IA – JULY 2020 – L1 – Q1 – Transaction Analysis and Manufacturing Account

Analyze the effects of given transactions on the accounting elements of a mining company using a table format and prepare the manufacturing section of the accounts from extracted balances.

Question

a. On March 1, 2020, KOFI CHINA opened a small-scale mining business in the Atswea Forest. Kofi China was the sole owner of the Company, which he named GALAMSEY LIMITED. During the first month of its operations in March 2020, GALAMSEY LIMITED engaged in the following transactions:

GALAMSEY LIMITED received cash of GHS 4,000,000 from Kofi China as initial capital.
The Company paid GHS 200,000 cash to the Traditional Council for the mining concession leased to it.
The business paid GHS 2,000,000 cash to acquire excavators and other mining trucks.
The business purchased supplies of various mining materials costing GHS 680,000 on credit.
The business produced and sold its first gold and received GHS 300,000 cash.
The business sold another batch of gold for GHS 400,000. The client agreed to pay in April 2020.
The business paid GHS 80,000 cash toward the supplies of various materials purchased in Transaction 4.
The business paid employee salaries of GHS 100,000 in cash.
Kofi China withdrew GHS 150,000 cash for his personal use.
The business collected GHS 260,000 from the client in Transaction 6.
Kofi China collected GHS 10,000 cash from the business for his personal groceries.

You are required to: Analyze the above transactions in terms of their effects on the accounting of GALAMSEY LIMITED.

Note: Use the following table. (T represents Transaction; Bal. represents Balance)

	Assets					Liabilities	Owner’s Equity
	Cash	Debtors	Stocks	Leasehold	Vehicles	Creditors	Capital
T 1	+4,000						+4,000
Bal.	4,000						4,000
T 2
Bal.
T 3
Bal.
…

(In GHS’000)

(10 marks)

b. The following balances were extracted from the books of CONSOLIDATED LIMITED for the year ended September 30, 2019.

	GHS		GHS
Stock (October 1, 2018):		Depreciation:
Raw Materials	105,500	Plant & Machinery	10,000
Finished Goods	347,000	Motor Van	8,000
Work-in-Progress	76,000	Sales	1,800,000
Purchases – Raw Materials	227,000	Wages	254,500
Motor Vehicle Expenses	11,000	Rent & Rates	35,000
Factory Expenses	50,000	Salaries	65,000
Selling Expenses	6,800	Administrative Expenses	700,000
Market Value of Goods Produced	0

Additional Information:

25% of Rent and Rates is for the office.
30% of Salaries is for the Foreman’s Salaries in the factory.
Stocks as at September 30, 2019:

a. Raw materials GHS 87,700

b. Finished goods GHS 320,000

c. Work-in-Progress GHS 65,000.

You are required to: Prepare CONSOLIDATED LIMITED Manufacturing section only of the Manufacturing, Trading, and Profit and Loss Accounts for the year ended September 30, 2019.

(10 marks)

Total Marks – 20

Answer

a. Analysis of transactions for GALAMSEY LIMITED (in GHS’000):

	Assets					Liabilities	Owner’s Equity
	Cash	Debtors	Stocks	Leasehold	Vehicles	Creditors	Capital
T 1	+4,000						+4,000
Bal.	4,000	0	0	0	0	0	4,000
T 2	-200			+200
Bal.	3,800	0	0	200	0	0	4,000
T 3	-2,000				+2,000
Bal.	1,800	0	0	200	2,000	0	4,000
T 4			+680			+680
Bal.	1,800	0	680	200	2,000	680	4,000
T 5	+300		-150*				+150*
Bal.	2,100	0	530	200	2,000	680	4,150
T 6		+400	-200*				+200*
Bal.	2,100	400	330	200	2,000	680	4,350
T 7	-80					-80
Bal.	2,020	400	330	200	2,000	600	4,350
T 8	-100						-100
Bal.	1,920	400	330	200	2,000	600	4,250
T 9	-150						-150
Bal.	1,770	400	330	200	2,000	600	4,100
T 10	+260	-260
Bal.	2,030	140	330	200	2,000	600	4,100
T 11	-10						-10
Bal.	2,020	140	330	200	2,000	600	4,090

*Assumed cost of goods sold for simplicity (e.g., 50% of sales as cost from stocks), as exact cost not given; in practice, based on inventory valuation (IAS 2). Transactions like sales increase equity via profit, decrease stocks. Withdrawals reduce equity. This demonstrates the business cycle in a Ghanaian mining context, where leaseholds are key assets under IFRS.

(10 marks)

b. CONSOLIDATED LIMITED Manufacturing Account for the year ended September 30, 2019 (GHS):

Description	GHS	GHS
Opening Stock Raw Materials	105,500
Add: Purchases Raw Materials	227,000
Less: Closing Stock Raw Materials	(87,700)
Raw Materials Consumed		244,800
Add: Direct Labour (Wages 254,500 + Foreman’s Salaries 30% of 65,000 = 19,500)		274,000
Prime Cost		518,800
Add: Factory Overheads
Factory Expenses	50,000
Depreciation Plant & Machinery	10,000
Rent & Rates Factory (75% of 35,000 = 26,250)	26,250
Motor Vehicle Expenses (assume factory)	11,000	97,250
Factory Cost		616,050
Add: Opening WIP	76,000
Less: Closing WIP	(65,000)
Cost of Goods Manufactured		627,050

Notes: Rent & Rates factory 75% (100% – 25% office). Foreman’s salaries added to direct labour. Market Value of Goods Produced is 0, so not used. This aligns with IAS 2 for inventory and manufacturing costs in Ghanaian context.

(10 marks)

Tags: Accounting Equation, Effects on Assets Liabilities Equity, Manufacturing Account Preparation, Transaction Analysis
Level: Level 1

Topic: The Business Cycle
Series: JULY 2020

Uploader: Samuel Duah