lists of debtors‟ and creditors‟ ledger balances with the debtors‟
and creditors‟ ledger control account balances.
On 30 June 2001 the various reconciliation disclosed the following positions.
(i)
Bank reconciliation
Balance per cash book
Balance per bank statement
(ii)
Debtors
Balance per list of balances
Balance on debtors‟ ledger control account
(iii)
GH¢1,952 (in hand)
GH¢6,536 (in hand)
GH¢743,206
GH¢736,747
Creditors
Balance per list of balances
Balance on creditors‟ ledger control account
GH¢698,741
GH¢702,946
Mr. Mawusi cannot reconcile the differences, and requests you to investigate further. He also has to
present the monthly management accounts to his superior, Mrs. Apenor. These accounts show a
profit for the month of GH¢17,257 and Mrs Apenor urgently requires a revised profit figure, if any
changes arise as a result of your investigation.
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You discover the following
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
(11)
(12)
(13)
Interest and bank charges amounting to GH¢1,137 were debited by the bank on 30 June
2001, but no entries had been made in the cash book. When you inform Mr Mawusi, he is
incensed at the figure and telephones the bank which agrees to a reduction of GH¢837 and
this is credited on 17 July 2001.
Cheques received totalling GH¢2,736 from credit customers had been correctly entered in
the cash book on 28 June 2001. No entry had been made in the individual ledger accounts,
and the lodgement did not appear on the bank statement until 7 July 2001.
Cheques payable to suppliers amounting to GH¢7,257 had been correctly entered in the cash
account on 27 June 2001. The cheques did not appear on the bank statement until 8 July
2001, whilst you discover that only GH¢2,557 thereof had been entered in the individual
ledger accounts.
A dividend receipts of GH¢1,200 on the bank statement had not been entered anywhere in
the books of account.
Debit balances of GH¢1,200 in the debtors‟ ledger had been included as credit balances in
the creditors‟ ledger, whilst credit balances of GH¢348 in the creditors‟ ledger had been
included as debit balances in the debtors‟ ledger.
A bad debt of GH¢75 owed by Westham had been correctly written off in his individual
ledger account, but no entry had been made in the debtors‟ ledger control account.
Discounts allowed by a supplier, James Nuque Ltd, had been correctly recorded in its
individual ledger account, but had been credited to the creditors‟ ledger control account and
debited to the discounts allowed account. These discounts amounted to GH¢737.
The sales day book had been undercast by GH¢4,750 and the purchase day book overcast by
GH¢3,250.
The total of the debtors‟ ledger balances had been overcast by GH¢72 and the total of the
creditors‟ ledger balances undercast by GH¢363.
A sales invoice to Barbara amounting to GH¢182 had been recorded incorrectly in the sales
day book as GH¢128. The wrong amount had been entered twice in the ledger account of
Barbara.
A purchase invoice for GH¢4,500 had been debited to Whitechapel Ltd‟s creditors‟ ledger
account, but no entry had been made elsewhere.
Contras of GH¢747 between the debtors‟ ledger and the creditors‟ ledger had been
incorrectly entered in the control accounts as GH¢447.
A cheque paid to Martin amounting to GH¢65 had bee correctly entered in the cash account,
but incorrectly credited to the creditors‟ ledger account of Martini ltd.
Requirements
(a)
(b)
(c)
(d)
Calculate the corrected balance per the cash account and prepare a statement which
reconciles it with the balance per the bank statement.
Reconcile the balance per the list of debtors‟ ledger balances with the debtors‟ ledger
control account.
Reconcile the balances per the list of creditors‟ ledger balances with the creditors‟ ledger
control account.
Calculate the revised profit figure for the monthly management accounts for Mr Mawusi to
present to Mrs Apenor.
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Question 22: Akosombo Fabrics Suspense Accounts
The books of account for Akosombo Fabrics are handwritten with great care by a small team of
bookkeepers under the eagle eye of the office manager.
This redoubtable person has, however, recently taken extended leave to visit relations abroad, with
unfortunate results, since the month-end trial balance will not balance, there being a difference of
credits exceeding debits by GH¢318.
You are asked to help and, after inspection of the ledgers, discover the following errors.
(1)
A balance of GH¢48 on a debtors‟ account had been omitted from the schedule of debtors,
the total of which was entered as debtors in the trial balance.
(2)
A small piece of machinery purchased for GH¢800 had been written off to repairs.
(3)
The receipt side of the cash book had been undercast by GH¢300.
(4)
The total of one page of the net sales column in the sales day book had been carried forward
as GH¢3,092 whereas the correct amount was GH¢3,902.
(5)
A credit note for GH¢120 received from a supplier had been posted to the wrong side of his
account.
(6)
An electricity bill in the sum of GH¢78, not yet accrued for, was discovered in filing basket.
(7)
Mr Smith, whose past debts to the company had been the subject of provision, at last paid
GH¢540 to clear his account. His personal account has been credited but the cheque has not
yet passed through the cash book.
Note The business does not maintain control accounts
Requirements
(a)
(b)
Write up the suspense account clearing up the differences
State the effect of correcting each error on the accounts.
Question 23: John Jasper Shoes
John Jasper, who retails platform shoes, has been so busy since he commenced business on 1 April
2005 that he neglected to keep adequate accounting records. His opening capital consisted of
GH¢15,000 which he used to open a business bank account. The transaction in this bank account
during the year ended 31 March 2006 have been summarised from the bank statements as follows.
Receipts:
GH¢
Loan from John Wawa – his friend
10,000
Takings
42,000
Payments:
Purchases of goods for resale
26,400
Electricity for period to 31 December 2006
760
Rent of premises for fifteen months to 30 June 2006
3,500
Rates of premises for year ended 31 March 2006
1,200
Wages of assistants
14,700
Purchase of van, 1 October 2005
7,600
Purchase of large waterbed for his own private use
8,500
Van license and insurance, payments covering a year
250
Page23
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According to his bank account the balance in hand at 31 March 2006 was GH¢4,090 in John
Jasper‟s favour. Whilst the intention was to bank all takings intact, it now transpires that, in
addition to cash drawings, the following payments were made out of taking before banking.
Van running expenses
GH¢890
Postages, stationary and other sundry expenses
GH¢355
On 31 March 2006 takings of GH¢640 awaiting banking; this was done on 1 April 2006. It has now
been discovered that amounts paid into the bank of GH¢340 on 29 March 2006 were not credited to
John‟s accounts until 2 April 2006 and a cheque of GH¢120, drawn on 28 March 2006 for
purchases was not paid until 10 April 2006. The normal rate of gross profit on the goods sold by
John Jasper is 50%on sales. However, during the year a purchase of glittering suits costing GH¢600
proved to be unpopular with customers and therefore the entire stock bought had to be sold at cost
price.
Interest at the rate of 5% per annum is payable on each anniversary of the loan from John Wawa on
1 January 2006.
Depreciation is to be provided on the van on the straight line basis; it is estimated that the van will
be disposed of after five years‟ use for GH¢100.
The stock of goods for resale at 31 March 2006 has been valued at cost at GH¢1,900.
Creditors for purchases at 31 March 2006 amounted to GH¢880 and electricity charges accrued at
that date were GH¢180.
Trade debtors at 31 March 2006 totalled GH¢2,300.
Requirement
Prepare a trading profit and loss account for the year ended 31 March 2006 and a balance sheet at
that date.
Question 24: Akwapim Botanical Gardeners
Akwapim Botanical is a market gardener who does not keep full records of his business
transactions.
An analysis of the business bank account for the year ended 30 June 2008 shows the following.
GH¢
GH¢
Balance 30 June 2007
640
Add Deposits
4,942
5,582
Less Withdrawals:
Seeds and fertilizers
1,697
Boxes and packaging materials
715
Repairs to greenhouse
49
Tractor and machinery expenses
396
Crop-spraying
279
Rent and rates
416
School fees (Akwapim Botanical‟s son)
225
Hire purchase instalments 9 x GH¢20
180
(3,957)
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Balance 30 June 2008
1,625
You also obtain the following information.
(1)
Akwapim Botanical sells crops entirely for cash and banks the balance remaining after
paying certain items recorded in a notebook. A summary of the notebook for the year ended
30 June 2008 shows:
GH¢
Wages, National Insurance
1,130
Electricity
114
Sundry business expenses
47
Own drawings
856
(2)
Bank deposits include the proceeds of an endowment assurance policy which matured in the
year amounting to GH¢525.
(3)
The hire purchase instalments are for a new tractor purchased during the year for GH¢850.
The trade-up allowance on the old tractor was GH¢450 and the balance, including hire
purchase interest of GH¢80, is payable in twenty-four monthly instalments of GH¢20 each.
The hire purchase interest is to be deemed to accrue evenly over the period of payment. The
old tractor was stated at GH¢500 in the balance sheet at 30 June 2007 and the new tractor is
to be written down to GH¢750.
(4)
On 30 June 2007 greenhouse were stated in the balance sheet at GH¢800 and machinery at
GH¢600. They are to be written down to GH¢700 and GH¢525 respectively.
(5)
Outstanding amounts on 30 June were:
2007
2008
Electricity
GH¢41
GH¢16
(6)
Stocks on hand on 30 June have been valued as follows.
2007
GH¢
Growing crops, produce and fertilizers
2,100
Boxes and packaging materials
250
2008
GH¢
2,060
260
Requirement
Prepare a trading and profit and loss account for the year ended 30 June 2008 and a balance
sheet at that date.
Question 25: Ablode Tomefa Trading Company
Ablode Tomefa is trader who does not keep a full record of all his transactions. He has asked you to
prepare his accounts for the year ended 31 March 2002 and has given you the following
information.
(1)
He banks his takings periodically after payment of the following amounts.
Wages
Cleanings and sundries
Drawings for self
GH¢25 per week
GH¢5 per week
GH¢40 per week
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His cash in hand at the beginning of the year was GH¢150 and at the end of the year GH¢125.
(2)
His summarised bank statements for the year show the following.
Balance at 1 April 2001
Deposits
Balance at 31 March 2002
GH¢
1,216
44,700
372
Payments to creditors
Purchase of new van
Telephone
Rent, rates and insurance
Repairs
Cash withdrawn for self
46,288
GH¢
39,720
5,000
181
457
310
620
46,288
The banking included GH¢950 received from the sale of his van on 1 April 2001 when the net book
value of the van was GH¢1,200.
(3)
Other assets and liabilities were as follows.
31 March
2002
2001
GH¢
GH¢
Stock
7,200
5,300
Trade debtors
3,900
3,140
Trade creditors
5,450
4,100
Accrual – telephone
38
26
Prepayment – rent, rates and insurance
145
120
(4)
(5)
(6)
(7)
Tomefa estimates that his gross profit percentage is 20%.
Depreciation is provided on the van at 25% per annum on cost on the straight lines basis.
Tomefa also informs you that he does not keep a record of goods which he has taken for his
own use. He tells you that his previous accountant used to “work the figure out and then
charge the cost of the goods to his drawings account”.
All sales and purchases are on credit terms.
Requirements
(a)
(b)
Prepare a trading and profit and loss account for the year ended 31 March 2002 and a
balance sheet at that date.
State two factors which could cause the estimates of goods drawn for him to be incorrect.
Question 26: Mandela Amewu Ice-cream Vendors
Mandela Amewu carries on the business as a self-employed ice-cream vendor. The business is
seasonal and all the sales are made from a van. Mandela Amewu has his accounts of the business
prepared each year to 31 December. He has a contract with FAN Ice Cream Ltd whereby he buys
all his goods for resale from them at selling price less 331/3% and less 2.5% for monthly settlement.
Mandela always takes the 2.5%. He also receives, at the end of the season, a rebate of 1% of the
cost of his purchases before cash discount if his sales for the season, which runs from 1 April to 30
October, exceed GH¢5,000. In the year under review, he received GH¢60. The firm‟s policy is to
show the rebate as sundry income:
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The following balances were on Mandela‟s books at 31 December 2005.
GH¢
Capital account
Van at cost
Depreciation of van
Equipment at cost
Depreciation of equipment
Garage rates in advance
Accountancy
Balance at bank
Garage rent due
GH¢
1,654
1,600
800
350
280
9
60
840
5
2,799
2,799
You obtain the following information of his transactions for the year to 31 December 2006.
(1)
From cheque books, paying-in books and bank statements.
GH¢
FAN goods for resale
5,350
Wages
280
Van expenses
300
Laundry
104
Garage rent (52 weeks)
52
Garage rates (two half-years)
40
Accountancy
60
Rebate from FAN Ice Cream Ltd (referred to above)
60
New van
1,100
Sundry business expenses
278
Private payments
320
Cash banked ex takings
7,574
Balance at bank at 31 December 2006
590
(2)
There is no record of taking and some goods for resale have apparently been paid out of
takings. The only cash payments are as follows.
Petrol and oil
GH¢27
Casual wages
GH¢130
Sundry expenses
GH¢19
Any cash not accounted for is to be treated as drawings.
(3)
The old van was traded in for GH¢700, and this sum was used as a deposit on a new van
costing GH¢1,800.
(4)
Due to a power supply failure, stock with a resale value of GH¢30 was damaged and had to
be destroyed.
(5)
Depreciation is to be provided on a straight line basis at 25% on the van and 10% on the
equipment, the new van to be depreciated as if in use on 1 January 2006.
(6)
GH¢64 is to be provided for accountancy.
(7)
At the year-end the amounts for accrued rent and prepaid rates were GH¢6 and GH¢14
respectively.
Requirement
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Prepare Mandela Amewu‟s trading and profit and loss account 31 December 2006 and a balance
sheet at that date.
Question 27: Euzebius Abusuapanyi Eye Clinic
Euzebius Abusuapenyi is an eye specialist and surgeon practicing in Brigham Street, Manchester.
For the purpose of preparing his accounts for the year ended 31 January 2004 the information given
below is available.
(1)
Balances in his computerised books of account at 1 February 2003
£
Motor car
Cost
12,500
Depreciation
4,500
Optical equipment
Cost
25,450
Depreciation
10,180
Office furniture and equipment:
Cost
6,250
Depreciation
3,750
Stock of contact lenses, at cost
2,975
Debtors for fees earned
6,010
Fees for operations, received in advance
2,450
Creditor for property costs
1,184
Accountancy
348
Creditors for medical books
113
Due to Inland Revenue for PAYE and National Insurance
292
Cash
In hand
77
At bank
4,019
Capital account – Euzebius
34,464
(2)
Summary of bank statements for the year ended 31 January 2004
£
Balance at 1 February 2003
4,019 Receptionist/secretary
Total cheques received from
salary (net) for year
patients
44,625 Payments to Inland Revenue for
Cash banked
2,500 PAYE and National Insurance
Insurance claim received for
Contact lenses purchased
damaged equipment (to be offset
Fees to medical assistants
against equipment repairs)
430 Medical books
Property costs
Accountancy charges
Repairs to equipment
New optical equipment bought
on 1 August 2003
Medical supplies
Car expenses
Drawings
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£
5,414
3,476
5,367
2,325
568
6,584
348
1,137
4,000
465
1,940
14,000
George Ekegey Ekeha
Financial Accounting (Practical Questions): Ghanaian Perspective
Balance at 31January 2004
5,950
51,574
51,574
(4)
Cash – receipts payments for the year ended 31 January 2004
Receipts:
Fees paid by patients in cash
Payments
Office stationery, postage and sundries
Cheque cashed for patient
Cash banked
Fees
(5)
The patients‟ fees printout for the Brigham Street practice shows total fees billed for the
year of £51,150 of which £945 relates to an operation on an overseas visitor who returned
home without paying. This fee is not recoverable. In addition to his practice, Euzebius has
two part-time hospital consultancy appointments. These fees, which totalled £19,500 for the
year under review, are paid gross as they are brought into account as part of the profits of
his practice. Euzebius in fact paid this total of £19,500 into his private bank account.
Property costs
(3)
£
3,850
1,240
75
2,500
The premises are used by three other medical specialists. Property costs are shared between
occupants in proportion to space occupied. Monthly payments on account are made by each
specialist into a separate bank account, out of which the costs are paid.
A statement of account is prepared at 31 January annually, and balancing payments made in
February.
For the year under review this statement shows the following.
£
Rent, rates and insurance
26,000
Repairs
2,020
Heat and light
3,145
Security services
400
Word processing assistance
205
31,770
(6)
Euzebius‟ agreed share is 20% and his payments on account have been at the rate of £450
per month.
Receptionist/secretary
(7)
The lady who works for Euzebius has a gross salary of £8,000 per annum. Employer‟s
National Insurance contributions can be taken as being 11.5% of gross salary.
Mrs Abusuapanyi
(8)
Included in Euzebius‟ drawings of £14,000 is a total of £1,500 paid by him to his wife for
her work in maintaining patients‟ records.
Car expenses
The total expenses incurred by Euzebius are paid through the practice. It is agreed, however,
that only 90%of such expenses, and of depreciation, shall be charged against the practice
profits.
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(9)
(10)
Depreciation
Depreciation on all fixed assets is charged at 20% on the cost of assets in use at the yearend, subject to (8) above.
Stocks, debtors and creditors at 31 January 2004
£
Stock of contact lenses
3,116
Debtors for fees
to be calculated
Due for property costs
to be calculated
Due to the Internal Revenue
to be calculated
Fees received in advance
1,965
Outstanding accountancy charges
375
Fees due to medical assistants
725
Requirements
(a)
(b)
Prepare the profit and loss account for the year ended 31 January 2004
Produce the balance sheet at 31 January 2004
(Accounts are to be presented in vertical form.)
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Question 28: Johnson Azaglo Conner Shops
Johnson Azaglo is the owner of a shop selling tobacco, confectionery, stationery, magazines and
novelties.
The shop is managed by Longinius Amoateng.
You have been given the information set out below.
(a)
Azaglo orders goods, checks the invoices and pays the suppliers‟ statements. He also prices
the goods for sale and carries out the stock takings, but does not take part in the day-to-day
management of the shop. He engages staff and deals with the PAYE and National Insurance
records.
(b)
Amoateng is allowed to draw cheques to pay wages in cash and to make small petty cash
payments. He is also responsible for banking intact all sales moneys.
(c)
Azaglo knows that the gross profit percentages on sales values are as follows.
Tobacco
10%
Confectionery
20%
Stationery, magazines and novelties 331/3%
(b)
Azaglo is a pipe smoker, and takes from stock each week, without payment, tobacco with a
sales value of GH¢750.
He knows also that losses arise because of
(i)
(ii)
(e)
(f)
Deterioration of chocolate bars, and
Spoilt and unsalable magazines.
Experience has shown him that the loss under (i) amounts to 1% of cost of goods sold and
under (ii) totals GH¢5 per week in terms of selling price of unsalable magazines.
Azaglo suspects that during the year ended 30 September 2004, Amoateng has been
gambling heavily and has been using money taken from the shop to try to recoup gambling
losses. He does not think that there is anything amiss with the petty cash, but suspects that
Amoateng has been misappropriating shop takings and drawings excessive amounts to pay
wages.
Figures relating to the three categories of goods sold are given below.
Tobacco
(g)
Confectionery
Stationery,
Mags & Novelties
GH¢
GH¢
GH¢
Stocks at 1 October 2003
At cost
24,360
8,745
6,026
Purchases
135,485
50,213
35,042
Stocks at 30 September 2004
At cost
20,840
10,158
6,160
Sales for the year
Cash banked
152,380
59,045
49,073
(there was no unbanked cash at the start or end of the year)
Included in the opening stock of stationery, etc are a number of sets of children‟s games.
Supplies of these were bought in March 2003 for GH¢2,120. One-half of these were sold in
June 2003 at normal selling price. At 30 November 2003 it was thought that those
remaining were outdated and slightly shop-soiled. They were therefore valued for stock
purposes at 50%of cost. In July and August 2004 they were all sold at a mark-up of 20% on
stock value.
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(h)
Azaglo knows that the gross salaries for the year ended 30 September 2004 were as follows.
GH¢
Shop assistants
14,000
Casual wages for delivery of magazines – paid gross
525
His PAYE records show that for the year under review the amount due to the Internal
Revenue and SSNIT for PAYE and National Insurance contributions was GH¢5,645,
including 11.4% of gross wages of GH¢14,000 in respect of employer‟s National Insurance
contributions. Cheques drawn by Amoateng, purporting to be for payment of wages, totalled
GH¢12,265.
Requirement
Prepare a statement which shows the total amount which appear to have been misappropriated by
Amoateng.
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CHAPTER 3
MANUFACTURING ACCOUNTS AND STOCK VALUATION
Question 29: Gomoah Rubber Producers
Gomoah had 100 litres of foam liquid in stock at 1 October 2002, purchased at GH¢2 per litre.
During the month to 31 October 2002 the following changes occurred in the position.
Date
Quantity
Cost per litre
litres
GH¢
Purchases
7 October 2002
200
2.50
14 October 2002
300
3.00
21 October 2002
50
4.00
28 October 2002
100
3.50
Issues
4 October 2002
80
11 October 2002
70
18 October 2002
250
25 October 2002
200
Requirement
Calculate thee value of the closing stock of foam liquid at 31 October 2002 using each of the
following three methods of pricing the issue of materials to production.
(a)
First in, first out (FIFO) (b) Last in, first out (LIFO) and (c) Weighted average (note that
the periodic weighted method is not required).
Question 30: Kangaroo Carrier Bags Plc
(a)
Kangaroo Carrier Bags plc makes one product which it sells to the wholesale traders. The
following trial balance was extracted from the books of the company at 31 December 2001.
Stocks at 1 January 2001:
GH¢
GH¢
Raw materials, at cost
3,500
Work in progress, at factory cost
18,000
Finished goods (3,500 units) at factory cost
35,000
Raw materials purchased
39,500
Sales (12,000 units)
180,000
Manufacturing wages
30,000
Factory rent and rates
14,000
Factory light, heat and power
6,550
Plant, at cost
60,000
Plant depreciation at 1 January 2001
28,000
Work manager‟s salary
2,450
Plant repairs
4,000
Administration overheads
18,000
Factory lease at cost (twenty year‟s duration)
40,000
Amortization at 1 January 2001
12,000
Share capital
75,000
Debtors and bank balance
46,500
Creditors
24,500
Carriage inwards
2,000
319,500
319,500
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Plant depreciation is to be provided at 10% on cost of plant owned at the year-end.
Raw materials costing GH¢5,000 were in stock on 31 December 2001.
Finished goods are transferred to the warehouse as soon as they are completed. During the
year 10,000 units were completed and transferred to the warehouse. Work in progress at 31
December 2001 (at factory cost) amounted to GH¢23,000. There was no wastage or
pilferage during 2001.
(b)
Requirement
Prepare the manufacturing, trading and profit and loss account for the year ended 31
December 2001.
Facts as in part (a) except that it had always been the company‟s practice to transfer
completed units from the factory to the warehouse at cost plus 25%. Stocks of finished
goods are valued at the transfer price for the trading account but at factory cost for balance
sheet purposes.
Requirement
Prepare the manufacturing, trading and profit and loss account for the year ended 31
December 2001.
Question 31: Calippo Sweets Production
Calippo was the sole proprietor of a sweet manufacturing business and the following trial balance
was extracted from his computer records at 31 December 2007.
Dr
Cr
GH¢
GH¢
Capital
20,400
Freehold land and buildings at cost
15,000
Plant and machinery at cost
14,500
Provision for depreciation
7,000
Travellers‟ cars at cost
4,000
Provision for depreciation
2,800
Loose tools and utensils at valuation on 1 January 2007
1,200
Stocks I January 2007
Raw materials
3,300
Finished goods
6,000
Purchases : Raw materials
18,500
Tools and utensils
800
Sales
66,000
Wages
Factory
13,640
Administration
5,400
Sales department
3,000
Rates and insurance
1,600
Repairs to buildings
1,000
Sales expenses, including vehicle running costs
1,440
Electricity and power
6,000
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Administration expenses
Provision for doubtful debts
Debtors
Creditors
Cash at bank
Cash in hand
2,810
1,000
6,100
3,580
3,610
100
104,390
104,390
You are given the following information.
(1)
Closing stocks on 31 December 2007: raw materials GH¢2,800, finished goods GH¢3, 900,
loose tools and utensils GH¢1,600.
(2)
Provision is to be made for the following amounts owing on 31 December 2007: electricity
and power GH¢800, new machinery GH¢500.
(3)
Payments in advance on 31 December 2007 were rates GH¢300, vehicle licences GH¢40.
(4)
Annual depreciation on plant and machinery and travellers‟ cars is to be provided at 15%
and 20% respectively on cost at the end of the year.
(5)
Bad debts amounting to GH¢500 are to be written off and the provision for doubtful debts
reduced to GH¢600.
(6)
Expenses are to be allotted as follows.
Works
Administration
7
3
Rates and insurance
/10
/10
4
1
Repairs
/5
/5
9
1
Electricity and power
/10
/10
Requirement
Prepare manufacturing, trading and profit and loss accounts for the year ended 31 December 2007
and a balance sheet at that date.
Question 32: Bonavester Plc
The trial balance of Bonavester plc at 31 December 2006 was as follows. Dr
GH¢000
Ordinary shares of GH¢0.50 each fully paid
Retained profit at 1 January 2006
Fixed assets at cost
20,000
Depreciation provision at 1 January 2006
Provision for unrealized profit
Stock at 1 January 2006
Materials
1,531
Work in progress
85
Finished products (at transfer price)
4,800
Debtors
5,000
Bad debts provision
Cash at bank and in hand
150
Creditors
Sales
Purchases of materials
11,400
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Cr
GH¢000
5,000
13,205
3,000
800
255
1,320
40,000
George Ekegey Ekeha
Financial Accounting (Practical Questions): Ghanaian Perspective
Manufacturing wages
Production overhead expenses
Distribution costs
Administrative expenses
4,705
7,674
3,715
4,520
63,580
63,580
You are given the following information.
(1)
A physical stocktaking at 31 December 2006 valued materials stock at GH¢1,600,000.
(2)
Finished goods are transferred from the factory to the warehouse at a mark-up of 20% on
cost
(3)
Work in progress at 31 December 2006 was valued at GH¢80,000.
(4)
Finished product stocks at 31 December 2006 were valued at GH¢4,200,000.
(5)
Depreciation for 2006 was GH¢2,000,000 and is to be apportioned as follows:
GH¢000
Production
1,600
Distribution
200
Administration
200
(6)
The bad debts provision is to be adjusted to 5% debtors. Any increase or decrease is to be
regarded as a distribution cost.
(7)
Prepayments and accruals at 31 December 2006 were
Prepayments
Accruals
GH¢000
GH¢000
Manufacturing wages
95
Production overhead expense
10
200
Distribution costs
5
95
Administrative expenses
30
110
Requirement
Prepare a manufacturing, trading and profit and loss account for the year ended 31 December 2006.
Question 33: Atongo Plastic Manufacturers
The following trial balance has been extracted from the books of Atongo Plastic, manufacturer, at
31 March 2008.
Dr
Cr
GH¢
GH¢
Stock of raw material, 1 April 2007
6,300
Stock of finished goods (at cost)
11,670
Work in progress, 1 April 2007
4,050
Wages (direct GH¢54,000, indirect GH¢43,500) 97,500
Purchases of raw materials
111,000
Carriage inwards – raw materials
1,050
Royalties
2,100
Factory general expenses
9,300
Factory power
4,110
Lighting and heating
2,250
Administrative salaries
13,200
Salesmen‟s salaries
9,000
Sales commissions
3,450
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Bank charges
Rent and rates
Insurance
General expenses
Discounts allowed
Carriage a outwards
Sales
Debtors and creditors
Bank
Cash
Plant and equipment (cost GH¢84, 000)
Office computer (cost GH¢6,000)
Drawings
Capital as at 1 April 2007
690
3,600
1,260
4,020
1,440
1,770
42,690
17,040
450
69,000
3,600
6,000
300,000
37,500
89,040
426,540
426,540
Notes at 31 March 2008
(1)
(2)
(3)
(4)
Rent, rates, insurance, lighting and heating are to be apportioned: factory 5/6, admin. 1/6.
Depreciation on plant and equipment and the office computer are to be provided at 10% per
annum on the cost at the year-end.
Stock of raw material GH¢7,200, finished goods (at cost) GH¢12,000 and work in progress
GH¢4,500.
It has always been the company‟s practice to transfer completed units from the factory to the
Warehouse at cost plus 20%. Stocks of finished goods are valued at the transfer price for the
trading account but at factory cost for balance sheet purposes.
Requirement
Prepare a manufacturing and trading and profit and loss account for the year ended 31 March 2008
and a balance sheet at that date.
Question 34: Jerry Leggs Wellington Boots
On 1 February 2004 Jerry Leggs has received patent for his design of an electrical warmer for
Wellington boots with a trade name of “Welliwarm”. He started business on the same date, with
arrangements to supply Welliwarms to a wholesaler in Russia with all takings paid in local
currency. The following information relates to the year ended 31 January 2005.
(1)
Premises
On 1 February 2004 Leggs acquired the lease of a lock-up workshop at an annual rent of
GH¢8,000 exclusive of rates. The workshop is solely for manufacturing purposes. All
administration is done on a microcomputer at Leggs‟s home by his wife acting as secretary.
Leggs feels that a figure of GH¢750 per annum would be a reasonable charge for the
business use of his house.
(2)
Employees
On 1 February 2004 Leggs engaged a machinist/assembler at a gross salary of GH¢13,500
per annum, a salesman at a gross salary of GH¢9,500 per annum with the right to a bonus of
25p per unit sold, this bonus to be paid after the end of each year.
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Employer‟s National Insurance contributions can be taken as 10.5% of gross salaries.
(3)
Leggs also negotiated an arrangement with Akwesi Leda, a freelance electrical
manufacturing agent, whereby Leda would make daily visits to the workshop to plan and
supervise production. This arrangement started on 1 February 2004 with an agreed annual
fee of GH¢5,000 plus a bonus of 10p per unit produced if the total average work cost per
unit does not, for each year, exceed GH¢19. The charges for employer‟s National Insurance
contributions, and for Leda‟s bonus, if any, are to appear in the profit and loss account and
are not to affect the manufacturing result. Note that there is no employer‟s National
Insurance contribution on the bonuses.
Bank account
On 31 January 2004 Leggs opened a business bank account by transferring GH¢6,500 from
his private account, and arranged a business overdraft limit of GH¢5,000 for two years.
Before opening the account, Leggs had made the following payments out of his private
account.
(i)
Patent agent‟s charges
GH¢
(to be written off over two years)
1,150
(ii)
Workshop rent for quarter year starting 1 February 2004
2,000
(iii)
Manufacturing machinery
3,500
(4)
Summary of business bank account
Cash transferred
Cash received from customers
Bank overdraft at 31 January 2004
GH¢
6,500
98,000
2,618
107,118
Manufacturing tools purchased
Workshop
Rent
Rates:
Period ended 31 March 2004
Year ended 31 March 2005
Power, light and heat
Salaries – net payments to machinist and salesman
Collector of taxes – payment on account of PAYE and National Insurance
Manufacturing material and electrical components
Advertising costs
Bank interest and charges
Salesman‟s van:
Deposit
Hire purchase instalments
Van costs – deliveries to customers
Payments on account to Leda
Cheques drawn for cash
Drawings by Leggs
1,800
4,000
600
2,800
2,750
15,575
7,000
50,618
3,779
785
800
3,025
2,686
4,500
2,400
4,000
107,118
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(5)
Cash details
GH¢
Collected on account of
Small sales orders
Drawn from bank
2,345
2,400
Office stationery and sundries
Paid to Mrs Leggs on account of
agreed secretarial fee GH¢2,000
(no liability for PAYE or
National Insurance)
Typewriter and filing cabinets
Bought 29 February 2004
Weekly drawings by Leggs
Balance at 31 January 2005
4,745
GH¢
1,460
1,500
720
1,040
25
4,745
(6)
Production and sales
4,400 sets of Welliwarms were sold during the year at a fixed selling price of GH¢25 per
set. No cash discounts were allowed and there were no bad debts. At 31 January 2005 there
were 100 sets of finished units in stock to be valued at total workshop cost. There were no
stocks of partly finished units and during the year no sets were lost or scrapped.
(7)
Hire purchases agreement
This provided for the purchase of the van at a cost of GH¢6,800 with a deposit of GH¢800
and hire purchase charges of GH¢600. The balance due is payable by twenty-four equal
monthly instalments.
Outstanding items at 31 January 2005
Apart from those from information already given, these were as follows.
GH¢
Creditors for manufacturing materials
5,632
Stocks of manufacturing materials at cost
6,750
Creditors for:
Accountancy charges
260
Workshop power, light and heat
330
Depreciation
The machinery and salesman‟s van are to be depreciated at 20% per annum on the cost of
the assets in use at year-end. The typewritten and cabinets are to be depreciated at the rate of
20% per annum on the reducing instalment basis. The manufacturing tools are to be dealt
with by revaluation. The tools on hand at the year-end were valued at GH¢1,263.
Requirements
(a)
Prepare a manufacturing account for the year ended 31 January 2005 showing
cost per unit for each main element of cost.
(b)
Produce a trading and profit and loss account for the year ended 31 January 2005
and also the balance sheet as at that date.
(8)
(9)
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Question 35: Borllar Waste Kitchen Accessories
(1)
Borllar Waste Ltd is a small company formed on 1 October 2005 to manufacture and sell a
new type of kitchen waste-disposal unit. As an ancillary activity it buys and re-sells to
wholesalers a variety of kitchen accessories.
(2)
The company‟s authorized capital is GH¢400,000, and on incorporation 250,000 GH¢1
shares were issued and paid for at price of GH¢1.15 per share.
(3)
The company‟s accountant is away on jury service, and draft accounts have been prepared
for the year ended 30 September 2006 by his young assistant in the form set out in
paragraph (4).
(4)
(i)
Profit and loss account
GH¢
GH¢
Purchases: Manufacturing materials
195,785 Sales (9,000 disposal units at
Kitchen accessories for Re-sale 99,642
GH¢75 each)
675,000
295,427
Kitchen accessories
115,650
Carriage and freight: Inwards on
Discounts received on sales
4,032
Manufacturing materials
5,080
Outwards on sales generally
9,462
Wages and salaries
318,970
Property costs
110,000
Sundry administration costs
10,560
Sundry selling costs
8,705
Formation and issue expenses
15,100
773,304
Net profit for the year
21,378
794,682
(ii)
794,682
Balance sheet
Receipts from shareholders
P&L account
Creditors due for payment
within one year
GH¢
287,500
21,378
43,193
GH¢
Fixed assets at cost
Manufacturing plant and
equipment
115,000
Sales equipment
90,000
Administrative equipment
60,000
265,000
Current assets
Debtors
Bank
62,755
24,316
87,071
352,071
(5)
352,071
You have been asked to re-draft the accounts and have obtained the information set out in
(6) to (11) below.
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(6)
(7)
(8)
(9)
(10)
(10)
Stocks
No account has been taken of closing stocks at 30 September 2006. These were as follows.
(i)
Manufacturing materials at cost
GH¢21,335
(ii)
Kitchen accessories at cost
GH¢18,687
(iii)
Completed waste-disposal units
1,000 units
Note: Stocks of completed units are to be valued at total factory cost, including depreciation
of assets used for production. There were no stocks of partly-completed units and no
completed units have been scrapped, lost or damaged.
Depreciation
No provision has been made in the draft accounts.
Depreciation on all fixed assets is to be calculated at 20% of the cost of assets in use at each
year-end.
Property costs
These comprise rent, rates, insurance, repairs, heat, light and power and can be allocated
80% to manufacturing space
15% to selling space
5% to administrative space
Wages and salaries
GH¢
Plant operators
183,360
Factory supervisors
26,110
Sales force
60,500
Administrative staff
34,000
Directors‟ fees
15,000
Provision
Provision is to be made for the following.
Bad and doubtful debts
GH¢1,255
Audit and accountancy charges
GH¢3,815
Corporation tax
GH¢21,000
Proposed dividend
8p per share
Advantage is to be taken of the provisions of the companies Act relating to the use of share
premium account.
Requirements
Prepare the following
(a)
Manufacturing account for waste-disposal units.
(b)
Trading account showing the gross profit percentage on sales of
waste-disposal units, and
kitchen accessories.
(c)
Profit and loss account and balance sheet at 30 September 2006.
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Question 36: Jonny Wood Garden Seats
(1)
(2)
(3)
On 1 July 2007 Jonny Wood started to manufacture under license a type of swinging garden
seat. A process is involved which is covered by patent rights and Wood has agreed to pay a
royalty of 30p per seat sold.
The seat is sold for self-assembly, and the finished product ex-factory consists of the
various parts and fittings packaged in a long carton which also contains a set of assembling
instructions printed in a variety of languages.
Wood has little idea of the preparation of final accounts but he has given you the following
draft profit and loss accounts for the year ended 30 June 2008.
GH¢
Purchases of materials
Including nuts, bolts and
Springs
Gross wages and salaries
including employer‟s
National Insurance
Property costs
Hire of manufacturing
equipment
Factory cleaning and factory
sundries
Printing, stationery, telephone
and office sundries
Purchases of cartons for
packaging
Delivering goods to customers
Advertising
Sales
Deficiency for year
GH¢
316,500
10,956
127,825
138,334
37,296
7,750
4,115
6,534
5,783
7,820
2,479
337,936
Less stocks of materials, etc
At 30 June 2009
(10,480)
327,456
(4)
327,456
Your examination of the position brings out the following points.
(i)
(ii)
You can agree the figure set out in the draft profit and loss account, subject to the
fact that Wood has not made provision for depreciation of the factory plant
(GH¢8,000), or of office equipment (GH¢800), or for royalties payable. In addition
he has not allowed for stocks of finished and partly-finished goods in the factory at
30 June 2009 (see (ii) below).
Stocks of materials etc have been correctly valued at cost and the figure of
GH¢10,480 is made as follows.
GH¢
Manufacturing materials
9,640
Cartons for packaging
618
Sets of printed assembling instructions
222
10,480
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(iii)
(iv)
The cost of assembling instructions was GH¢2,372 and is included in the figure of
GH¢6,534 for printing, stationery, telephone, etc. Stocks of finished and partlyfinished seats are to be valued at factory cost. During the year 9,000 seats were sold,
all at a fixed selling price of GH¢35 each. At the year-end 1,000 finished seats were
in stock in the sales department, and in the factory there was a batch of 1,500 seats
which can in all respects be regarded as one-half completed. Seats are transferred
from factory to sales department at cost.
In March 2008, due to flooding, materials included in purchases at a cost of
GH¢7,250 were severely damaged with no insurance recovery. They were sold for
scrap, and the proceeds are included in the sales figure of GH¢316,500. Wood
wishes the loss arising to be separately shown in the profit and loss account.
Gross salaries and property costs can be allocated as follows.
Salaries
Machine operators
Factory supervision
Administration
Sales
GH¢
Property costs:
89,000
Factory space 5/7 of total costs
14,995
Administrative space 1/7 of total costs
15,684
Sales space 1/7 of total costs
18,655
138,334
Requirement
Prepare a manufacturing, trading and profit and loss account for the year ended 30 June 2008 in a
manner which is as informative and concise as possible.
Question 37: Sir Johayes Importers
Sir Johayes commenced business as a coffee processor on 1 January 2007. Purchases of raw coffee
were made by him as follows.
Tons
Price per ton
GH¢
1 January
30
700
15 February
20
750
31 March
40
820
16 April
25
880
30 May
35
900
8 June
10
1,050
120 tons were sold on 28 June 2007, the net proceedings being GH¢132,000.
Requirements
(a)
Explain the following methods of computing the cost of stock on hand at the end of the
period.
(i)
First in, first out
(ii)
Average cost
(iii)
Last, first out.
(b)
Using the figures, show the effect of each method on Johayes‟ trading for the six methods,
and comment thereon.
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Question 38: Akasanoma Vision Ltd Manufacturers
Akasanoma Vision Ltd is an old established company operating in the highly competitive business
of manufacturing and marketing radios and television sets.
A new board of directors is considering the draft accounts, prepared under the historical cost
convention, for the year ended 30 September 2004.
The main executive directors involved in the policy discussion are
Georgio
(managing)
Kafui
(sales)
Daryl
(production)
You are in attendance to give advice.
A standard model radio has the following disclosed costs.
GH¢
Direct labour and material
38
Bought-in components
5
Factory overhead costs
8
Royalty on sale payable to the owner of a patent
2
For 1,000 radio sets, the other overhead costs are GH¢14,000 made up as follows.
GH¢
Salary and space costs of executive responsible for production planning
4,000
General office administration
2,500
Selling and distribution costs, including a fixed GH¢4 per set commission
payable to salesmen
7,500
The advertised selling price of the model has recently been reduced to GH¢60 because of intensive
competition.
The three directors have expressed the following views on the most appropriate method of valuing
the company‟s closing stock:
(1)
Georgio
“A most prudent approach is necessary, particularly as the company has a cash flow
problem which means that the amount locked up in stock inventories should be kept as low
as possible. I propose a valuation of GH¢43 per set.”
(2)
Kafui
“All the functions of the company are directed towards the production and sale of a good
finished product and therefore I think each set should be valued at the total cost involved.
Including the other overhead costs.”
(3)
Daryl
“GH¢47 per set, because that‟s what the production cost we would have if we‟d been more
efficient and kept in line with budgets.”
Requirement
Give your opinion in one note form on the views expressed by each director with your own opinion
of the appropriate valuation stating the principles involved.
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CHAPTER 4:
PARTNERSHIP ACCOUNTS
Question 39: Aba, Borbor and Chochoo Partnership
Aba, Borbor and Chochoo share profits in the ratio 3:2:1. The partnership agreement states that
(a)
Aba and Chochoo are to receive salaries of GH¢700 and GH¢1,000 per annum respectively
(b)
All partners are entitled to interest at 8% on their capital accounts which stand at Aba
GH¢10,000, Borbor GH¢9,000 and Chochoo GH¢5,000.
Aba has a loan to the partnership of GH¢2,000. Net profit for appropriation for the year was
GH¢6,980 and drawings during the year were Aba GH¢100 and Borbor GH¢500
Requirement
Prepare the appropriation statement for the year.
Question 40: Aba, Borbor and Chochoo Partnership II
A same fact as in question 39 except that profit for appropriation was GH¢1,820.
Requirement
Prepare the revised appropriation statement for the year
Question 41: Jonny, Jimmy and Jerry Business Ventures
Jonny, Jimmy and Jerry are in partnership sharing profits and losses in the ratio 2:2:1 respectively.
Interest is charged on partners‟ drawings at the rate of 5% per annum and credited on partners‟
capital account balances at the rate of 5% per annum.
Jimmy is the firm‟s sales manager and for his specialized services he is to receive a salary of
GH¢800 per annum.
During the year ended 30 April 2001 the net profit of the firm was GH¢6,200 and the partners‟
drawings were
Jonny
GH¢1,200
Jimmy
GH¢800
Jerry
GH¢800
In each case the above drawings were withdrawn in two equal instalments on 31 October 2000 and
30 April 2001.
On 31 October 2000 the firm agreed that Jonny should withdraw GH¢1,000 from his capital
account for some personal family needs and that Jerry should subscribe a similar amount to his
capital account.
The balances on the partners‟ accounts at 1 May 2000 were as follows (all credit balances).
Capital accounts
Current accounts
Jonny
GH¢8,000
GH¢640
Jimmy
GH¢7,000
GH¢560
Jerry
GH¢6,000
GH¢480
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Requirements
(a)
Prepare a profit and loss appropriation statement for the year ended 30 April 2001.
(b)
Prepare the partners‟ capital and current accounts for the year ended 30 April 2001.
Question 42: Messers George and Cyril Akpanaway Consultants
The following printout of balances was extracted from the computer archives of Messrs George and
Cyril Akpanaway at 31 March 2004.
Capital at 1 April 2003
GH¢
George Akpanaway
5,000 credit
Cyril Akpanaway
3,000 credit
Cash drawings
George Akpanaway
800
Cyril Akpanaway
600
Freehold buildings at 1 April 2003
5,100
Motor vehicles at 1 April 2003
1,260
Stock at 1 April 2003
3,600
Purchases
25,700
Sales
38, 610
Debtors
3,960
Creditors
3,670
Wages and salaries
4,140
Motor vehicle running costs
1,480
General trade expenses
1,994
Rates and insurance
964
Cash at bank and in hand
782
Provision for bad and doubtful debts
100
Additional information
(1)
Stock at 31 March 2004 was GH¢4,100
(2)
Provision is to be made for depreciation at the following rates.
Motor vehicles
25% per annum
Freehold buildings
2% per annum
(3)
The provision for bad and doubtful debts is to be reduced to GH¢75.
(4)
George and Cyril Akpanaway share profits and losses in the ratio 3:2 respectively.
Requirement
Prepare the trading and profit and loss account for the year ended 31 March 2004 and a balance
sheet at that date.
Question 43: Azi, Nefi and Agoneh Traders
Azi, Nefi and Agoneh are in partnership sharing profits and losses in the ratio 3:2:1. The following
is the trial balance of the partnership at 30 September 2003.
GH¢
GH¢
Bad debts provision (at 1 October 2002)
1,000
Bank and cash in hand
2,500
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Capital accounts:
Azi
Nefi
Agoneh
Current accounts:
Azi
Nefi
Agoneh
Debtors and creditors
Depreciation (at 1 October 2002)
Land and buildings
Motor vehicles
Drawings:
Azi
Nefi
Agoneh
Land and buildings at cost
Motor vehicles
Office expenses
Purchases
Rates
Sales
Selling expenses
Stock (at 1 October 2002)
18,000
12,000
6,000
700
500
23,000
300
35,000
12,000
8,000
4,000
3,000
3,000
60,000
20,000
4,000
85,000
4,000
150,000
14,000
20,000
243,000
243,000
You are provided with the following information.
(1)
Stock at 30 September 2003 was valued at GH¢30,000.
(2)
Fixed assets are written off against profit at the following rates.
Land and buildings
5% per annum on cost
Motor vehicles
20% per annum on cost
(3)
At 30 September 2003 an amount of GH¢1,775 was owing for selling expenses.
(4)
Rates were prepaid by GH¢2,000 as at 30 September 2003.
(5)
A certain bad debt of GH¢500 is to be written off.
(6)
The bad debts provision is to be made equal to 5% of outstanding debtors as at 30
September 2003.
(7)
The partnership agreement covers the following appropriations.
(i)
Agoneh is to be allowed a salary of GH¢6,000 per annum
(ii)
Interest of 10% per annum is allowed on the partners‟ capital account balances
(iii)
No interest is allowed on the partners‟ current accounts
(iv)
No interest is charged on the partners‟ drawings.
Requirements
(a)
Prepare the partners‟ trading, profit and loss account and appropriation statement for the
year to 30 September 2003
(b)
Write up the partners‟ current accounts for the year to 30 September 2003 and bring down
the balances at 1October 2003.
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(c)
Prepare the partnership balance sheet at 30 September 2003.
Question 44: Piper, Dom and Jerry Trading Ventures
Piper, Dom and Jerry have been in partnership for many years. Under the terms of the partnership
agreement profits and losses are shared as follows.
(a)
Each partner is entitled to interest on capital at the rate of 8% per annum.
(b)
Dom and Jerry are entitled to annual salaries of GH¢5,000 and GH¢3,000 respectively.
(c)
The balance of profits and losses is shared in the ratio 3:2:1.
The trial balance at the year-end, 30 September 2002, is as follows.
GH¢
GH¢
Partners‟ capital accounts
Piper
20,000
Dom
10,000
Jerry
4,000
Partners‟ current accounts
Piper
4,106
Dom
3,750
Jerry
1,971
Partners‟ drawings
Piper
Dom
Jerry
Sales
Stock at 1 October 2001
Sundry expense
Fixtures and fittings
Cost
Accumulated depreciation
Debtors/creditors
Bank overdraft
Purchases
Loan from Dufie
8,060
5,400
4,900
238,636
52, 750
15,210
54,400
61,050
17,650
55,100
35,487
192,930
394,700
4, 000
394,700
You ascertain the following.
(1)
For the purpose of the final accounts, stocks at 30 September 2002 has been valued at
GH¢64,000.
(2)
During the year Piper withdrew goods for his own use. Piper is to be charged the full selling
price ofGH¢2,764 for the goods. No entry has been made in the books.
(3)
The depreciation provision of GH¢17,650 represented the provision at 30 September 2001.
The policy of the partnership is to depreciate fixtures at the rate of 10% per annum, applied
to cost on a straight-line basis.
(4)
Sundry expenses to be accrued amount to GH¢3,950.
(5)
The loan from Dufie is repayable in 2008. The loan carries an interest rate of 10% pa. No
interest has yet been paid or provided for in respect of the current year.
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Requirements
Prepare:
(a)
a trading and profit and loss account and appropriation statement for the year ended 30
September 2002
(b)
the partner‟ current accounts
(c)
a balance sheet at 30 September 2002
Question 45: Antie and Dede Chemists
Antie and Dede were in partnership as wholesale chemists contributing capital and sharing profits
and losses in ratio 2:1. The partnership balance sheet was automatically drawn up on 31 December
2007 by the partners‟ computer system and contained the following.
GH¢
Furniture and fixtures
Cost
25,000
Provision for depreciation
10,000
Trade creditors – goods for sale
41,354
Trade debtors
22,000
Provision for doubtful debts
660
Stock – goods for resale
50,200
Bank overdraft
5,846
Cash in hand
300
Rates in advance
150
Accrued expenses – wages
525
Current accounts
Antie (credit)
165
Dede (credit)
100
The following information relates to the year ended 31 December 2008.
(1)
Credit sales amounted to GH¢252,655 and returns by customers GH¢3,685. Moneys
received from customers amounted to GH¢233,144; discounts allowed were GH¢4,756 and
bad debts written off GH¢6,150. Provision experience indicates that bad debts are in the
region of 2% and 3% of debtors. There were no cash sales.
(2)
Goods purchased for resale amounted to GH¢193,272 and returns to suppliers GH¢2,758.
(3)
A fire had destroyed stock costing GH¢6,000 and a refund for the full amount had been
obtained from the insurance company. On 31 December 2008 stock was valued at
GH¢46,560.
(4)
Moneys received had been paid regularly into the bank after making the following cash
disbursements.
Wages
GH¢23,273
Partners‟ salaries (on account)
Antie
GH¢7,500
Dede
GH¢7,500
Under the partnership agreement Antie and Dede are entitled to salaries of GH¢10,000 each
per annum.
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(5)
The following cheque payments were made.
GH¢
Suppliers of goods for resale (after deducting)
discount received GH¢3,752)
184,658
Vehicles hire and expenses
8,752
Rates (year to 31 March 2009)
800
Repairs and renewals
2,754
General administration expenses
3,264
Heating and lighting
1,792
(6)
On 31 December 2008 wages accrued amounted to GH¢650 and the cash float in hand had
been increased to GH¢400.
(7)
The business premises are owned by Antie and let to the partnership at an annual rent of
GH¢5,000; no payment had been made to Antie.
(8)
Depreciation is provided at the rate of 10% per annum on the furniture and fixtures using
the reducing balance method. On 1 January 2008 furniture, costing GH¢2,000 on 1 January
2006, was sold for GH¢800 and the proceeds banked.
Requirement
Prepare a trading and profit and loss account for the year ended 31 December 2008 and a balance
sheet at that date.
Question 46: Olando, Jay and Simpson Confectioneries
Olando, Jay & Simpson are in partnership, sharing profits Olando 3/6. Jay 2/6, Simpson 1/6.
Interest is credited on fixed capitals at the rate of 6% p a. No interest is charged on drawings.
Jay is entitled to a salary of GH¢600 per annum and Simpson a salary of GH¢800 per annum, the
latter being chargeable to Olando‟ share of profit.
The following is a draft of the partnership trial balance at 31 December 2001.
GH¢
GH¢
GH¢
Current account
Fixed capital accounts:
Jay
30
Olando
7,000
Goodwill
5,000
Jay
3,000
Motor vans, at cost
4,400
Simpson
2,000
Shop fittings, at cost
3,000
12,000
Trade Debtors
5,200
Current accounts
Stock 1 January 2001
9,000
Olando
1,000
Cash in hand
33
Simpson
800
Purchases
42,600
1,800
Wages
14,000
Provision for depreciation
Administrative salaries
10,200
at 31 December 2000 of:
Lighting and heating
445
Motor vans
1,160
Rent, rates and insurance
360
Shop fittings
1,600
Motor expenses
620
Bank
1,060
Professional charges
50
Trade creditors
2,700
General expenses
1,942
Commissioners of Internal
Revenue – PAYE
360
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Sales
96,880
76,200
96,880
You are given the following information:
(1)
Stock on 31 December 2001 was valued at GH¢8,800.
(2)
The partnership premises were rented from Jay at the rate of GH¢300 pa, but nothing had
been paid or credited to Jay for the year ended 31 December 2001. It has been decided to
credit the amount to his current account.
(3)
Partners had been supplied during the year with goods from stock, the agreed values being
Olando GH¢100, Jay GH¢45, Simpson GH¢25. No entries have yet been made.
(4)
Provision is required for audit and accountancy charges GH¢315 and for heating and
lighting GH¢35.
(5)
Included in rents, rates and insurance are annual insurance premiums of GH¢100 which
provide cover to 30 June 2002. The half year‟s rates to 31 March 2002, paid in December
2001, amounted to GH¢80.
(6)
Included in administrative salaries are partners‟ drawings of Olando GH¢2,500 Jay
GH¢2,000, Simpson GH¢1,500.
(7)
Bad debts amounting to GH¢600 are to be written off and a provision made for doubtful
debts of 4% on the remaining debts.
(8)
Depreciation of motor vans is to be charged at 20% of cost, and shop fittings at 5% of cost.
(9)
Trevor, the manager, is entitled to a commission of 3% of the net profits after charging such
commission, but before charging partners‟ salaries or interest on capital.
Requirements
Prepare:
(a)
A trading and profit and loss account for the year ended 31 December 2001 and the balance
sheet at that date
(b)
Partners‟ current accounts in columnar form for the year ended 31 December 2001.
Ignore income tax, with the exception of the PAYE balance.
Question 47: Wawa and Mahoganey Furniture Producers
Wawa and Mahoganey have traded in partnership as furniture manufactures since 1 October 2006.
Prior to that date Wawa was in business as a sole trader.
Draft accounts for the year ended 30 September 2007 have been prepared by a new and
inexperienced bookkeeper.
The balances remaining after the preparation of the draft manufacturing, trading and profit and loss
account have been listed by the bookkeeper as shown below:
Dr
Cr
GH¢
GH¢
Capital accounts
Wawa
76,000
Mahoganey
14,000
Current accounts:
Wawa:
Share of net profit
12,360
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Drawings
Mahoganey – share of net profit
Debtors and creditors
Stocks at cost
Work in progress
Cash at bank per bank statements
Cost and depreciation:
Plant and equipment
Motor vehicles
12,000
30,390
28,640
15,730
4,330
95,500
30,000
Suspense account
216,590
6,180
37,790
49,100
15,000
210,430
6,160
216,590
The bookkeeper apologises for existence of the suspense account.
You have been asked to locate the difference, review the accounts, and make such adjustments as
may be necessary.
Your enquiries disclosed the following matters:
(1) Mahoganey joined Wawa in partnership on 1 October 2006, bringing in cash capital of
GH¢14,000. The bookkeeper was told only that profits were to be shared in the ratio of Wawa 2:
Mahoganey 1 and no adjustments or entries have been made for items (i) to (iii) below:
(i)
On admission Mahoganey brought into the firm his Rover car at an agreed value of
GH¢6,000 (see (7) below for depreciation rate).
(ii)
Mahoganey is entitled to a partner‟s salary of GH¢10,000 per annum. He drew this amount
during the year, and it has been included in salaries charged to profit and loss account.
(iii)
Interest on capital is to be allowed at the rate of 8% per annum, calculated on the balances
at 1 October 2006 after making any necessary adjustments arising from the above.
(2) A batch of garden furniture costing GH¢3,600 was thought to be unsalable at 30 September
2006 and was included in stock at a scrap value equal to 10% of cost. Surprisingly, it was all sold
on 30 June 2007 for GH¢2,460. It is agreed that the surplus arising should be regarded before
Mahoganey‟s admission and that a transfer to reflect this should be made through the partners‟
capital accounts without any adjustment being made in the profit and loss account or appropriation
account.
(3)
The bookkeeper has made the following note on the bank statements at 30 September 2007.
GH¢
“Cash at bank per bank statements
4,330
Add Cheques received and entered in cash book but
not credited by bank
370
4,700
Less Cheques drawn and entered in cash book but not presented
Overdrawn per cash book
(5,660)
(960)
The balance overdrawn per the cash book is in fact GH¢880, but bank charges totalling
GH¢80 have not been entered in cash book.”
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(4)
A set of chairs has been included in sales and debtors at an invoice value of GH¢1,800,
representing a mark-up on cost of 50%. In fact, the goods were sent on a “sale or return”
basis and by 30 September 2007 had not been accepted by the customer.
(5)
In the draft manufacturing account, the closing work in progress of GH¢15,730 has been
added to cost and the opening work in progress of GH¢12,940 deducted from cost.
(6)
Furniture supplied without charge to partners has been evaluated at Wawa GH¢2,460 and
Mahoganey GH¢1,820 and included in sales, no other entries having been made. Assume
goods are sold to the partners at cost.
(7)
During the year plant costing GH¢15,000 on 1 December 2003 was sold for GH¢4,600.
This figure of GH¢4,600 has been deducted from the cost of plant and equipment and
debited as a receipt in the cash book but no adjusting entries have been made. Depreciation
has always been calculated for plant and equipment, and for motor vehicles at 20% and 25%
respectively based on the cost of fixed assets in use at the year-end. For the purpose of the
draft accounts, the depreciation has been based on the cost figures as shown in the list of
balances.
(8)
At 1 October 2006 a bad debt provision of GH¢1,350 was brought forward in the books. At
30 September 2007 it was decided to increase the provision to GH¢5,200 and this figure of
GH¢5,200 has been debited to profit and loss account and deducted from debtors in the list
of closing balances.
(9)
Sales returns of GH¢850 have been credited to sales, although correctly entered in the
relevant sales ledger accounts.
Legal and accounting charges totalling GH¢1,240 have not been provided for.
(10)
Requirements
Prepare the following.
(a)
A statement showing the amended profit and appropriation of profit for the year ended 30
September 2007.
(b)
A statement showing the elimination of the suspense account.
(c)
A final balance sheet at30 September 2007
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CHAPTER 5
COMPANY ACCOUNTS
Question 48: Amankwah Company Ltd
The following balances have been extracted from the books of Amankwah Ltd at 30 September
2007.
Creditors
6,300
Sales
80,000
Land at cost
18,000
Building at cost
38,000
Furniture and fittings at cost
22,000
Bank (credit balance)
6,000
Accumulated depreciation
Buildings
6,000
Furniture and fittings
10,000
Discounts received
1,764
Unappropriated profit at 1 October 2006
2,000
Provision for doubtful debts
816
Goodwill
16,400
Cash in hand
232
Stock at 1 October 2006
14,248
Interim dividend on preference shares
600
Rates
2,124
Wages and salaries
8,000
Insurance
1,896
Returns inwards
372
General expenses
436
Debtors
12,640
Purchases
43,856
Debenture interest
400
Bad debts
676
5% Debentures
16,000
6% GH¢ 1 preference shares
20,000
GH¢1 ordinary shares
20,000
General reserve
10,000
Share premium
1,000
Additional information
(1)
Stock on hand at 30 September 2007 was GH¢15,546.
(2)
Insurance paid in advance GH¢100.
(3)
Wages owing GH¢280.
(4)
Depreciation is to be provided at 10% on cost of buildings and at 20% on the written down
value of furniture and fittings.
(5)
Provision for doubtful debts is to be reduced to 5% of debtors.
(6)
Debenture interest outstanding GH¢400.
(7)
The directors propose to pay a 5% ordinary dividend and the final preference dividend, and
to transfer GH¢8,000 to general reserve.
(8)
Goodwill is to be amortised over five years.
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Requirement
Prepare for internal use the trading and profit and loss account for the period for the period ended
30 September 2007 and a balance sheet at that date.
Question 49: Alluwako Company Ltd
The draft balance sheet of a small company, Alluwako Ltd, has been prepared by an inexperienced
accountant in the form set out below. It will be noted that he has not been able to balance his
figures.
Balance sheet at 31 October 2003
GH¢
Fixed assets:
Plant, fixtures, fittings and equipment, at cost
Accumulated depreciation
GH¢
GH¢
98,420
(32,760)
65,660
Current assets:
Stocks
Debtors
Prepayments
Bank
32,183
21,072
1,568
13,427
68,250
Less Creditors falling due within one year:
Creditors
Taxation
Proposed dividend
16,402
14,267
5,000
(35,669)
32,581
98,241
Share capital:
Authorized 80,000 shares of GH¢1 each
Issued 50,000 shares of GH¢1 each fully paid
Share premium
Unappropriated profits
10% debentures
50,000
10,000
25,262
15,000
100,262
Investigation has produced the following information.
(1)
The company‟s depreciation policy has always been to provide depreciation at the rate of
20% per annum on the cost of fixed assets taking account of the dates of acquisitions and
disposals.
Equipment costing GH¢15,000 on 30 April 2001 was sold for GH¢7,250 on 30 June 2003.
The receipt of GH¢7,250 has been duly debited in the cash book, but in error, has been
credited to the trading sales account. No other entries have been made.
(2)
GH¢4,000 10% debentures were redeemed on 30 October 2003 at a premium of 5%. The
amount paid has been credited in the cash book but no other entries made. The question of
debenture interest has been dealt with correctly.
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(3)
(4)
(5)
(6)
(7)
On 31 August 2003 a bonus issue of shares (not ranking for dividend in the year of issue)
was made on the basis of one new share for every ten held. No entries to record this issue
have been made.
A debit balance of GH¢ 1,901 on a supplier‟s ledger account in the purchases ledger has
been carried down as GH¢1,091 and then inadvertently added to the total of suppliers‟
credit balances.
A provision of GH¢5,145 has been made in respect of doubtful debts and this amount has
been debited to profit and loss account and deducted from debtors in the balance sheet at 31
October 2003 . The accountant has, however, overlooked the fact that there was a credit
balance of GH¢3,171 on doubtful debts account at 1 November 2002.
Accrued rent of GH¢1,000 at 31 October 2003 has been duly debited to rent account but
carried down as a debit balance and included under “prepayments” in the balance sheet.
The company wishes to maintain a large balance as possible of unappropriated profits.
It is the company‟s policy to “net off” all balances standing on the purchases ledger, and
similarly with the sales ledger.
Requirement
Prepare for review by the Directors of Alluwako Ltd an amended balance sheet at 31 October 2003.
Question 50: Biafra Bambara Company Ltd
The following trial balance has been extracted from the books of account of Biafra Bambara plc at
31 March 2008.
GH¢000
GH¢000
Administrative expenses
210
Called up share capital (ordinary shares of GH¢1 fully paid)
600
Debtors
470
Bank overdraft
80
Corporation tax (overprovision in 2007)
25
Provision for pension costs
180
Distribution costs
420
Fixed asset investments
560
Investment income
75
Plant and machinery
At cost
750
Accumulated depreciation (at 31 March 2008)
220
Profit and loss (at 1 April 2007)
240
Purchases
960
Stock (at 1 April 2007)
140
Trade creditors
260
Turnover
1,950
Interim dividend paid
120
3,360
3,630
Page56
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Additional information
(1)
Stock at 31 March 2008 was valued at GH¢150,000.
(2)
The following items are already included in the balances listed in above trial balance.
Distribution
Administrative
Costs
expenses
GH¢000
GH¢000
Depreciation (for year to 31 March 2008)
27
5
Hire of plant and machinery
20
15
Auditors‟ remuneration
30
(3)
The corporation tax rate is 33%.
(4)
The corporation tax charge based on the profit on ordinary activities is estimated to be
GH¢54,000.
(5)
The provision for pension costs is to be increased by GH¢16,000. The increase should be
charged to administrative expenses. No pensions are expected to be paid for the foreseeable
future.
(6)
The company‟s authorized share capital consists of 1,000,000 ordinary shares of GH¢1
each.
(7)
There were no purchases or disposals of any fixed assets in the year and corporation tax is
33%.
Requirement
Insofar as the information permits, prepare the company‟s published profit and loss account for the
year to 31 March 2008 and a balance sheet at that date in a form suitable for publication to
members. Include notes on operating profit, taxation, fixed assets, creditors, share capital and
reserves
An accounting policies note is not required.
Question 51: Olusegun International Plc
Olusegun International plc has an authorized share capital of 500,000 GH¢1 ordinary shares and
200,000 GH¢1 6% Preference Shares. At 1 January 2008 the issued share capital was 100,000
GH¢1 Ordinary Shares and 50,000 GH¢1 preference shares. On 31 March 2008 the directors wish
to raise finance and the company issues a further 100,000 ordinary shares at GH¢1.50 and 50,000
preference shares at par.
On 30th September 2008, there was a bonus issue of 1 ordinary share for every 5 held
On November the same year, there was a right issue of 1 preference share for every 10 held at
GH¢1.25; the market value of the shares at that date was GH¢1.50. The right issue was fully taken
up by the preference shareholders.
Required:
Record the above transactions in the books of Olusegun International plc and show the relevant
extracts of the balance sheet at 31 December 2008.
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Question 52: New Generation Hoteliers Ltd
The summarized balance sheet of New Generation Ltd at 31 March 2006 appears as follows.
GH¢
GH¢
Sundry net sheets
300,000
Ordinary GH¢1 shares
100,000
6% GH¢1 preference shares
60,000
Share premium account
20,000
Revaluation reserve
30,000
Profit and loss account
90,000
300,000
300,000
The directors propose to pay a dividend to the preference and ordinary shareholders.
Requirement
What is the maximum dividend per share which can be paid for each type of share? Would the
directors wish to distribute the maximum dividend to the ordinary shareholders?
Question 53: Alhaji Lankan Ltd
The following list of balances was extracted from the books of Alhaji Lankan Ltd at 31 Dec. 2004.
GH¢
GH¢
GH¢1 ordinary shares
150,000
8% GH¢1 preference shares
50,000
7% debentures
100,000
General reserve
65,000
Land and buildings at cost
111,000
Plant and machinery at cost
382,000
Undistributed profit at 1 January 2004
35,000
Share premium account
20,000
Stock at 1 January 2004
35,000
Sales
290,000
Discounts allowed and received
3,200
4,600
Debtors and creditors
48,000
27,000
Provision for depreciation – plant and machinery
85,000
Bank
3,200
Carriage inwards
1,100
Purchases
165,000
Suspense account
400
Wages
23,500
Lighting and heating
2,900
Office salaries
8,600
Debenture interest
7,000
Directors‟ fees
12,800
Interim dividends
Ordinary (5%)
7,500
Preference (4%)
2,000
Provision for doubtful debts
1,500
General expenses
11,900
829,000
829,000
Page58
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Inspection of the books and records of the company yields the following additional information.
(1)
On 31 December 2004 the company issued bonus shares to the ordinary shareholders on a 1
for 10 basis. No entry relating to this has yet been made in the books.
It is intended that there should be the minimum deduction in distributable reserves.
(2)
The authorized share capital of the company is 200,000 GH¢1 ordinary shares and 50,000
8% GH¢1 preference shares.
(3)
Stock at December 2004 was valued at GH¢41,000.
(4)
The suspense account (GH¢400) relates to cash received for the sale of some machinery on
1 January 2004. This machinery cost GH¢2,000 and the depreciation accumulated thereon
amounted to GH¢1,500.
(5)
The directors, on the advice of an independent valuer, wish to revalue the land and buildings
atGH¢180,000, thus bringing the value into line with the current prices.
(6)
Wages owing at 31 December 2004 amounts to GH¢150.
(7)
Depreciation is to be provided on plant and machinery at 10% on cost.
(8)
General expenses (GH¢11,900) include an insurance premium (GH¢200) which relates to
the period 1 April 2004 to 31 March 2005.
(9)
The provision for doubtful debts is to be 2.5% of debtors.
(10) The directors wish to provide for
(i)
a final ordinary dividend of 5%
(ii)
a final preference dividend.
Requirement
Prepare a trading and profit and loss account for Alhaji Lankan Ltd for the year ended 31 December
2004 and a balance sheet at that date in a form suitable for internal use.
Question 54: Alfa and Omega Company Ltd
The Alfa and Omega Co. Ltd, a retail business, has an authorized share capital of 200,000 GH¢1
ordinary shares and 250,000 8% GH¢1 redeemable preference shares.
(a)
The trail balance of the company at 31 December 2005 (after preparing the profit and loss
account) was as follows.
Provision for depreciation:
GH¢
Fittings
75,000
Vehicles
187,000
Goodwill at cost
60,000
Issued share capital:
100,000 GH¢1 ordinary shares
100,000
250,000 8% GH¢1 redeemable preference shares
250,000
Share premium account
20,000
Trade debtors and prepayments
85,000
Land and building at valuation (cost GH¢220,000)
270,000
Capital redeemable reserve
150,000
Fitting at cost
175,000
Motor vehicles at cost
397,000
10% debentures
80,000
Trade creditors and accruals
48,000
Short-term investments (market value GH¢43,000)
39,000
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Stock at 31 December 2005
148,000
Bank overdraft
27,000
Revaluation reserve
50,000
Net profit for the year
72,000
Undistributed profit at 1 January 2005
73,000
General reserve
55,000
Provision for doubtful debts
2,400
Interim dividends paid:
Ordinary
5,000
Preference
10,000
The directors wish to:
(i)
transfer GH¢25,000 to general reserve
(ii)
provide for a 5% final ordinary dividend, and the final preference dividend
(a)
(b)
Requirement
Prepare for internal use the appropriation account of the Alfa and Omega Co Ltd for the
year ended 31 December 2005 and a balance sheet at that date. (Ignore taxation).
Write a short response to the following questions based on the above accounts.
(i)
When can the company issue the balance of its share capital?
(ii)
How could the “goodwill” have arisen?
(iii)
Assuming that the company had the cash, what is the maximum amount which could
be distributed by way of dividend?
(iv)
Why should the market value of the ordinary shares differ from their book value?
(v)
What is significance of the “share premium” account?
Question 55: Egue Kportufe Garages Ltd
Egue Kportufe Ltd was formed on 1 January 2007 to operate a garage business. The following
information relates to the first year‟s activities:
(1)
On 1 January 2007 100,000 ordinary shares of 25p each were issued fully paid at 35p each.
The proceeds were used to purchase freehold land.
(2)
On 1 January 2007 a 15% debenture stock was issued at par raising GH¢4,000. Interest is
payable on 1 January annually in arrears.
(3)
On 31 December 2007 a plot of land with an apportioned cost of GH¢5,000 on 1 January
2007 was sold for GH¢8,000; the remainder of the land was revalued at GH¢42,000 for
inclusion in the accounts.
(4)
A stock of tyres costing GH¢1,000 had been omitted from the stocktaking on 31 December
2007. Of this stock tyres costing GH¢600 were expected to realise GH¢7,500 but the
remaining tyres were defective and were expected to realise between GH¢100 and GH¢150.
(6)
There is a legal claim outstanding against the company for faulty workmanship and the
probable cost is expected to be in the region of GH¢300 to GH¢500.
(6)
On 1 July 2007 a 1 for 10 bonus issue was made.
(7)
The board of directors has recommended
the payment of an ordinary dividend of 3p per share, and
the transfer of GH¢4,000 to debenture redemption reserve.
(8)
The draft trading profit for the year before and making any adjustments relating to be
forgoing was GH¢14,550.
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Requirements
(a)
Write up an adjusted profit and loss and appropriation account for the year ended 31
December 2007.
(b)
Prepare an extract of the balance sheet as at that date (suitably classified insofar as the
information permits) to show shareholders‟ funds.
(c)
Draft a note for a director with no technical understanding of accounting explaining:
the nature and purpose of each reserve at the year-end, and
the return on capital employed for the year.
Question 56: ZoomVultures Ltd, Developers of Cleaning Products
(a)
On 1 April 2004 ZoomVultures Ltd was incorporated. A bank account was opened and
GH¢350 paid for formation expenses.
(b)
Details of the company and of shares issued are as follows.
Directors
Cyril Suleman Garibah, Georgio Ekegey and Mrs Gloria C. Garibah
Secretary
Mrs Doris Ekegey
Business
The takings on of cleaning contracts and the development and sale of cleaning
liquids and polishes
Share
Authorised - GH¢15,000 in shares of GH¢1 each; Issued
- see below.
Shareholders
No of shares
Price
Receipts paid into
bank account
GH¢
C S Garibah
3,000
par
3,000
G Ekegey
3,000
par
3,000
Mrs Garibah
500
par
500
Mrs Ekegey
500
par
500
Various relatives
3,000
GH¢1, 20
3,600
(c)
On 1 October 2004 the company bought a window-cleaning business for GH¢8,250. The
tangible assets consisted of ladders and sundry equipment valued at GH¢1,200 and vehicles
at GH¢4,050. No liabilities were taken over. The reputation established by the business
purchased is likely to be benefit to ZoomVultures Ltd over the two years to 1 October 2006
(d)
In February 2005 a defective polisher seriously damaged a customer‟s flooring. The claim
for damages (not covered by insurance) was settled in May 2005 for GH¢2,750.
(e)
Apart from those arising fro the information given in (a) to (d) above, the company‟s
transactions for the year to 31 March 2005 are set out below.
(i)
Receipts and debtors
Received and
Debtors at 31
Paid into bank
March 2005
GH¢
GH¢
Amount received and outstanding under cleaning contracts:
For quarter years ended before and on
31 March 2005
99,000
6,150
For quarter year ending 30 April 2005
8,400
2,400
For quarter year ending 31 May 2005
12,000
5,400
(Note that all contacts provide for
quarterly instalments payable in advance)
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(ii)
(f)
(g)
(h)
(i)
(j)
Window cleaning receipts
Sales of liquid and polishes
Payments and creditors
13,165
21,060
1,385
Paid out
Creditors at 31
of bank
March 2005
GH¢
GH¢
Large electrical polishers
20,500
Small items of cleaning equipment
4,750
Wages, PAYE and National Insurance
74,660
2,905
Administrative and property costs
10,075
220
Purchases of liquids and polishes
15,030
910
Secretary‟s fees
4,000
Accountancy charges
650
250
Audit fee
800
The directors have not drawn any remuneration during the year but it is proposed that
directors‟ fees for the year totalling GH¢21,000 should be provided.
A dividend of 25p per share is proposed for the year to 31 March 2005.
Corporation tax is to be provided on the basis of 30% of the net trading profit of the year.
At 31 March 2005 there were the following stocks of cleaning liquids and polishes.
Cost
Net realizable Value
GH¢
GH¢
Liquids X and Y
1,485
2,125
Liquid Z
750
325
Polish
1,820
3,140
The large electrical polishers are expected to have a four year life and to have a residual
value of GH¢500. The total cost of ladders and all small items of equipment are to be
depreciated at 331/3% based on cost and in use at the year-end.
Requirement
Prepare for internal use a trading and profit and loss account for the year ended 31March 2005,
together with a balance sheet at the date.
Question 57: Motorway Jumpers Transportations
Motorway Jumpers Ltd is a general transport company. It also provides storage facilities which
customers can hire on a long-term or short-term basis.
At 31 December 2005 the company‟s ledger included the following lists of balances.
Assets:
GH¢
Premises (note 5)
675,300
Vehicles
1,141,700
Plant and machinery
203,200
Stock (closing) of repair materials, fuel oil etc
154.031
Trade debtors:
Storage
15,503
Haulage
131,480
Bank
42,356
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Cash
7,063
Liabilities:
Provisions for depreciation at 1 January 2005:
Premises
117,800
Vehicles
472,400
Plant and equipment
51,100
Trade creditors (note 1)
125,607
9% debentures
50,000
Ordinary share capital (note 3 and 4)
800,000
6% preference share capital (note 4)
50,000
General reserves
40,000
Profit and loss account at1 January 2005
46,823
Share premium account
5,000
Revenues: Storage rentals:
Long-term contracts
151,260
Casual
29,752
Haulage charges
1,734,611
Expenses:
Wages, salaries and related charges (note 5)
581,826
Rates
62,500
Power, heat and light
86,330
Repairs:
Vehicles
91,413
Other (note 5)
156,494
Diesel oil, etc
179,809
Postage, stationery, telephone
25,605
Insurance
21,480
Debenture interest
4,500
Sundry expenses
11,273
Other
Suspense account (debit balance) (notes 1, 2 and 3)
82,490
Notes at 31 December 2005
(1)
In September 2005 a consignment of avocados was delayed in transit due to the negligence
of the transport manager. Motorway Jumpers Ltd was transporting these goods for Wayo
Boomboom Farms Ltd. As a result the entire consignment deteriorated to such an extent that
it had to be destroyed on arrival at its destination.
The total cost of this loss, which has been assessed at GH¢84,680, has been claimed from
the company by Wayo Boomboom Farms Ltd. It has been debited to suspense account and
temporally credited to trade creditors prior to being settled in contra at 31 December 2005.
The claim is not covered by the company‟s insurance policy.
(2)
In October 2005 one of the vehicles was seriously damaged in an accident. Repairs costing
GH¢37,810 were carried out in the company‟s own vehicles workshops. The cost has been
held in suspense account pending the outcome of the claim under the insurance policy. This
has now been agreed in full.
(3)
On 1 September 2005 the company had declared a 1 for 20 bonus issue of ordinary shares
(which do not rank for dividend until 2006). The amount involved has been appropriated out
of general reserve and credited to suspense account.
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(4)
The issued share capital consists of 6% preference shares of GH¢1.00 per share and
ordinary shares of GH¢0.50 per share. The directors have recommended payment of the
preference dividend and an ordinary dividend of GH¢0.075 per share.
(5)
During 2005 the company had extended one of its warehouses and used its own labour and
materials in the construction. The amounts expended are included in the above list under
wages (GH¢52, 00) and repairs – other (GH¢148,000).
(6)
Depreciation is provided on a straight-line basis on the cost of fixed assets held at the end of
each financial year and assuming no residual value. Assumed asset lives are:
Premises
50 years
Vehicles
5 years
Plant
8 years
(7)
The company‟s liability for corporation tax for the year 2005 has been estimating at
GH¢90,000.
(8)
Adjustments, not yet posted to the accounts, should be made for
GH¢
Storage rentals (long-term contracts) prepaid by customers 13,644
Power charges accrued
5,005
Telephone rentals prepaid
207
Telephone calls accrued
548
Rates prepaid
16,730
Wages accrued
10,834
Insurance prepaid
1,747
Requirement
(a)
Open the suspense account and post the entries needed to eliminate the opening debit
balance.
(b)
Prepare for internal use the profit and loss account for Motorway Jumpers Ltd for the year
ended 31 December 2005 and balance sheet at that date.
Question 58: Amazing Freddy Company Ltd
Amazing Freddy Ltd has an authorized share capital of 800,000 ordinary shares of 50p each.
The trial balance extracted from the books of account of the company as at 31 March 2001 showed
the following position:
GH¢000
GH¢000
Accumulated depreciation at 1 April 2000
927
Administrative expenses
273
Bank overdraft
76
Bank interest
12
Creditors
231
Debtors
169
Distribution costs
155
Interim dividend paid
16
Fixed assets at cost:
Freehold property
1,440
Plant and machinery
765
Furniture and fittings
264
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Debenture loan
Debenture loan interest
Retained profit at 1 April 2000
Purchases
Rent received
Sales
Share capital
Stocks at 1 April 2000
Corporation tax
94
14
591
2,454
28
3,320
400
112
7
5,674
5,674
You also obtain the following information.
(1)
Stocks at 31 March 2001 have been valued at GH¢176,000.
(2)
Freehold property, plant and machinery, and furniture and fittings are written off on a
straight line basis over periods of forty year, four years and eight years respectively. None
of the assets has been fully depreciated. Depreciation has not yet been provided for the
current year.
(3)
The company‟s debtors included an amount of GH¢14,000 relating to an overseas customer
who is currently in liquidation. The directors wish to make provision for the full amount of
the debt as an administration expense.
(4)
A revenue grant received on 1 April 2000 of GH¢45,000 covering a five year period has
been incorrectly credited in full against the cost of plant and machinery.
(5)
Corporation tax of GH¢56,000 is (based on 33%) to be provided for the year. The balance
on the corporation tax account has resulted from an over-provision for tax payable in the
previous year.
(6)
The directors proposed a final dividend for the year of 3p per ordinary share.
Requirement
Prepare the profit and loss account of Amazing Freddy Ltd for the year ended 31 March 2001, in a
form suitable for presentation to members. An accounting policies note should be included,
together with notes on operating profits, taxation, dividends and reserves.
Question 59: Cazmil Public Limited Company (Plc)
Cazmil plc is a company with an authorised share capital of GH¢1 each. The company prepares its
accounts to 31 March each year and the preliminary trial balance, before final adjustment, shows
the following position as at 31 March 2005.
GH¢
GH¢
Ordinary share capital, issued and fully paid
200,000
Retained profit at 1 April 2004
61,000
6% debenture stock (secured on leasehold factory)
60,000
Leasehold factory
Cost at 1 April 2004
200,000
Accumulated depreciation at 1 April 2004
76,000
Plant the machinery
Cost at 1 April 2004
80,000
Accumulated depreciation at 1 April 2004
30,000
Addition in year
10,000
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Creditors and accrued expenses
Stock at 31 March 2005
Debtors
Prepayments
Balance at bank
Profit for year (subject to any items in the following notes)
Sale proceeds of plant
170,000
160,000
100,000
80,000
90,000
111,000
12,000
720,000
720,000
You ascertain the following.
(1)
Annual depreciation is calculated as follows:
Leasehold factory
2% on cost
Plant and machinery 20% reducing balance on NBV at 1 April 2004 plus addition
less disposals in the year
(2)
The lease of a factory is a long lease.
(3)
The debenture stock is repayable at par by six equal annual amounts starting on 31
December2005
(4)
A dividend of 20% is proposed.
(5)
Plant disposed of originally cost GH¢16,000 with accumulated depreciation of GH¢3,200.
Requirement
Prepare the balance sheet at 31 March 2005, in a form suitable for publication.
An accounting policies note is required, together with notes on fixed assets, debtors, creditors, share
capital and reserves
Question 60: Suleman Garibah Company Ltd
You are presented with the following summarised trial balance of Suleman Garibah Ltd in respect
of the year ended 31 March 2005.
GH¢
GH¢
Ordinary share capital (25p shares) – authorized and issued
100,000
Plant and machinery: Cost
307,400
Depreciation
84,600
Debtors
52,030
Creditors
38,274
Stock of finished goods
61,070
Profit and loss b/f
45,910
Cash at bank
41,118
Cash in hand
126
Share premium account
20,000
Sales
998,600
Interim dividend paid
2,500
Provision for doubtful debts
1,860
9% debenture stock 2009
75,000
Cost of sales
800,000
Administrative expenses
100,000
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1,364,244
1,364,244
The following final adjustments are required.
The provision for doubtful debts is to be adjusted to 5% of the debtors‟ figure. The charge is
to be included in administrative expenses.
(2)
Corporation tax on the current year‟s profits is estimated at GH¢31,200, the rate of the tax
being 33%.
(3)
Depreciation at 10% of cost is to be provided. The charge is to be included in cost of sales.
There have been no additions or disposals of fixed assets during the year.
(4)
The directors proposed a dividend o\rate of 3 pesewas per share.
(5)
Interest for the year to 31 March 2005 was paid on 1 April 2005. No accrual has been made.
(6)
Included in administrative expenses is a charge for GH¢4,000 for auditors‟ remuneration.
Requirement
As far as the above information permits prepare, in a form suitable for presentation to members, a
profit and loss account for the year ended 31 March 2005 and a balance sheet as at that date.
Include notes on turnover, profit, taxation, dividends, assets, stocks, creditors, share capital and
reserves.
An accounting policies note is not required.
(1)
Question 61: Gasu Quofie Plc Farm Equipments
Gasu Quofie plc has traded for many years as a manufacturer of farm machinery. The trial balance,
after the preparation of the draft trading and profit and loss account for the year ended 31 October
2004, was as follows:
Dr
Cr
Freehold land and buildings:
GH¢
GH¢
Cost
124,000
Accumulated depreciation at 31 October 2004
64,000
Plant and machinery: Cost
860,000
Accumulated depreciation at 31 October 2004
309,478
Stock at 31 October 2004:
Raw materials
57,128
Work in progress
3,725
Finished goods
33,347
Trade investment
8,600
Suspense account
102,400
Trade debtors
192,340
Balance at bank
196,800
Ordinary shares of 50p each (fully paid)
200,000
15% Preference shares of GH¢1 each (fully paid)
120,000
12% Debentures 2010
70,000
Profit and loss account, unappropriated balance, 1 November 2003
304,942
Net profit for year to 31 October 2004
192,900
Provision for doubtful debts
7,200
Dividend from trade investment
1,520
Trade creditors
109,500
Interim ordinary dividend
6,000
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1,481,940
1,481,940
You are given the following information.
(1)
Certain items which the bookkeeper, Mr Sarpong, was unable to deal with were posted to a
suspense account which is made up as follows.
GH¢
Proceeds of issue of 120,000 ordinary shares of 50p
90,000
Sale of trade investment
12,400
102,400
(2)
(3)
The provision for doubtful debts is to be adjusted to 5% of the trade debtors.
Certain stocks of finished goods costing GH¢12,000 (and included in the GH¢33,347
above) are considered obsolete. The expected net realizable value is GH¢2,700.
(4)
The board of directors has made the following recommendations.
(i)
The payment of the preference dividend for the year.
(ii)
The payment of an ordinary dividend of 10p per share.
(5)
During the year a reputable firm of chartered surveyors, Freaks & Tweaks, revalued the land
by GH¢15,000 (original cost GH¢23,000). The directors wish to incorporate this into the
accounts. There have been additions of plant and machinery during the year of GH¢25,000
but no other movements.
The following depreciation was charged for the year.
Freehold land and buildings
GH¢2,500
Plant and machinery
GH¢27,937
(6)
The corporation tax charges for the year ended 31 October 2004 is estimated at GH¢15,200.
This has not been paid at the year-end and is included in trade creditors.
(7)
The authorised share capital is as follows.
15% preference shares
200,000 at GH¢1 each
Ordinary shares
750,000 at 50p each
Requirement
As far as the information permits prepare a balance sheet as at 31 October 2004 in a form suitable
for presentation to members. Include notes on assets, stocks, creditors, share capital and reserves.
An accounting policies note is not required.
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CHAPTER 6
FUNDAMENTAL ACCOUNTING CONCEPTS
Question 62: Nature and Purpose of SSAPs
What is the nature and purpose of Statements of Standards Accounting Practice and Financial
Reporting Standards?
Question 63: Fundamental Accounting Concepts
SSAP 2 names four fundamental accounting concepts which underlie the preparation of accounts.
Requirement
Describe these concepts and give an example of the application of each.
Question 64: Freddy’s Conner, Bepos and Jargoos
During the examination of the financial records of various company clients you find the following
material items:
(a)
The profit and loss account of Freddy‟s Conner Ltd for the year ended 30 June 2003 has
charged therein GH¢16,400, being general rates payable for thee year commencing 1 April
2003, and GH¢15,000 being rent paid for the quarter to 30 September 2003.
(b)
In the accounts for the year ended 31 May 2003, Bepos Ltd has included in sales
GH¢40,000 which represents goods sent to customers on a sale or return basis.
(c)
On 31 August 2003 Jargoos Ltd has stocks and work in progress in the balance sheet at cost,
including apportioned overheads, amounting to GH¢110,000. Information available
indicates that sales have been falling rapidly in the last six months following the
introduction to the market of a rival product of improved specification and lower price. The
company has an issued share capital of GH¢20,000 and a debit balance on reserves of
GH¢2,500 on 31 August 2003.
Requirement
Write short memoranda to the directors of each of the above companies explaining the fundamental
accounting concepts involved and the adjustment, if any, to their accounts which you consider
necessary.
Question 65: Needs of Accounts Users
Who uses accounts? Do their needs vary with the size of concern?
Question 66: Atongo, The Science Student
Atongo has never heard of accounting concepts, and would certainly not know what to do with
them if he came across them.
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Requirement
Prepare notes for a meeting with Atongo in order to explain to him which of the fundamental
accounting concepts would cause you to make adjustments to the accounts of his business in the
following circumstances. Give your reasons.
(Assume that each circumstance is separate from and not dependent on the others.)
(a)
He has no idea what his electricity bill will be for the last two months of the financial year,
since he has not yet received it. He proposes to account only for what has already been paid.
(b)
His cash register will last for years and he is willing either to write it off completely in the
year of purchase or to carry it as a fixed asset at cost price in the balance sheet. He cannot
see any point in any “half-way-house” between the two.
(c)
At the latest year-end, 31 December 2004, he had several large outstanding orders for
prunes, which did not arrive until two days after the year-end. He dispatched them to the
customers on the same day, and considers them to be sales for the year 2004 rather than
2005.
(d)
Atongo‟s assistant, Hotman, has left and has opened a cut-price supermarket a few streets
away from his shop. Customers are flocking to Hotman and the bottom is falling out of
Atongo‟s market. Much of his stock has passed its sell-by dates.
Question 67: Jorgbenue Gee Plc
The following information relates to government grants received and receivable by Jorgbenue Gee
plc, who operates children recreation centre in Manchester UK.
Employment grant
This is grant of £3,000 towards employment costs incurred during 2007. The grant has not yet been
received but the conditions for receipt have been met.
Capital grant
A grant of £60,000 was applied for in 2007 to help finance the acquisition of new game machines
costing £200,000. The machinery was acquired on 31 March 2007 and is expected to last for ten
years, after which it will have a residual value of £20,000. Straight line depreciation is to be
charged from the date of acquisition. The grant was received on 30 September 2007.
Requirement
State how each of these grants should be accounted for in accordance with SSAP 4 Accounting
treatment of government grants in the financial statements for the year ended 31 December 2007.
Question 68: Principles of SSAP 9
SSAP 9 lays down the principles to be followed by enterprises relating in particular to valuations.
Requirements
(a)
Describe the fundamental accounting concepts that have been applied to the valuation of
stock in the recommendations in SSAP 9.
(b)
Explain how SSAP 9 requires the following to be dealt with.
(i)
Overheads.
(ii)
The determination of the lower of costs and net realizable value.
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(iii)
The identification of costs of stocks where there are large numbers of identical
items.
What are the disclosure requirements of SSAP 9 and the Companies Act 1985 of England in respect
of stocks?
Question 69: Monallissa Ltd, A Processing Company
Monallissa plc processes and sells a single product. Purchases of raw material during the year were
made at a regular rate of 1,000 tons at the beginning of each week. The price was GH¢100 per ton
on 1 January 2007 and was increased to GH¢150 per ton on 1 July 2007 remaining constant from
then until the end of the year, 31 December 2007. In addition to this price a customs duty of GH¢10
per ton was paid throughout the year, and transport from the docks to the factory cost GH¢20 per
ton.
Variable costs of processing were GH¢25 per ton and the fixed production costs were GH¢30,000
per week. One ton of raw material is processed into one ton of finished product and sold, at a
delivered price of GH¢240 per ton. Average delivery costs to customers were GH¢7.50 per ton.
At the beginning of the year there were no stocks and at the end of the year there were 5,000 tons of
raw material and 2,000 tons of finished product. It is expected that the costs and prices current at 31
December 2007 will continue during 2008.
Requirements
(a)
Draft an accounting policy statement on stock for the company to include in its annual
accounts.
(b)
Calculate the value of stock at 31 December 2008 using the FIFO basis under SSAP 9.
Question 70: Logba Young Plc
Your client, Logba Young plc, wishes to defer development costs where possible and has asked for
your advice on what procedures to set up in order to identify any relevant costs.
Requirement
Write a letter to the Finance Director of Logba Young plc which addresses his concerns
Question 71: Suzzy Selase Gee Study Notes
Your office has agreed to employ Suzzy Selase Gee, an eighteen-year-old student, between school
and university for a few months in the summer vacation in order to assist with some clerical work
and to find out what accountancy is all about.
You are asked to spend some time with her and to take her through a set of accounts, using a public
company client as your example. After a first look at the accounts, Madeline has expressed
particular interest in
the nature and purpose of a set of accounts
the difference between fixed assets and current assets
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the nature of debentures.
Requirement
Prepare notes for your session with Madeline, bearing in mind that she should learn as much as
possible rather than receiving bare answers to her questions
Question 72: Accounting Terminologies as per SSAP2
(a)
“It is fundamental to the understanding and interpretation of financial accounts that those
who use them should be aware of the main working assumptions on which they are based,
of the various alternative methods which are available to apply such assumptions, and of the
method selected as being most appropriate for adoption in the circumstances of the
business.”
Requirement
In the context of the above quotation, discuss the steps which have been taken by the
Accounting Standards Board (in statement of standard Accounting Practice No 2) to
standardize terminology and to promote improvement in the quality of information
disclosed. Your discussion should be illustrated by reference to the valuation by a limited
company of stocks on hand at the end of an accounting period.
(b)
A shareholder in a limited company is disgusted because the company has paid such a small
dividend.
He shows you the balance sheet, saying “Just look at the other balances available for
dividend”. He indicates the following items.
(i)
Share premium account
GH¢200,000
(ii)
Fixed asset replacement reserve
GH¢50,000
(iii)
Contingencies reserve
GH¢85,000
Requirement
Advise him concisely on the availability of the above balances for dividend declaration.
Question 73: Benjamin K Onimangbori Queries
Benjamin K Onimangbori has been sent to Ghana by his father to set up a subsidiary of the family
paint company. You act as his accountant and have sent him a draft of the accounts for the year
ended 30 September 2007.
Unfortunately his business studies degree has not covered the essentials of accountancy, and he has
written to you with the following queries.
(1)
“I always thought that accountancy was all about „debits‟ and „credits‟, and that debits were
bad things to have and credits were good. But I see from what you call my „trial balance‟
that my premise, my inventory are all called debits. What‟s wrong with them?”
(2)
“I just can‟t get used to your English way of writing off my inventory. You have written all
those stocks of psychedelic paint down to zero and I can understand that: no one wants it
nowadays. But you haven‟t written anything off the spare parts for the new „Let-us-Spray‟
gun which we manufacture: they haven‟t moved at all because the product is so new. If it
hasn‟t moved, why not write it off?‟
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(3)
“Apparently VAT means value added tax. I can‟t figure how it works. If our sales are
greater than our purchases, the VAT we charge on sales is greater than the VAT we pay on
purchases. So how come we owe the Internal Revenue instead of them owing us?”
Requirement
Write a letter in reply, answering the queries in language which a layman can understand.
(Write as from a firm, using a fictitious name and address.)
Question 74: Fundamental Accounting Concepts SSAP2
Explain the difference between a fundamental accounting concept, an accounting base and an
accounting policy.
Illustrate your answer in the context of the following areas.
(a)
Tangible fixed assets
(b)
Stocks
(c)
Hire purchase contracts
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CHAPTER 7
CASH FLOW STATEMENTS
Question 75: Darryl Amfic Company Ltd
The financial statements of Darryl Amfic Ltd at 30 June were as follows.
2007
GH¢
GH¢
Fixed Assets
Building: cost
22,000
depreciation
(4,000)
2006
GH¢
12,000
(1,000)
18,000
Plant & machinery: cost
depreciation
Current Assets:
Stock
Debtors
Bank and cash
5,000
(2,250)
16,000
9,950
-
GH¢
11,000
5,000
(2,000)
2,750
3,000
20,750
14,000
25,950
11,000
2,700
1,300
15,000
Creditors: amounts falling due within 1 year:
Bank overdraft
Trade creditors
Tax creditor
Accrual for interest
Creditors amounts falling due after 1 year
Loan
Represented by
Ordinary share capital
Profit and loss account
Profit and loss account (extracts)
Opening profit
Interest charge
Profit before tax
Taxation
11,000
8,000
1,800
700
_
11,000
1,000
200
(21,500)
(12,200)
(6,000)
(10,000)
19,200
6,800
GH¢
GH¢
3,000
16,200
19,200
3,000
3,800
6,800
2008
GH¢
15,400
(1,000)
2007
GH¢
5,900
(1,400)
14,400
(2,000)
4,500
(1,500)
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Retained profit for the year
12,400
3,000
Machinery of net book value GH¢250 was sold at the beginning of 2007 for GH¢350. This
machinery had originally cost GH¢1,000. In recent years, no dividends have been paid.
Requirement
Prepare a cash flow statement, with notes, for the year ended 30 June 2007.
Question 76: GBEBSUK Ltd
The following are the summarized accounts of GBEBSUK Ltd.
Balance sheets at 31 December
2006
Fixed assets:
GH¢000
GH¢000
Plant and Machinery
2,086
Fixtures and Fittings
1,381
2007
GH¢000
GH¢000
2,103
1,296
3,467
Current assts
Stock
Debtors
Cash
Less Creditors: Due within one year:
Proposed dividends
Taxation
Trade creditors
Capital and reserves:
Share capital
Share premium
Profit and loss account
3,399
1,292
1,763
197
1,952
2,086
512
3,252
4,550
6,719
7,949
132
257
899
154
312
903
(1,288)
(1,369)
5,431
6,580
4,200
800
431
4,500
900
1,180
5,431
6,580
Profit and loss account for the year ended 31 December 2007
GH¢000
Profit before taxation
Taxation
Profit after taxation
Less Dividends: Paid
Proposed
GH¢000
1,381
(310)
1,071
168
154
(322)
Retained profit
Profit and loss account b/f
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Profit and loss account c/f
1,180
You are informed that
(1)
(2)
Plant and machinery with a net book value of GH¢184,000 was disposed of for
GH¢203,000, whilst a new item of plant was purchased for GH¢312,000
Fixtures and fittings with a net book value of GH¢100,000 were disposed of for
GH¢95,000; depreciation provided on fixtures and fittings amounted to GH¢351,000.
Requirement
Prepare a cash flow statement, with notes, for the year ended 31 December 2007.
Question 77: Kojo Agyeman Motor Component Plc
Kojo Agyeman Motor components plc has prepared the summarized accounts as set out below.
Profit and loss accounts for the years ended 30 April
2007
2006
GH¢000
GH¢000
Turnover
74,680
69,937
Cost of sales
(51,595)
(47,468)
Gross profit
Distribution and administration costs
28,085
(17,581)
22,469
(16,920)
Operating profit
Premium on redemption of debentures
Taxation
5,504
(100)
(2,634)
5,549
_
(1,093)
1,920
3,696
Retained profits
Balance sheets at 30 April
GH¢000
2007
GH¢000
30,946
2006
GH¢000
GH¢000
25,141
Fixed assets at cost or valuation, less depreciation
Currents assets
Stocks and work in progress
Debtors
Investments at cost
Cash at bank
16,487
12,347
7,100
863
15,892
8,104
Less Creditors falling due within one year
36,797
(6,767)
24,720
(5,105)
724
Net current assets
30,030
19,615
Total assets less current liabilities
Less Creditors falling due after one year
60,976
(3,250)
44,756
(4,250)
57,726
40,506
13,000
12,500
7,450
10,000
5,000
2,650
Share capital - GH¢1 ordinary shares
Share premium account
Revaluation reserve
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Profit and loss account
Notes relating to the accounts
(1)
Fixed asset analysis
Freehold land and buildings
Plant and equipment
(2)
(3)
(4)
24,776
22,856
57,726
40,506
2007
GH¢000
25,100
5,846
2006
GH¢000
19,780
5,361
30,946
25,141
Depreciation has not been provided on freehold land buildings. During the year a
professional revolution – taking account of additions during the year – has been
incorporated in the books of account. There were no disposals during the year.
Additions to plant and equipment during the year totalled GH¢1,365,000 at cost. There were
no disposals.
Creditors falling due within one year
2007
2006
GH¢000
GH¢000
Trade and other creditors
3,451
3,387
Taxation
2,796
1,238
Dividends
520
480
6,767
(5)
(6)
(7)
5,105
Taxation provided at 30 April 2006 was settled at a figure lower than the amount provided.
Creditors falling due after more than one year relate to 9% deep discount debentures which
pay no interest. The stock redeemed during the year was redeemed at premium of 10%
which was provided out of the share premium account.
During the year the company made a rights issue of shares on the basis of 3 new shares for
every 10 shares held at a price of GH¢3.50 per share. Pending the purchase of new plant,
part of the proceeds of the issue has been invested.
All the investments were due to mature six months after the date of purchase.
Requirement
Prepare a cash flow statement, with notes, for the year ended 30 April 2007.
Question 78: Selikem Garibah Plc
The summarized accounts of Selikem Garibah plc for the year ended 31 March 2002 are set out
below.
(a)
Profit and loss account
GH¢000
Profit
100
Taxation
(40)
60
Proposed dividend
(25)
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Retained profit
(b)
35
Balance sheet
At 31 march
2001
GH¢000
GH¢000
210
(105)
At 31 March
2002
GH¢000
GH¢000
Fixed assets:
Cost
Depreciation
250
(160)
105
90
Current assets
Stocks and debtors
Bank
330
67
397
442
Less Current liabilities
Creditors
Taxation
Dividend
150
35
20
(205)
140
40
25
(205)
192
297
70
177
50
237
Total net assets
327
Representing
Share capital
70,000 GH¢1 ordinary shares
100,000 GH¢1 ordinary shares
Share premium
Distributable reserves
Debentures
100
15
212
-
297
(c)
390
52
327
Notes to accounts
(i)
(ii)
The debentures were redeemed during the year at a total premium of GH¢4,000
which was written off against the premium received on the issue of additional GH¢1
ordinary shares.
Fixed assets with a cost of GH¢28,000 were sold during the year for each of
GH¢6,000. This sale results in an under-provision for depreciation of GH¢10,000
which was charged against profits.
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An enthusiastic trainee has been asked to prepare a cash flow statement for the year. This he has
done in the form set out below. He says “I‟ve used all the information given in the accounts and my
statement balances – it must be right!”
Cash flow statement produced by trainee
GH¢000
Cash inflows
1
2
3
4
5
Net profit
depreciation
Increase in issued share capital
Sale of fixed assets
Share premium
60
55
30
6
19
170
Cash outflows
6
7
8
9
10
11
12
13
Dividends
Taxation charge
Decrease in books value of fixed assets
Loss on sale of fixed assets
Stocks and debtors
Bank
Creditors
Redemption of debentures
20
40
(15)
10
60
15
(10)
50
170
Requirement
Prepare an amended statement in the form required by FRS 1.
Question 79: Nzinga Chipolopolo Plc
The summarized balance sheet of Nzinga Chipolopolo Plc at 31 December 2007 and 2008 are as
follows
Issued share capital
Share premium
Profit and loss account
Debentures
Creditors
Bank overdraft
Corporation tax payable
2008
GH¢
150,000
35,000
41,000
30,000
48,000
33,000
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2007
GH¢
100,000
15,000
14,000
70,000
34,000
14,000
21,500
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Financial Accounting (Practical Questions): Ghanaian Perspective
Proposed dividends
Depreciation:
Plant and machinery
Fixtures and fittings
Freehold property at cost
Plant and machinery at cost
Fixtures and fittings at cost
Stock
Debtors
Government stock
Cash at bank
15,000
7,500
54,000
15,000
421,000
45,000
13,000
334,000
2008
GH¢
130,000
151,000
29,000
51,000
44,000
4,600
11,400
2007
GH¢
110,000
120,000
24,000
37,000
42,800
200
421,000
334,000
The following information is relevant:
(a)
There had been no disposal of freehold property in the year.
(b)
A machine tool which had cost GH¢8,000 (in respect of which GH¢6,000 depreciation had
been provided) was sold for GH¢3,000, and fixtures which had cost GH¢5,000 (in respect
of which depreciation of GH¢2,000 had been provided) were sold for GH¢1,000. Profits and
losses on those transactions had been dealt with through the profit and loss account.
(c)
The profit and loss account charge in respect of tax was GH¢22,000.
(d)
The premium paid on redemption of debentures was GH¢2,000, witch has been written off
to profit and loss account.
(e)
The proposed dividend for 2007 had been paid during the year.
(f)
Interest received during the year was GH¢450. Interest charged in the profit and loss
account for the year was GH¢6,400. Accrued interest of GH¢440 is included in creditors at
31 December 2007 (nil at 31 December 2008).
Requirement
Prepare a cash flow statement for the year ended 31 December 2008, together with notes as
required by FRS 1.
Question 80: June July Engineering Business
(a)
(b)
June Sena and July Segbefia are partners in a precision engineering business, trading as
“June July” and manufacturing a selective range of machine tools. As a result of the general
recession, business had slumped and the partners had to decide whether to retract or whether
to go for expansion by re-equipping with the latest machinery which would give them a
wider range of marketable products. Encouraged by the probability of some new Ministry of
Defence contracts, the partners took the latter course of action and during the year ended 31
December 2002 have injected a further GH¢50,000 of capital into the partnership business.
A summary of the partnership balance sheet at 31 December 2002, together with
comparative figures at 31 December 2001, is as set out below:
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GH¢
GH¢
GH¢ GH¢
2001
Fixed assets (notes 1 & 2)
2002
Plant, equipment, vehicles, fittings and
84,430
and furniture at cost
110,505
(18,070) Less Aggregate depreciation
(24,262)
66,360
18,000
86,243
14,500
Trade investments at cost
84,360
Current assets
Stocks work in progress at cost
Debtors
Bank
42,655
13,828
7,733
64,216
(23,224)
100,743
40,992
Less Creditors due in 1 year
63,798
21,599
4,682
90,079
(27,341)
125,352
62,738
163,481
Partners’ accounts
100,000
25,352
125,352
(c)
Capital
Current (note 3)
June
July
90,000 60,000
12,439
1,042
102,439 61,042
Total
150,000
13,481
163,481
Notes to balance sheet summary
(1)
Plant and equipment
Assets costing GH¢15,000 were sold during the year for GH¢4,200. The
depreciation over-provided at the date of sale totalled GH¢1,700.
(2)
Trade investments
These represent shares in a company which is controlled by relatives of Bob Steele
and which is one of Steron‟s main suppliers. These shares are held by the
partnership as a permanent investment, but during the year shares costing GH¢3,500
were sold to a relative for GH¢6,750.
(3)
Current accounts – analysis
June
July
Total
GH¢
GH¢
GH¢
GH¢
GH¢
Balance at 1 January 2002
16,555
8,797
25,352
Shares of net profit for
year to 31 Dec 2002
30,500
26,105
56,605
47,055
34,902
81,957
Less Drawings
Cash
24,626
26,280
Tax payments
7,540
5,720
Private proportion
of car expenses
2,450
1,860
(34,616)
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(33,860)
(68,476)
George Ekegey Ekeha
Financial Accounting (Practical Questions): Ghanaian Perspective
Balance at 31 Dec 2002
12,439
1,042
13,481
July Segbefia is not very good with figures. He says “During the year 2002 we raised
between us a further GH¢50,000 of capital. I can‟t understand what we‟ve done with it: at
the end of the year our bank balance was lower than it was at the previous year-end and we
owed more to creditors. I know we‟ve bought a lot of new equipment but this doesn‟t seem
to account for GH¢50,000.
Requirement
(d)
Prepare a cash flow statement for the year ended 31 December 2002. Drawings should be treated as
a return on investment.
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CHAPTER 8
FINANCIAL STATEMENTS ANALYSIS AND
INTERPRETATION
Question 81: Divine Nooque Voluntaries Ltd
Divine Nooque Voluntaries Ltd manufactures brass tubas. You have been asked by a client to
investigate the company with a view to a possible takeover and replacement of the product with
plastic electronic tubes.
You have managed to obtain copies of the last two year‟s accounts (for the years ended 31
December 2007 and 2006). The profit and loss account and balance sheet for these years are set out
below:
Profit and loss accounts
2007
2006
GH¢000
GH¢000
GH¢000
GH¢000
Turnover
4,500
3,750
Cost of sales
(1,800)
(1,200)
Gross profit
Distribution costs
Administrative expenses
2,700
900
1,350
2,550
900
1,355
(2,250)
(2,235)
Operating profit
Interest payable
450
(300)
315
(150)
Profit before taxation
Taxation
Profit after taxation
Dividends
150
(75)
75
(36)
165
(81)
84
(60)
39
36
75
24
12
36
Retained profit for year
Retained profit b/f
Retained profit c/f
Balance sheets
Fixed assets:
Land and buildings
Cost
Depreciation
2007
GH¢000
2006
GH¢000 GH¢000
2,100
1,500
(180)
(150)
1,920
Plant and machinery
Cost
Depreciation
1,350
(450)
1,350
900
(300)
900
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H¢000
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George Ekegey Ekeha
Financial Accounting (Practical Questions): Ghanaian Perspective
Other equipment
Cost
Depreciation
750
(360)
600
(240)
390
3,210
Current assets
Stocks
Debtors
Cash at bank and in hand
Creditors – Amounts falling due within one year:
Bank overdraft
Trade creditors
Taxation payable
Proposed dividends
360
2,310
192
180
45
417
111
120
60
291
138
63
75
36
(312)
78
36
81
60
(255)
Net current assets
Total current assets less current liabilities
Creditors – Amounts falling due after one year:
10% debentures
Capital and reserves: Share capital
Ordinary shares of GH¢1 each
8% redeemable preference shares of GH¢1 each
Profit and loss account
105
3,315
36
2,346
(900)
2,415
(450)
1,896
2,100
240
2,340
75
2,415
1,500
360
1,860
36
1,896
Notes
(1)
During 2007 some plant, which had cost GH¢250,000 and had been depreciated by
GH¢180,000, was sold for GH¢100,000.
(2)
Included in trade creditors is closing accruals for interest of GH¢20,000 (GH¢10,000 in
2006).
(3)
Included in trade creditors is a creditor for plant purchases of GH¢10,000.
Requirements
(a)
Prepare a cash flow statement, with notes, for the year ended 31 December 2007.
(b)
Using appropriate accounting ratios, compare the company‟s profitability and short term
liquidity for the years 2007 and 2006, and indicate what further information you would need
to back up your comments.
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Question 82: Gloria Suleman Ltd
The following are the balance sheets of Gloria Suleman Ltd at 31 December 2002 and 2001.
2002
2001
Fixed assets:
GH¢000 GH¢000
GH¢000 GH¢000
Land and buildings
70
60
Plant and equipment
40
50
110
110
Current assets:
Stock
77
61
Debtors
60
65
Cash at bank
28
14
165
140
Creditors falling due within one year
Creditors and accruals
Share capital
Ordinary GH¢1 shares
Profit and loss account
(100)
(70)
65
175
70
180
120
55
175
100
80
180
Requirement
Calculate for each year the current and quick ratios, and suggest reasons for the changes from 2001
to 2002.
Question 83: GeeBee Fashionable Trading Company Ltd
GeeBee Fashionable ltd is a retail trading company specialising in ladies‟ fashion-wear.
Detailed profit and loss accounts for the years ended 31 December 2004 and 2005 show the
following.
31 Dec 2004
31 Dec 2005
GH¢
GH¢
GH¢
GH¢
Sales
120,000
150,000
Opening stock
36,000
39,000
Purchases
83,000
136,000
119,000
175,000
Less closing stock
(39,000)
(62,500)
(80,000)
(112,500)
Gross profit
40,000
37,500
Less Wages and salaries
15,000
16,000
Rates
500
500
Telephone
240
260
Light and heat
400
420
Delivery van expenses
640
250
Repairs and renewals
320
1,000
Bank interest
42
125
Bank commission
45
52
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Audit fee
Loan interest
Bad debts
Legal charges
Depreciation
300
100
145
20
600
350
100
2,350
100
650
(18,352)
21,648
(22,157)
15,343
Requirement
Write a short report to the directors commenting on the results shown and the comparison with the
previous year.
Question 84: Brad Pitt’s Business Ventures
John Doe has provided his son, Brad Pitt, with all the capital required in the setting up of a business
on 1 April 2005 and its subsequent development. Brad has now produced the following
summarized accounts as a basis for discussing the progress of the business with his father.
Trading and profit and loss accounts
Year ended 31 March
2006
2007
GH¢000
GH¢000
Sales
100
140
Cost of sales
(60)
(90)
Gross profit
Less expenses
Net profit/Net (loss)
Fixed assets
Net current assets
Stock
Debtors
Bank balance/ (overdraft)
Less Creditors
Net capital employed
40
(32)
8
50
(51)
(1)
Balance sheets
At 1 April
2005
GH¢000
70
At31 March
2006
GH¢000
70
5
13
(3)
15
85
7
11
2
(5)
15
85
At 31 March
2007
GH¢000
80
8
24
(4)
(8)
20
100
Brad is keen for his father to increase the capital employed in the business and has drawn his
father‟s attention to the following matters revealed in the accounts.
(1)
A GH¢15,000 increase in net capital employed can be linked with a GH¢40,000 increase in
the sales during the past year.
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(2)
The rate of stock turnover during the past year has been 12 as compared with 10 in the
previous year.
(3)
The increase in fixed overheads last year is due to the renting of larger premises. However,
these new premises would be adequate for a turnover of GH¢200,000.
John Doe is not pleased with the results of his son‟s business. He can easily obtain employment
offering a salary of GH¢10,000 per annum and Brad Pitt can obtain 10% from a bank deposit
account.
Requirements
(a)
Calculate for each of the year‟s ended 31 March 2006 and 2007 four financial ratios which
draw attention to matters which could give John Doe cause for concern. State clearly the
formula or basis for each ratio used.
(b)
Outline three reasons for closing the business and one reason in favour of its continuance.
Question 85: Kantamanto Scrap Metal Merchants
Kantamanto, who carries on business as a scrap metal merchant, is seriously short of liquid funds.
He is unable to introduce further capital into the business from his own resources and the bank is
not willing to increase its present unsecured lending.
His draft balance sheet at 31 December 2001 was as follows.
GH¢
GH¢
GH¢
Fixed assets
Freehold premises at cost
8,000
Plant and machinery
4,000
12,000
Current assets
Stock
16,000
Debtors
6,000
22,000
Creditors: amounts falling due in less than one year
Bank overdraft (unsecured)
8,000
Trade creditors
4,000
(12,000)
10,000
22,000
Capital account
Balance at 1 January 2001
24,000
Net profit for the year
4,000
28,000
Less Drawings
(6,000)
22,000
Requirement
Write a short letter to Kantamanto commenting briefly on his position as shown by his balance
sheet and setting out five ways in which he might be able to improve the liquidity of the business.
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Question 86: Richard Branson Ltd
The following information has been extracted from the accounts of Richard Branson Ltd.
Profit and loss account for the year to 30 April 2006
2005
2006
GH¢000
GH¢000
Turnover (all credit sales)
7,650
11,500
Less Cost of sales
(5,800)
(9,430)
Gross profit
1,850
2,070
Other expenses
(150)
(170)
Loan interest
(50)
(350)
Profit after taxation
1,650
1,550
Taxation
(600)
(550)
Profit after taxation
1,050
1,000
Dividends (all ordinary shares)
(300)
(300)
Retained profits
750
700
Balance sheet at 30 April 2006
Fixed assets:
Tangible assets
Current assets:
Stocks
Trade debtors
Cash
Creditors- Amounts falling due within one year
Net current assets
Total assets less current liabilities
Creditors – Amounts falling due after more than one year:
Loans and other borrowings
Capital and reserves:
Called-up share capital
Profit and loss account
2005
GH¢000
2006
GH¢000
10,050
11,350
1,500
1,200
900
3,600
(2,400)
1,200
11,250
2,450
3,800
50
6,300
(2,700)
3,600
14,950
(350)
10,900
(3,350)
11,600
5,900
5,000
10,900
5,700
5,700
11,600
Additional information
During the year to 30 April 2006 the company tried to stimulate sales by reducing the selling price
of its products and by offering more generous credit terms to its customers
Requirements
(a)
Calculate six accounting ratios, specifying the basis of your calculations, for each of the two
years to 30 April 2005 and 2006 which will enable you to examine the company‟
(b)
From the information available to you, including the ratios calculated in part (a) of the
question, comment upon the company‟s results for the year to 30 April 2006 under the
heads of “profitability” and “efficiency”.
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Question 87: Dansoman Control Ltd
The summarized accounts of Dansoman Control Ltd for the year ended 31 December 2007 and 31
December 2006 are as follows.
Balance sheets
13 December 2007 31 December 2006
GH¢000
GH¢000
GH¢000
GH¢000
Ordinary shares of GH¢1 each fully paid
300
200
Share premium account
200
150
12% secured debentures (redeemable
on 31 December 2008)
100
100
Unsecured loan
25
35
Bank overdraft
40
Profit and loss reserves
243
230
Undistributable reserves
270
210
Creditors
102
105
Plant replacement reserve
80
60
1,360
1,090
Freehold land and buildings
Cost (2006) or valuation (2007)
Plant and machinery
Cost
Accumulated depreciation
190
130
240
90
110
40
150
350
80
590
1,360
Trade investment
Trade debtors
Current asset investments
Stock
Balance at bank
70
15
360
60
375
80
1,090
Profit and loss account
Sales
Trading profit
Surplus on disposal of trade investment
Debenture interest
Dividends paid
Plant replacement
31 December 2007 31 December 2006
GH¢000
GH¢000 GH¢000
GH¢000
2,200
2,000
220
12
180
20
Retained profit
200
5
12
153
20
(212)
13
(185)
15
There were no disposals of plant and machinery.
The bank has already indicated that the overdraft limit cannot be increased beyond GH¢40,000.
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Requirements
(a)
Prepare a cash flow statement for the year ended 31 December 2007
(b)
(c)
Outline three ways in which the liquidity position could be improved
Outline the possible advantages and disadvantages of each alternative.
Question 88: Kafui Akpoblu Diamonds Retailers
Kafui Akpoblu has been in retail business for some years as a quality jeweller.
Kafui is having trouble with his bank manager who is concerned at the fact that substantial business
bank balances at 31 July 2005 have been replaced by a bank overdraft at 31 July 2006. The
overdraft is secured by the business assets but the manager says that these assets are of adequate
value only for as long as the business remains a going concern. The overdraft is now at much the
same level as it was at 31 July 2006.
Kafui has tried to reassure the manager by telling him that despite a difficult year, gross profit
margin has been maintained and, by drastic economies, it has been possible to prevent any
substantial increases in overheads so that net profit for the year to 31 July 2006 has increased by
GH¢1,000 as compared with the figure for the previous year. The manager, who has the accounts
for the previous year, says that if this is the case he can only think that Kafui has substantially
increased his personal drawings from the business.
You are acting as Kafui‟s accountant and, although you are not yet in a position to complete the
accounts for the year to 31 July 2006, an approximate and reasonably reliable summary of the result
and position is as follows:
Trading summary
2005
GH¢
2006
GH¢
137,780
6420
97,080
103,500
7,950
GH¢
Sales
Opening stock
Purchases
7,950
112,910
Less Closing stock
120,860
17,260
(95,550)
42,230
(30,110)
GH¢
148,000
(103,600)
Gross profit
Expenses and depreciation
12,120
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44,400
(31,240)
13,160
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Financial Accounting (Practical Questions): Ghanaian Perspective
Balance sheet summary
2005
GH¢
Fixed assets
30,970 At cost
(15,360) Depreciation
15,610
Current assets
7,950 Stock
10,500 Debtors
Bank
1,230 Current account
8,000 Deposit account
2006
GH¢
35,680
(19,340)
16,340
17,260
17,110
2005
GH¢
29,610
12,120
41,730
(8,360)
33,370
3,830
6,090
-
43,290
50,710
2006
GH¢
Capital account
Opening balance
Net profit
Drawings
Loan account
Creditors due within
one year:
Trade creditors
Bank overdraft
43,290
33,370
13,160
46,530
(9,090)
37,440
-
8,450
4,820
50,710
Notes
(i)
Closing stock at the end of each year can be regarded as representative of average stock
carried during each year.
(ii)
No fixed assets were sold during the year.
(iii) Trade creditors include an amount of GH¢700 still outstanding in respect of the purchase of
fixed assets.
(iv)
For both current and previous year, sales accrued more or less evenly over the year.
Kafui gives you the following information.
(1)
For some years one of his main wholesalers supplied him with a substantial volume
of high-class bracelets and rings on a “sale or return” basis. The wholesaler‟s
business was taken over by a large group in August 2005 with the result that this
practice ceased. Kafui thinks that the loss of this facility has almost doubled the
value of his average stock.
(2)
In order to maintain the level of sales, Kafui has been forced to allow a longer period
of credit to the majority of his customers, all of whom have “cash flow” problems.
(3)
In September 2005 Kafui‟s brother Bibio died. Many years ago Bibio had lent the
business a substantial sum to help it over a bad period and had resisted Kafui‟s
recent attempts to pay off the balance of the loan as he “liked to retain some
interest”. However, when Bibio died Kafui was obliged to repay the outstanding
balance to the executors.
(v)
Kafui‟s shop front had remained unchanged for nearly fifty years. It looked out of place in
the modernized high street and GH¢4,000 was spent on a new front and showcase in July
2006. Kafui says that this improvement has helped trade, as sales in August 2006 showed a
very good increase over those for August 2005.
(vi)
As from 1 October 2006 Kafui has come to an arrangement with some of his major watch
and clock suppliers that they will guarantee delivery of small numbers of standard lines
within seven days of receipt of order. Kafui estimates that this will reduce his stock level by
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some GH¢3,500. He is also proposing to allow a cash discount to customers which should
reduce average debtors by about 10%.
Although he realizes that you will not be in a position for some two or three weeks to send the
accounts for the year ended 31 July 2006, Kafui has asked you to write now to the bank manager
“to get him out of my hair”.
Requirement
Write a letter to the bank manager of Windows Bank Ltd which;
(a)
Set out briefly the salient points of the trading results shown by the draft accounts for the
year ended 31 July 2006
(b)
Includes a concise, annotated cash flow statement explaining how the overdrawn situation
has arisen. Treat drawings as a return on investment.
(c)
Indicates the changes and the reasons for the changes, which have taken place in the ratios
relating to stock, debtors and current assets, and
(d)
Reassures the manager about the future of the business.
Question 89: Gee Marketing Ltd
The directors of Gee Marketing Ltd have presented you with the following summarized draft
accounts.
Balance sheets
31 October
2005
2006
GH¢000
GH¢000
Ordinary share capital (GH¢1 shares)
740
940
Profit and loss account
531
864
Share premium account
100
Loans
320
150
Trade creditors
152
141
Proposed dividends
140
170
Current taxation
470
602
Bank overdraft
766
2,353
3,733
31 October
1905
GH¢000
2006
GH¢000
Plant and machinery
Cost
Accumulated depreciation
2,700
(748)
3,831
(1,125)
Stock
Debtors
Cash at bank
1,952
203
147
51
2,706
843
184
-
2,353
3,733
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Profit and loss account for the year ended 31 October 2006
GH¢000
Profit before tax
Corporation tax
Profit after tax
Ordinary dividends:
Paid
Proposed
GH¢000
1,195
(602)
593
90
170
260
Retained profit
333
You further ascertain the following.
(1)
The only loan raised during the year was a five year bank loan amounting to GH¢65,000.
(2)
Depreciation charged during the year amounted to GH¢401,000.
(3)
During the year plant which originally cost GH¢69,000 was disposed of for proceeds of
GH¢41,000.
(4)
During the year the company offered 200,000 shares by way of rights to existing
shareholders.
The managing director has come to you with the following comment. “in spite of a record
trading profit of GH¢1,195,000 we ended up with an overdraft of GH¢766,000. I just cannot
understand it.”
Requirement
Write a letter to the managing director explaining the reason for the overdraft. Your answer should
include a cash flow statement.
Question 90: GBEWAA & Co Architectural Engineers
Gilbert, Gbelewu and Wagba are in practice as architects in a firm known as “GBEWAA & Co”.
On the night of 29 September 2005 there was a disastrous fire in their offices which virtually
destroyed all their past and present financial records. These had been primarily maintained on
diskettes which were not locked away in fire-proof cabinets.
Only two reports survived. One is a copy of a draft balance sheet at 31 August 2005 and the second
is a draft cash flow statement for the year ended 31 August 2005.
It is now important to reconstruct the firm‟s balance sheet at 31 August 2004, and you have been
asked to do this from the documents and information available, which are given in (a), (b) and (c)
below:
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(a)
Balance sheet at 31 August 2005
Fixed assets:
Cars
Equipment
Office furniture
Cost GH¢
Depn GH¢
48,000
36,500
19,600
15,000
11,475
10,920
33,000
25,025
8.680
104,100
37,395
66,705
Current assets
Stocks of stationery, etc
Work in progress
Debtors for fees
Cash at bank
GH¢
4,730
42,785
19,105
14,060
80,680
Less Creditors due within one year:
Trade creditors
Fees received in advance
26,200
14,200
(40,400)
40,280
106,985
Capital accounts:
Gilbert
Gbelewu
Wagba
10% Loan Account - Gilbert
Current accounts:
Gilbert
Gbelewu
Wagba
30,000
20,000
16,000
66,000
11,500
18,520
8,905
2,060
29,485
106,985
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(b)
Cash flow statement for the year ended 31 August 2005
GH¢
GH¢
Net cash inflow from operating activities (note 1)
Returns on investments and Servicing of finance
Interest paid (credited to Gilbert‟s loan account)
1,500
Drawings
39,515
Net cash outflow from returns on investments and servicing of finance
Investing activities:
Sale of car
13,000
Purchase of fixed assets:
Car
21,000
Equipment
6,500
Office furniture
3,600
(31,100)
Net cash outflow from investing activities
Net cash inflow before financing
Financing :
Capital introduced – Wagba
Repayment of loan – Gilbert
GH¢
68,625
(41,015)
(18,100)
9,510
6,000
(3,500)
Net inflow from financing
2,500
Increase in cash and cash equivalents
12,010
Notes to be cash flow statement
(1)
Reconciliation of operating profit to net cash inflow from operating activities
GH¢
49,500
20,395
5,755
(780)
(3,505)
(4,440)
1,700
Operating profit
Depreciation charge
Decrease in debtors
Increase in stocks
Increase in work in progress
Decrease in trade creditors
Increase in fees in advance
68,625
(2)
Analysis of changes in cash and cash equivalents during the year
Balance at 1 September 2004
Net cash inflow
(3)
GH¢
2,050
12,010
Balance at 31 August 2005
14,060
Other information
(i)
The firm „s profits are shared in the ratio of Gilbert 3, Gbelewu 2 and Wagba
1, after allowing a partner‟s salary of GH¢6,000 to Wagba. No interest is
allowed or charged on capital and current balances.
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(ii)
(iii)
(iv)
Cars and office furniture are depreciated at 20% of the assets in use at the
year-end, and equipment at 15% of cost of the assets in use at the year-end.
The car sold during the year cost GH¢18,000 and the sale gave rise to an
under provision for depreciation for of GH¢1,400) which was written off to
profit and loss
Cash drawings by partners were as follows.
GH¢
Gilbert
16,000
Gbelewu
14,550
Wagba
8,885
39,515
Requirement
Prepare a draft balance sheet at 31 August 2004 in the same format and with the same detail as the
balances sheet at 31 August 2005.
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REVISION QUESTIONS
Question 91: Bamboozer Ltd, Wholesale Groceries
(1)
(2)
(3)
(4)
(5)
Bamboozer Ltd was formed on 1 December 2006 to carry on business as wholesale grocers.
Proper accounts records have been maintained for trading transactions but all capital
receipts and some capital payments have been credited and debited to one account in the
computerized nominal ledger.
The balances standing on the company‟s computer records at 30 November 2007, after
preparation of a draft trading and loss account, are as set out below.
The following fixed assets were bought during the year.
Cost
Depn
GH¢
GH¢
GH¢
Freehold depots
240,000
11,250
Office and warehouse equipment
59,375
11,875
Vehicles
112,000
28,000
411,375
(51,125)
Total Written down value
360,250
Trading profit for the year after depreciation
299,325
Trade debtors
95,000
Creditors
55,675
Stocks at cost
195,444
Audit fee – payment on account
2,000
Provisional bad debt provision
1,500
Cash at bank
22,706 Dr
Capital receipts and payments account
319,500 Cr
Depreciation rates are based on the cost of assets in use at the year-end.
The share register has been written up properly and records of GH¢1 ordinary shares, issued
at a price of GH¢2 per share, as follows.
No. of shares issued
Thierry Akolatse
80,000
Jasinta Akolatse
30,000
Ransford Akolatse
15,000
Others
35,000
Authorized share capital is GH¢300,000 in GH¢1 ordinary shares.
Cash has been received for all shares issued with the following exceptions.
(i)
Thierry Akolatse has been issued with 10,000 of his 80,000 shares in recognition of
the goodwill attracting to his name after long experience in the trade.
(ii)
(6)
Ransford Akolatse owed GH¢5,000 in respect of his shares at 30 November 2007
but this was received in December 2007.
Preliminary and formation expenses totalled GH¢3,000 and this has been debited to the
capital receipts and payment account, together with an initial payment of GH¢1,400 and
three monthly instalments (out of twenty-four) of GH¢500 each on computers bought under
a hire purchase agreement, for receiving orders and rationalizing distribution. The
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computers, which can be classified as office equipment, had a cost excluding credit charges
of GH¢11,000.
(7)
The remaining credit balance on capital receipts and payments account represents moneys
lent to the company by Jasinta Akolatse carrying interest (not yet provided for) at 10% per annum
from 1 December 2006 and repayable on 1 January 2009.
(8)
Adjustments are also required for the following matters:
(i)
Directors‟ remuneration of GH¢55,000 of the year has been fixed but not yet paid or
provided for.
(ii)
The full audit fee for the year is GH¢4,600.
(iii)
The bad debt provision is to be adjusted to 1% of trade debtors.
(iv)
A dividend of 10p per share on all shares in issue is proposed.
(v)
Provision is to be made of GH¢56,850 for corporation tax.
Requirements
Prepare the profit and loss account for the year ended 30 November 2007 and balance sheet at that
date.
Question 92: JAK WAWAA and JJR BOOM Veterinary Services
(1)
John Akuffour Wawaa and John Jrakpata Boom, both former leaders of their various
Universities, are recently-qualified veterinary surgeons. From 1 October 2006 they‟ve been
in practice separately but sharing the same premises. The premises are rented by JJR
BOOM and it was agreed that JAK WAWAA should pay GH¢3,000 per annum for the use
of his surgery in JJR BOOM‟s premises.
(2)
On 30 September 2008 JAK WAWAA and JJR BOOM felt that they enjoyed a good
relationship and would therefore enter into partnership together retrospectively from 1
October 2007. You have been asked to prepare the partnership accounts. For the year ended
30 September 2008 JAK WAWAA and JJR BOOM have each prepared, from their
respective practice bank statements, a cash at bank account but neither has been able to
agree the closing bank balance with the balance shown by the bank statements.
(3)
Cash at bank accounts
JAK WAWAA
JJR BOOM
GH¢
GH¢
GH¢
GH¢
Capital introduced
4,000
5,000
Fees received
38,265
40,126
Premises
3,000
42,265
Drugs and other medical supplies purchased 5,269
Property costs – rent, rates, repairs, heat, etc 3,000
Receptionist – net salary (note (i))
3,200
Payments to Internal Revenue for receptionist‟s
PAYE and National insurance
1,000
Surgery equipment, furniture and fittings
4,562
Printing, stationery, tel. and office sundries
1,795
Travelling costs (note (ii))
3,784
Medical books and professional subscriptions
555
Drawings on account of profit
17,000
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48,126
4,978
6,455
3,200
1,000
5,983
1,973
4,128
678
18,500
George Ekegey Ekeha
Financial Accounting (Practical Questions): Ghanaian Perspective
Closing balance
(40,165)
(46,895)
2,100
1,231
Notes to the cash at bank accounts
(i)
The cost of the receptionist has been shared equally. Her gross salary for the year,
together with the employer‟s national Insurance contributions, totalled GH¢8,800.
(ii)
(4)
JAK WAWAA feels that 25% of his travelling costs represented private motoring
and JJR BOOM puts his percentage at 331/3 %.
You have now prepared bank reconciliation statements as given below.
Balances per ledger account
Less: Cheque for fees dishonoured on
presentation (irrecoverable)
Add Interest credited in bank accounts
Balances per bank statements
Less: Cheques drawn but not presented
Drug purchases
Property costs
JAK WAWAA
GH¢
2,100
JJR BOOM
GH¢
1,231
(1,220)
880
163
1043
214
1,445
(642)
401
(398)
(246)
801
Add: Fees banked but not yet credited
In bank statements
1,164
1,565
-
1,310
2,111
Notes
Interest credited is to be transferred to partners‟ current accounts.
At 30 September 2008 the separate bank accounts were closed off and a new joint
account opened.
At 1 October 2007 JAK WAWAA and JJR BOOM owned cars and equipment which have
been used in their practices. The agreed values at 1 October 2007 were as follows.
JAK WAWAA
JJR BOOM
Equipment
GH¢2,060
GH¢3,020
Motor cars
GH¢7,970
GH¢9,246
In the partnership accounts depreciation is to be provided
at 25% on car valuations
at 20% on the valuations plus additions of equipment, furniture and fittings in use at
the year-end
The outstanding figures at 30 September 2008, as supplied to you by JAK WAWAA and
JJR BOOM, were as follows.
JAK WAWAA
JJR BOOM
GH¢
GH¢
(i)
Debtors for fees
3,650
4,012
(ii)
Creditors for drugs
1,020
708
(iii)
Creditors for property costs
246
(iv)
Stocks of drugs and medical supplies, at cost
495
535
(iv)
Prepaid professional subscriptions
120
131
(i)
(ii)
(5)
(6)
(7)
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(8)
Notes
(1)
You discover that items (i), (ii) and (iii) have been arrived at by considering only the
figures of receipts and payments entered in the cash at bank accounts.
(2)
A provision of GH¢500 in respect of accountancy charges would be appropriate.
All the relevant figures relating to the two practices should be merged in arriving at the
partnership profit and in preparing the partnership balance sheet. It is agreed, however, that
the bad debt of GH¢1,220, although it is to be charged in the profit and loss account, is to be
borne 4/5 by JAK WAWAA and 1/5 by JJR BOOM, the necessary adjustment being made
through their current accounts.
(9)
The partnership agreement, to take effect from 1 October 2007, provides
for interest on capital at 10% per annum
for basic annual partnership salaries of GH¢9,000 for JAK WAWAA and
GH¢11,000 for JJR BOOM
for the balance of profit to be equally, and
for separate capital and current accounts to be maintained for each partner.
Requirements
(a)
Prepare the profit and loss account for the partnership for the year ended 30 September
2008.
(b)
Produce a partnership balance sheet at the date.
Question 93: Suame Magazine International Garages Conglomerate
(a)
(b)
(c)
(d)
Suame Magazine International was formed on 1 December 2007 to acquire several
businesses operating in the garage and car sales sector.
For the year ended 30 November 2008 a draft profit and loss account has been prepared, and
the balances remaining in the books after the drafts are set out in (c) below.
Balances at 30 November 2008
Reference to notes
Set out in (d) below
GH¢000
Suspense account
(i)
1,850
Trading profit
(ii)
940
Fixed assets
(iii)
1,360
Investments
(iv)
105
Stocks at cost
(v)
772
Trade debtors
(vi)
768
Trade creditors and accruals
695
Interim dividend paid
(vii)
40
Finance charges
178
Cash at bank
262
Notes to balances given (c) above
(i)
Suspense account
GH¢000
Combination of issued share capital (4,000,000 issued
25p shares at 45p each) and loans from directors
repayable on 1 January 2010
Less: Formation costs
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GH¢000
2,055
160
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Financial Accounting (Practical Questions): Ghanaian Perspective
Expenses of share issue
45
(205)
1,850
Trading has been arrived at before charging depreciation and finance charges, and before making
certain provisions.
Provision for fees and tax is to be made as follows.
GH¢000
Directors‟ fees
40
Auditors‟ fees
29
Corporation tax
128
(iii) Fixed asset details
GH¢000
Land and buildings at acquisition cost
760
Equipment at acquisition cost
250
Goodwill at acquisition cost
150
1,160
Equipment bought during the year
200
1,360
Land and buildings were revalued on 4 May 2008 at GH¢1m. The directors have
received the permission of the shareholders and the High Court that goodwill should
be written off immediately against revaluation reserve.
Depreciation is to be provided as follows on the valuation/cost of assets in use at the
year-end.
Land and buildings
at 10% per annum
Equipment
at 20% per annum
Investments must be written down to GH¢75,000 and shown under current assets.
Stocks at cost include two veteran cars.
Cost
Net realizable value
GH¢000
GH¢000
Car 1
75
126
Car 2
50
40
Debtors include GH¢65,000 for a Rolls Royce sold to a customer as a “veteran” car but
which has now proved to be a clever reproduction put together in 2001. The customer
wishes to keep the car but claims that the car‟s market value is GH¢25,000, and it is clear
that the company will have to accept this valuation. The customer has paid a deposit of
GH¢10,000.
The directors proposed a final dividend of 2.5p per share. The directors wish to maintain the
maximum permissible fund of distributable profits,
Requirement
Prepare a balance sheet of Suame Magazine International Garages at 30 November 2009.
Question 94: Logba Angry Lions Plc, Wholesaler of Alcoholic
Beverages
(a)
Logba Angry Lions plc trades as a wholesaler of wines, sprits, soft drinks, etc. for the year
ended 29 February 2008 a draft trading and profit and loss account has been prepared,
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subject to adjustment and a list of balances has been extracted from the books as shown in
(b) below.
(b)
List of balances at 29 February 2008
Share capital:
Authorized GH¢2m in GH¢1 ordinary shares fully
Issued (at 1 March 2007) GH¢1 ordinary shares fully paid
Retained profits at 1 March 2007
Profit per draft accounts for the year ended 29 February 2008
- before taxation and dividend
10% debentures issued 1 March 2007
Fixed assets (see (c))
Stocks at cost
Debtors (see (d))
Creditors – including value added tax
Taxation account – balance at 1 March 2007
Audit fee due for the year ended 28 February 2007
Proposed dividend for the year ended 28 February 2007
Cash at bank – nos. 1 and 2 accounts
Net debits on no 2 bank cash book – items not posted (see (e))
GH¢000
1,000
246
404
40
949
322
229
91
87
20
100
178
310
1,988
(c)
GH¢000
1,988
Fixed assets
(i)
A breakdown of the total figure is as follows.
GH¢000
Freehold premises at 29 February 2008
Land – cost
Buildings – cost and depreciation
Fittings, vehicles and equipment – cost and depreciation
GH¢000
450
330
480
100
211
1,260
(311)
311
949
(ii)
(iii)
(d)
The land valued at 29 February 2008 by Paabobo & Co, a chartered valuer, at GH¢420,000.
The decrease in value, thought to be permanent, is due to the adverse effect of planning
developments in the area.
Warehouse equipment costing GH¢50,000 was scrapped in January 2008 with a nil realised
value. The equipment still stands in the books at a nominal written down value of
GH¢2,000.
Debtors
The following are the details of debtors.
Trade debtors
Loans to managers - GH¢6,000 repayable on 1 January 2008,
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GH¢000
200
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Financial Accounting (Practical Questions): Ghanaian Perspective
GH¢8,000 on 1 February 2009 and GH¢12,000 on July 2009
Prepayments
26
3
229
(e)
No 2 bank account
This account is maintained for what are regarded as “special” items. An analysis is given below.
GH¢000
GH¢000
Payments
In final settlement of taxation for the year ended 28 February 2007
89
Audit fee for the year ended 28 February 2007
20
Debentures redeemed in full on 2 February 2008 at 12.5% premium
45
Directors‟ fees for the year ended 29 February 2008
112
Dividend for the year ended 28 February 2007 (see (f))
50
(316)
Receipts
Transfers from no 1 bank account
320
Loans repaid by managers
6
326
10
(f)
(g)
(h)
Dividend for the year ended 28 February 2007
Shareholders were given the option to take shares valued at GH¢2.50 each in lieu of cash
dividend. Under this option shares were issued in respect of 50% of the total dividend due,
and was payable in July 2007.
Goods on sale or return
A consignment of wines was received from a suppler on 15 February 2008 on “sale or
return” terms. The pro forma invoice (GH¢20,000 plus 17.5% VAT) was, in error, put
through the books as a normal purchases novice. At 29 February 2008 the goods were
included in stock at cost, but in March 2008 were sent back to the supplier as not being
acceptable.
Provisions
In addition to adjustments arising from the information given above, provision still has to be
made at 29 February 2008 for the following.
GH¢000
(i)
Audit fee
24
(ii)
Corporation tax
82
(iii)
Dividend of 10p per share on all shares in issue at 29 February 2008
(iv)
Doubtful debt provision equivalent to 1% of debtors (no opening provision)
Requirement
Prepare a computation of the final figure of retained profits at 29 February 2008 and a balance sheet
of the company at that date. Work to the nearest thousand cedis.
Note that the company wishes to maintain the maximum balance of distributable reserves.
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Question 95: GeeMarketing & Co, Partners in Furniture & Equipment
GeeMarketing & Co is a partnership business trading as retailers of garden furniture and
equipment. Because of the pressures of substantial expansion, financial accounts have not been
prepared for the past two years. Memorandum management accounts have however, been prepared
for each year.
A summary of the balances in the financial books is given below. At 31 July 2007 the ledger
accounts for sales, purchases, selling and administrative costs, and partners‟ drawings were ruled
off and the figures shown for the year ended 31 July 2008 are therefore those for the year itself and
not cumulative figures for the two years.
Year ended 31 July
2007
2008
GH¢
GH¢
Sales
325,880
894,650
Goods purchased
250,570
740,680
Trade debtors
48,240
84,250
Trade creditors
25,060
123,440
Selling and administrative costs
37,430
92,310
Fixed assets – accumulated cost
50,590
95,630
Cash at bank
35,450
64,440
Drawings by partners
20,000
50,000
Stock at cost at 1 August 2006
24,260
Depreciation of fixed assets - accumulated balance
at 1 August 2006
Partners‟ accounts (three partners) – total balance
at 1 August 2006
15,600
100,000
The following additional information is available.
(a)
Closing stocks, at cost, are
2007
GH¢30,420
2008
GH¢55,380
(b)
Depreciation is to be charged as follows.
2007
GH¢10,120
2008
GH¢19,130
(c)
At each year-end there were no creditors for selling and administrative costs.
(d)
For the last trading period of ach year (twelve weeks) sales and purchases were
Sales
Purchases
2007
GH¢96,480
GH¢75,180
2008
GH¢337,000
GH¢269,600
The figures of trade debtors and trade creditors at each year-end can be taken as being part
of the sales and purchases for the last trading period.
(e)
Mr Gee, the senior partner, has made the following comments.
(1)
“My partners and I are, of course, gratified by the very substantial increase in
turnover which has been achieved in the year ended 31 July 2008. We feel that this
has been due to a number of factors, which include:
(i)
considerable efforts made by our sales staff
(ii)
keener terms offered to customers
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(iii)
(iv)
(2)
(3)
the fact that residents in our trading areas seem to have become more “garden
conscious”
the obtaining of certain municipal contracts.
We do not understand, however, the apparent drop in gross profit percentage which
is shown by the management accounts and which will presumably be reflected also
in the financial accounts. We do not think that there has been any material change in
the type of goods sold. I know that in July 2007 the prices throughout the range of
goods we buy increased by 15%, and prices then remained relatively stable during
2007/08. However, this should not have affected gross profit percentage as
immediately the increases came into force we increased selling prices by the
additional cost. For example, when the cost of a garden table increased from
GH¢200 to GH¢230, I ensured that the selling price of the table was also increased
by GH¢30. I suppose the decrease in profit percentage is due partly to the
considerable increase in the volume of sales, and partly to the increase in the
inventories of stock held at the year-end. However, the management accounts show
that the net profit percentage has apparently not decreased as substantially as the
gross profit percentage.
We are worried, despite the increase in sales, by the rise in the figure of debtors at 31
July 2008 as compared with the end of the previous year, and in view of the
considerable increase in the value of stock inventories we are also concerned about
our rate of stock turnover.
The fact that our bank balance at 31 July 2008 is larger than it was at 31 July 2007 is
due presumably to the fact that the cash flowing from profit was more than sufficient
to cover the increase in stock and debtor inventories, to finance the substantial
purchases of showroom and distributive equipment, and to allow for increased
drawings by partners.”
Requirement
Write a report to Mr Gee which incorporates a summarized trading and profit and loss account for
the year ended 31 July 2008 and a balance sheet at that date, together with comparative figures for
the year ended 31 July 2007. The report should comment, with percentages, ratios and figures as
necessary, on the validity of the three observations made by Mr Gee and should also include any
other comments – together with requests for further information – which you feel to be essential.
Question 96: Desmond and Tootoo Dental Practices
Desmond and Tootoo are dentists working in the private sector. On 1 October 2007 they took the
lease of an Accra property to be shared by them for the purposes of their separate practices.
The terms of their agreement are set out below.
(a)
They would contribute equally to the initial property costs.
(b)
Thereafter, all communal property costs would be paid by Desmond but would be borne
equally between them. Tootoo would make appropriate monthly payments on account to
Desmond, with a balancing payment immediately after each year-end.
(c)
In consideration of the work involved in accounting for the communal costs, Tootoo could
bear two-fifths of Desmond‟s accountancy charges.
(d)
Communal property costs are defined as:
(i)
rent and rates;
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(ii)
(iii)
(iv)
(e)
heat, light and telephone;
cleaning and maintenance;
gross salary of receptionist, together with employer‟s National Insurance
contributions;
and are to be accounted for on an accruals basis
Subject to the terms set out above, each dentist would have his own surgery and would carry
on his practice quite independently.
You are acting for Desmond and are now required to complete his accounts for the year 30
September 2008. The relevant information is set out below:
(i)
Initial property costs
GH¢
Renovations
16,000
Architect‟s fees
1,880
Furniture for reception office and waiting room
4,500
Rates to 1 April 2008
2,870
25,250
(ii)
Trail balance extracted from Desmond’s books at 30 September 2008
GH¢
Desmond – capital introduced
Fees receivable
Salaries – net payments
Receptionist
4,304
Desmond‟s dental nurse
5,060
Payments t Internal Revenue – PAYE and National
Insurance
5,555
Share of initial property costs
12,625
Payments to finance company
5,880
Debtors for fees billed
5,240
Rates – to 1 October 2008
3,660
Rent – one year
18,000
Cleaning and maintenance
4,086
Received on account from Tootoo
Medical supplies and services of dental technicians
6,910
Heat, light and telephone
3,120
Desmond – drawings
12,000
Bank balance
1,250
87,690
(iii)
GH¢
16,000
55,190
16,500
87,690
Details of salaries
Gross salary
Per annum
Receptionists
GH¢
6,250
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Employer’s
National
Insurance
Per annum
GH¢
762
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Financial Accounting (Practical Questions): Ghanaian Perspective
Desmond‟s dental nurse
(iv)
7,500
915
Equipment bought by Desmond for his surgery – details of hire purchase agreement
dated 30 September 2007
GH¢
Cost of equipment
7,800
Deposit paid
(3,000)
4,800
Financing charges
960
Balance
5,760
Balance to be settled by twenty-four equal monthly instalments of GH¢240.
(v)
Desmond’s creditors at 30 September 2008
GH¢
Heat, light and telephones – total amount
510
Medical supplies
1,875
Accountancy charges – total bill
600
Internal Revenue – for PAYE and National Insurance
to be calculated
(vi)
Work in progress
Desmond has computed the cost of work performed for patients but not yet billed at
GH¢3,760.
(vii) Depreciation, etc
Surgery equipment - to be depreciation at 25% per annum
Furniture
- to be depreciation at 20% per annum
Desmond feels that his share of renovations (including architects‟ fees) should be spread
over the first three of his practice.
Requirement
Prepare Desmond‟s profit and loss account for the year ended 30 September 2008 together with a
balance sheet at the date.
Question 97: Confidence Foofoo’s Restaurateurs
Regina and Reynold Confidence are in partnership as restaurateurs. The restaurant, trading as
“Confidence Foofoo‟s Brasserie” occupies rented premises, and the financial year under review
ended on 31 October 2007.
There is a service charge of 10% to all bills. Some customers add further amounts or even cash
(which is handed in by employees). In order to save bookkeeping, a compromise agreement has
been reached with employees to the effect that all takings as recorded shall be deemed to include
gratuities of 12.5%. Periodical distributions of deductions from distributions of the gratuity pool are
made and at Christmas 2006, as a wages bonus, the business added GH¢3,000 to the pool.
Distributions are included in PAYE records, when made, and the total of deductions from
distributions during the year per records was GH¢12,060. At 31 October 2006 the pool had been
fully distributed. This was not the case on 31 October 2007. Gross wages for the year totalled
GH¢88,625 with employer‟s National Insurance contributions of GH¢8,015.
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The pairs are generous supporters of the National Football and in June 2007 they donated to a CAN
2008 Tournament bazaar, as raffle prizes, 100 vouchers entitling each winner to a free meal at the
restaurant of a retail value of GH¢40 per voucher if vouchers were presented by 31 December 2007.
It is estimated that the cost of the meal offered to voucher holders is GH¢20. By 31 October 2007
60% of the vouchers had been redeemed. From past experience the pairs know that in all 90% of
the vouchers are likely to be presented. The cost of this gift should be shown in the accounts as a
transfer from “cost of sale” to “donations”.
The partnership agreement does not provide for interest on capital or partners‟ salaries but, as chef,
Regina is entitled to a partner‟s “bonus” of 3% of gross profit (sales less direct cost of food and
drink sold) and Reynold, who manages the dining room, is entitled to a “bonus” of 5% of net profit
after charging Regina‟s “bonus”, but before charging any hygiene and fire items listed below/ the
balance of profits is shared: Regina 40%, Reynold 60%.
Stocks of foodstuffs and alcohol at 31 October 2007, at cost, totalled GH¢22,955.
Alterations to the premises costing GH¢5,800 have been carried out to meet recommendations
made by visiting fire and hygiene inspectors. This cost, not yet paid or provided for, is to be written
off over two years in equal instalments and borne by the partners equally.
Current accounts for partners are not maintained. Depreciation is provided on cost of assets at the
following rates, time apportioned for period of ownership
Kitchen equipment – 20%
Furniture and fittings – 15%
No depreciation has yet been charged for the current year.
The trial balance extracted from the books at 31 October 2007 is set out below.
GH¢
Foodstuffs and alcohol
Stocks at cost at 1 Nov 2006
Purchasers during the year
Wages paid – net
Payments to Internal Revenue for
PAYE and SSNIT
Distribution (net) made out of
Gratuities pool
Property costs – rent, rates, heat,
light, repairs, etc
Advertising
Laundry
Credit card charges
Secretarial agency charges and
Office expenses
Sundry restaurant expenses
Debtors at 31 Oct 2007
Kitchen equipment
Cost at 1 Nov 2006
19,493
325,982
72,199
32,604
45,666
55,781
5,687
4,198
2,795
GH¢
Takings inclusive of gratuities
649,440
Due to Internal Revenue at
1 Nov 2006 for PAYE and SSNIT 3,865
Creditors at 31 Oct. 2007
22,191
Accumulated depreciation at
I Nov 2006
Kitchen equipment
13,918
Furniture and fittings
8,364
Partners‟ accounts at 1 Nov 2006
Regina Confidence
19,640
Reynolds Confidence
21,190
5,777
2,110
3,900
45,600
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Additions on 1 May 2007
Furniture and fittings
Cost at 1 Nov 2006
Cutlery, crockery, linen, utensils, etc
Cost at 1 Nov 2002
Purchased during year
Replacements
Additional items
Drawings on account
Regina Confidence
Reynold Confidence
Bank balance
6,500
25,400
20,100
4,622
3,250
15,250
17,750
23,944
738,608
738,608
Requirements
(a)
(b)
Prepare the trading and profit and loss account for the year ended 31 October 2007.
Prepare the balance sheet at 31 October 2007.
Question 98: KINGDOM Furniture Assemblies
KINGDOM Ltd imports self-assembly furniture for resale to retailers and direct to the public.
During the year ended 31 December 2003 the company‟s bookkeeper was injured in an accident.
Due to his absence on convalescence, only the personal ledgers and the cash book were maintained.
You have been provided with the following available information.
(1)
The balance sheet of KINGDOM Ltd as on 31 December 2002 is as follows.
Cost
GH¢
Depn
GH¢
25,000
142,000
21,405
24,690
27,500
11,214
18,690
25,000
114,500
10,191
6,000
213,095
57,404
155,691
Current assets:
Stock
Debtors
Balance at bank
Cash in hand
237,423
195,115
7,048
2,150
441,736
Creditors: amounts falling due within one year
Trade creditors
Proposed dividend payable 20 June 2003
247,903
12,050
Fixed assets
Land
Buildings
Fixtures and fittings
Motor vehicles
259,953
GH¢
181,783
337,474
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Creditors: amounts falling due after one year
Debenture stock
(100,000)
237,474
Share capital
Ordinary shares of 50p
10% preference shares
150,000
10,000
Profit and loss account
160,000
77,474
237,474
(2)
During the year ended 31 December 2003 the following trading transactions took place.
Cash sales
Receipts from debtors
Payment for purchases of goods
Overhead expenses paid
Wages and salaries paid
Debenture interest paid 29 June 2003
(3)
(4)
(5)
GH¢
427,042
1,007,401
928,213
207,410
204,111
5,000
Depreciation, on the trading balance method, is to be provided at annual rats of 4% on the
buildings, 15% on the fixtures and fittings and 25% on the motor vehicles.
On 1 June 2003 the company acquired a van on hire purchase under terms which provided
for the payment of a deposit of GH¢1,000 and 24 monthly instalments of GH¢200,
commencing on 30 June 2003. The cash price of the van was GH¢5,200. The only other
movement in fixed assets was the scrapping of the old van which originally cost GH¢1,960
and had accumulated depreciation on the date of disposal of GH¢1,699.
On 31 December 2003
(i)
(ii)
(iii)
(iv)
stock had a cost of GH¢247,628
debtors amounted to GH¢189,400
creditors amounted to GH¢258,107
cash in hand amounted to GH¢1,945
(6)
On 30 June 2003, following payment of the half-year‟s interest, the debenture stock was
redeemed at a discount of 14%.
(7)
The dividend on the preference shares was paid during the year, and a final dividend of 12p
per ordinary share is to be provided.
Requirements
(a)
Prepare cash and bank accounts for the year ended 31 December 2003.
(b)
Prepare the trading and profit and loss account for internal use for the year ended 31
December 2003 giving as much information as possible to management.
Notes are not required although a reserves movement note should be included.
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Question 99: Alongay’s Double Glazing
Alongay is a double-glazing salesman based in Cape Coast and is currently reviewing his business
results for the year ended 31 December 2005. He is comparing them with those of Class Glass Ltd,
a company engaged in the same trade.
The chairman of Class Glass Ltd receives an annual salary of GH¢12,000 for duties very similar to
those performed by Alongay in his business. Summaries of the accounts for 2005 for Alongay
(trading under the name “Long‟s Amazing Glazing”) and Class Glass Ltd are as follows.
Trading and profit and loss accounts for the year ended 31 December 2005
Long’s Amazing
Turnover
Less Cost of sales
Gross profit
Administrative expenses
Sales and distribution expenses
Debenture interest
Net profit
Fixed assets
Current assets
Stock
Debtors
Balance at bank
Glazing
GH¢000
90
(48)
42
12
15
(27)
15
Balance sheets as at 31 December 2005
Long‟s Amazing
Glazing
GH¢000
60
Class
Glass
Ltd
GH¢000
150
(80)
70
37
25
3
(65)
5
Class
Glass
GH¢000
50
28
22
6
56
56
69
10
135
Creditors falling due within one year
Trade creditors
(16)
(25)
Net current assets
40
110
100
160
Capital account
Ordinary share capital
Retained earnings
10% debenture stock
100
100
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80
50
160
George Ekegey Ekeha
Financial Accounting (Practical Questions): Ghanaian Perspective
Requirement
Write a letter to Alongay in which you
(a)
Calculate five appropriate ratios comprising the financial position and results of Long‟s
Amazing Glazing with those of Class Glass Ltd and briefly comment on each ratio
(b)
Outline three distinct reasons why a comparison of the amount of profit earned by different
business should be approached with great care.
Use fictitious names and addresses if possible.
Question 100: Amfic Yingor’s Garages
You have just met Amfic Yingor in the pub. He has a small garage business and his accountant has
just finished preparing the accounts for his first year of trading. He says that he cannot understand
all the fuss made about balance sheets and accounts, for “all that really matters is how much money
there is in the bank”.
Requirement
Prepare notes for a meeting with Amfic later in the week which include
a list of those likely to use Amfic Yingor‟s accounts
an explanation of the reasons for preparing balance sheet
a response to Amfic‟s comments that “all that really matters is how much money there is in
the bank”.
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