Institute of Chartered
Accountants – Ghana (ICAG)
Paper 1.1
Financial Accounting
Final Mock Exam 1
Question paper
Time allowed
3 hours
Instructions:
Answer any FIVE of the seven questions provided.
DO NOT OPEN THIS PAPER UNTIL YOU ARE READY TO START UNDER
EXAMINATION CONDITIONS
ii
Final Mock Exam: Questions
Financial Accounting
The Institute of Chartered Accountants – Ghana
First edition 2015
ISBN 9781 4727 2834 0
All rights reserved. No part of this publication
may be reproduced, stored in a retrieval system
or transmitted, in any form or by any means,
electronic, mechanical, photocopying, recording
or otherwise, without the prior written
permission of BPP Learning Media Ltd.
Published by
BPP Learning Media Ltd
BPP House, Aldine Place
London W12 8AA
www.bpp.com/learningmedia
©
The Institute of Chartered Accountants –
Ghana 2015
Final Mock Exam 1: Questions
Answer any FIVE of the seven questions provided
Question 1
NF, OR and PN decide to dissolve their partnership on 1 December 20X6 after being in business for many
years. The statement of financial position of the partnership as at 30 November 20X6 was as follows:
NF, OR AND PN
STATEMENT OF FINANCIAL POSITION AS AT 30 NOVEMBER 20X6
Assets
Non-current assets
Furniture and fittings
Motor vehicles
Current assets
Inventory
Receivables
Bank
GHS
GHS
100,000
70,000
170,000
50,000
84,000
12,000
146,000
316,000
Capital and liabilities
Partners' capital accounts
NF
OR
PN
90,000
60,000
30,000
180,000
Partners' current accounts
NF
OR
PN
Loan
Current liabilities
Payables
Total capital and liabilities
19,500
14,900
12,600
47,000
36,000
53,000
316,000
Additional Information
(i)
The partnership agreement states that NF, OR and PN share profits and losses in the ratio 3:2:1.
(ii)
The furniture and fittings were sold for GHS97,600.
(iii)
Only GHS79,800 of outstanding receivables was recovered.
(iv)
The payables were settled for GHS50,880.
(v)
It was agreed between the partners that PN could take a motor vehicle at a valuation of GHS18,000
in addition to his share of the profit. The motor vehicle had a carrying amount of GHS16,000. The
other motor vehicles were sold for GHS59,000.
(vi)
The inventory was sold for GHS55,500.
(vii)
The loan was repaid in full on 1 December 20X6.
(viii) There were no outstanding interest payments on the loan.
(ix)
Expenses incurred in dissolving the partnership were GHS2,000.
Required
Prepare the following accounts on dissolution:
(a)
(b)
(c)
Partners' accounts
Realisation account
Cash and bank account
(4 marks)
(10 marks)
(6 marks)
(Total = 20 marks)
1
2
Final Mock Exam 1: Questions
Question 2
You are presented with the following summarised accounts for FR, a limited liability company.
FR
Statement of comprehensive income for the year ended 31 May 20X5
GHS'000
320
(200)
120
(70)
50
(10)
40
(20)
20
Revenue
Cost of sales
Gross profit
Distribution & administrative expenses
Profit from operations
Finance cost
Profit before tax
Tax expense
Net profit for the period
FR
Statement of financial position as at 31 May 20X5
GHS'000
Assets
Non-current assets
Current assets
Inventory
Trade receivables
Cash and bank
Total assets
Equity and liabilities
GHS'000
300
90
50
10
Stated capital
Income surplus
150
450
200
60
260
Non-current liabilities
10% loan notes
Current liabilities
Trade payables
Taxation
100
70
20
90
450
Total equity and liabilities
The ratio values for FR for 20X3 and 20X4, as well as the current average ratio values for the industry sector
in which FR operates, are as follows:
Ratio
Return on capital employed (%)
Gross profit percentage (%)
Net profit percentage (%)
Quick/acid test ratio
Receivables collection period (days)
Historical data
20X3
20X4
16.2
14.7
30.4
34.7
19.3
17.7
1.5:1
1.1:1
32.0
44.0
Industry average
20X5
16.2
32.3
17.3
1.5:1
35.0
Required
(a)
Calculate the following ratios for FR for the year ended 31 May 20X5. State clearly the formulae used
for each ratio.
(i)
(ii)
(iii)
(iv)
(v)
Return on capital employed
Gross profit percentage
Net profit percentage
Quick/acid test ratio
Receivables collection period
(9 marks)
Final Mock Exam 1: Questions
(b)
Using the additional information given and the ratios you calculated in part (a), write a brief report on
the financial performance of FR. Indicate in your report what additional information might be useful to
help interpret the ratios.
(11 marks)
(Total = 20 marks)
Question 3
The following information has been extracted from the draft financial statements of SD, a limited liability
company.
SD
Statement of financial position as at 31 May
GHS'000
Assets
Non-current assets
Current assets
Inventory
Trade receivables
Bank
Total assets
20X5
GHS'000
GHS'000
20X4
GHS'000
9,200
1,160
720
0
1,880
11,080
5,400
1,000
460
340
1,800
7,200
Equity and liabilities
Stated capital
Income surplus
Non-current liabilities
10% Loan note (redeemable 31 May 20X5)
Current liabilities
Trade payables
Taxation
Bank overdraft
Total equity and liabilities
900
360
116
7,600
2,104
9,704
5,040
940
5,980
0
200
1,376
11,080
730
290
0
1,020
7,200
Additional Information
(i)
The statement of profit or loss for the year ended 31 May 20X5 shows the following:
Operating profit
Interest payable
Profit before taxation
Taxation
Profit for year
GHS,000
2,084
(20)
2,064
(360)
1,704
(ii)
During the year dividends paid were GHS540,000.
(iii)
Profit before taxation had been arrived at after charging GHS1,400,000 for depreciation on noncurrent assets.
(iv)
During the year non-current assets with a carrying amount of GHS400,000 were sold for
GHS360,000.
Required
Prepare a statement of cash flows for SD for the year ended 31 May 20X5 in accordance with IAS 7, using
the indirect method.
(20 marks)
3
4
Final Mock Exam 1: Questions
Question 4
(a)
Explain two reasons for carrying out a bank reconciliation, and identify two items which may appear
in the reconciliation statement.
(4 marks)
(b)
WL is preparing his bank reconciliation at 31 May 20X5. His bank statement shows a balance of
GHS456 cash at the bank. The balance on the bank account in his general ledger is GHS226 (credit).
He has noted the following reasons for the difference.
(1)
Cheque number 958602 was incorrectly recorded in WL's cash book as GHS760. The cheque
was correctly debited on the bank statement on 2 May as GHS670.
(2)
Bank charges of GHS766 were debited by the bank on 4 May.
(3)
A customer's cheque for GHS640 was returned by WL's bank in May as the customer had
insufficient funds in his account. WL has not recorded the return of the cheque in his records.
(4)
The bank has incorrectly credited WL's account with interest of GHS440. This is interest on a
deposit account held by WL personally. The bank had not corrected the error by 31 May.
(5)
A lodgement of GHS1,700 entered in WL's cash book on 31 May was credited on the bank
statement on 3 June.
(6)
Five cheques have not yet been presented at the bank. These are:
Cheque No.
956784
956892
958452
958541
958668
(7)
GHS
1,250
652
938
244
174
3,258
see note (7)
Cheque number 956784 was lost in the post and was cancelled. WL has not recorded the
cancellation of the cheque.
Required
(i)
Show WL's general ledger bank account including the necessary correcting entries. (NB You
MUST present your answer in a format which clearly indicates whether each entry is a debit or
credit.)
(7 marks)
(ii)
Prepare a reconciliation of the bank statement balance to the corrected general ledger balance.
(7 marks)
(c) Indicate how the bank balance will be reported in WL's final accounts.
(2 marks)
(Total = 20 marks)
Final Mock Exam 1: Questions
Question 5
(5 marks)
(a)
Explain the advantages and disadvantages of being a sole proprietor.
(b)
You have been asked to advise JB, a sole proprietor, on the accounting treatment of certain
transactions which he feels might affect his financial statements for the year ended 31 December
20X5. The matters on which he would like your advice are set out below.
(i)
The business paid for an advertising campaign during the year at a cost of GHS5,600. It is
estimated by JB that this will lead to an overall increase in sales of 15%. Half of this increase
was achieved in 20X5 and the other half is expected to be achieved in 20X6.
(4 marks)
(ii)
JB took inventory costing GHS1,000 from the business at the end of the year for his own use.
He removed the inventory on 31 December 20X5 after the year-end inventory count had taken
place. No adjustment was made to the inventory balance to take account of this action.
(4 marks)
(iii)
During the year an item of office equipment, which had a written down value of GHS1,700,
was accidentally dropped out of the window during an office party and destroyed. The asset
has been written out of the books of the business. The insurance company has refused to meet
the cost of the loss. The solicitors of the business are currently pursuing the matter through the
courts and say that the company has a reasonable chance of success.
(4 marks)
(iv)
JB has put his own house up as security for a loan made by the bank to his business. The loan
was made specifically for the business and not for the personal use of JB.
(3 marks)
Required
Advise JB on the accounting treatment of these transactions in his financial statements for the year ended
31 December 20X5. Explain your treatment, where relevant, by reference to accounting concepts and
International Financial Reporting Standards.
(Total = 20 marks)
Question 6
(a)
Identify, and briefly explain, the basic accounting principle which requires prepayments to be included
in final accounts.
(3 marks)
(b)
Briefly explain the purpose of the depreciation charge in the statement of profit or loss.
(2 marks)
(c)
A trainee in your office has prepared draft accounts for a client for the year to 31 March 20X5, but
has not dealt with the adjustments for accrued expenses, prepaid expenses, irrecoverable debts,
allowance for receivables and depreciation.
Following the preparation of the statement of profit or loss, the trainee prepared the statement of
financial position shown below. You have been asked to complete the final accounts.
Draft statement of financial position as at 31 March 20X5 (before adjustments)
GHS
Non-current assets
Equipment at cost
Accumulated depreciation (at 1 April 20X4)
Current assets
Inventory
Trade receivables
Bank account
Proprietor's capital
Current liabilities
Trade payables
350,000
(170,800)
84,678
298,822
12,560
GHS
179,200
396,060
575,260
402,140
173,120
575,260
5
6
Final Mock Exam 1: Questions
The trainee has given you the following information about the remaining adjustments:
(1)
The last invoice received for electricity covered the three month period to 31 January 20X5.
The invoice was for GHS13,740.
(2)
Rent of GHS57,000 for the six months to 30 June 20X5 was paid in January.
(3)
The trade receivables figure of GHS298,822 is stated after deducting the existing allowance for
receivables of GHS15,800 from the total trade receivables balance of GHS314,622.
(4)
The total trade receivables balance of GHS314,622 includes a balance of GHS1,320 which
has been outstanding for eight months. The client has decided to write off this balance.
(5)
The client's policy is to allow for receivables on the basis of the length of time the debt has
been outstanding. The aged analysis of trade receivables at 31 March 20X5 and the required
allowance is shown below:
Age of debt
0–30 days
31–60 days
Over 60 days
(6)
Balance
GHS
250,550
54,400
9,672
314,622
Allowance required
Nil
20% of balances
75% of balances
Depreciation is to be provided at a rate of 20% per annum on the diminishing balance basis.
Required
Calculate the correct balance at 31 March 20X5 for each of the following:
(i)
(ii)
(iii)
(iv)
(d)
(2
(2
(3
(2
Accrued expenses;
Prepaid expenses;
Allowance for receivables; and
Accumulated depreciation
Prepare the corrected statement of financial position as at 31 March 20X5.
marks)
marks)
marks)
marks)
(6 marks)
(Total = 20 marks)
Question 7
AT Co compiles its financial statements to 30 June annually. At 30 June 20X9, the company's trial balance
was as follows:
GHS'000
GHS'000
Sales revenue
14,800
Purchases
8,280
Inventory at 1 July 20X8
1,390
Distribution costs
1,080
Administration expenses
1,460
Land at valuation
10,500
Building:
Cost
8,000
2,130
Accumulated depreciation at 1 July 20X8
Plant and equipment: Cost
12,800
Accumulated depreciation at 1 July 20X8
2,480
Trade receivables and payables
4,120
2,240
Cash at bank
160
Stated capital: Ordinary shares as at 1 July 20X8
12,000
issued during year
6,000
Capital surplus as at 1 July 20X8
Income surplus
10% loan notes (redeemable 20X8)
(issued 1 April 20X9 with interest payable 31 March and 30
September each year)
3,000
3,140
47,790
2,000
47,790
Final Mock Exam 1: Questions
The following matters remain to be adjusted for in preparing the financial statements for the year ended 30
June 20X9:
(a)
(b)
Inventory at 30 June 20X9 amounted to GHS1,560,000 at cost. A review of inventory items revealed
the need for some adjustments for two inventory lines.
(i)
Items which had cost GHS80,000 and which would normally sell for GHS120,000 were found
to have deteriorated. Remedial work costing GHS20,000 would be needed to enable the items
to be sold for GHS90,000.
(ii)
Some items sent to customers on sale or return terms had been omitted from inventory and
included as sales in June 20X9. The cost of these items was GHS16,000 and they were
included in sales at GHS24,000. In July 20X9 the items were returned in good condition by
the customers.
Depreciation is to be provided as follows:
Buildings
Plant and equipment
2% per year on cost
20% per year on cost
Eighty per cent of the depreciation is to be charged in cost of sales, and 10% each in distribution
costs and administrative expenses.
(c)
The land is to be revalued to GHS12,000,000. No change was required to the value of the buildings.
(d)
Accruals and prepayments were:
Distribution costs
Administrative expenses
Accruals
GHS'000
190
70
Prepayments
GHS'000
120
60
Required
(a)
Prepare the company's statement of profit or loss and comprehensive income for the year ended 30
June 20X9 and statement of financial position as at that date for publication, complying with the
provisions of International Financial Reporting Standards.
(20 marks)
7
8
Final Mock Exam 1: Questions
Notes
Notes