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FA – L1 – Q92 – Preparation of accounts from incomplete records

Calculate sales for Iridescent's business for 20X9 using incomplete records and a 40% mark-up

Question

Iridescent is a sole trader. She does not keep a full set of accounting records but does keep some records of transactions and documents. She has asked you to prepare her accounts for the year ended 31 December 20X9.
You have been given a list of the assets and liabilities of the business at the start and end of the year.

Assets and liabilities

	At 1 Jan 20X9	At 31 Dec 20X9
	GH₵000	GH₵000
Trade receivables	5,500	6,100
Trade payables	2,800	3,500
Inventory	10,400	?

Iridescent has no idea what her inventory value was at 31 December as she did not count or value her inventory at the year end.
She has also given you a summary of her bank statements for the year.

Summary of bank statements

	Receipts		Payments
	GH₵000		GH₵000
1 Jan	Balance b/d	1,620	To suppliers
Bankings		65,400	For expenses
			Living expenses
			31 Dec Balance c/d

You have also been able to gather the following information from Iridescent:
i) Iridescent banks her takings from the till each week but before doing so pays GH₵50,000 to her employees and takes GH₵30,000 herself. The business operates for 50 weeks each year.
ii) The till always has a cash float of GH₵100,000.
iii) The sales of the business are both cash and credit sales and are all made at a mark-up of 40%.

Required:
(a) Calculate sales for the year.

(b) Calculate the value of the closing inventory at 31 December 20X9.

Answer

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Tags: Closing Inventory, Incomplete records, Mark-up, Payables, Sole Trader
Level: Level 1

Topic: Preparation of accounts from incomplete records

FA – L1 – Q91 – Inventory

Calculate closing inventory given sales, purchases, opening inventory, and a 25% mark-up.

Question

(a) A business makes all of its sales at a mark-up of 25%. During the year sales totalled GH¢98,000 and purchases were GH¢71,000. The inventory at the start of the year was valued at GH¢10,200.

What was the value of the closing inventory at the end of the year?

(b) A business has the following assets and liabilities at the start and end of March.

	1 March	31 March
	GH¢	GH¢
Trade receivables	6,100	7,400
Trade payables	3,900	3,500

The summarised bank statements for the year showed the following figures:

Bankings for the year were GH¢78,500
Payments to suppliers for the year were GH¢49,700
The owner banks her takings from the till each month but before doing so in March she took GH¢5,000 for her own use.

What are the sales for the year?

(c) An accountant has prepared the following list of the assets and liabilities of a business, but has forgotten to enter the cash balance.

	GH¢
Trade payables	4,900
Inventory	9,300
Non-current assets	98,900
Capital	97,200
Bank loan	15,700
Receivables	16,800
Bank

What is the missing figure for ‘Bank’?

Answer

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Tags: Bankings, Drawings, Financial accounting, Sales, Trade Payables, Trade Receivables
Level: Level 1

Topic: Sales and Purchases

FA – L1 – Q90 – Preparation of not-for-profit accounts

Explain the IFRS Foundation and list two objectives.

Question

(a) What is the International Financial Reporting Standard (IFRS) foundation? Mention two (2) objectives of the foundation.

(b)(i) The following information relate to “Hope Rising” Youth Club for the accounting period of 20X9.

Subscription owing for 20X9	GH₵
Payable for end of year party	3,000
Payables for repairs – equipment	2,000
Payables for repairs – vehicle	1,000

Payments	GH₵
Vehicle running expenses	6,000
Electricity expenses	3,000
End of year party expenses	10,000
Salaries and wages	25,000
Printing and stationery	3,000
Cleaning expenses	6,000

Receipts	GH₵
Car park renting	10,000
Sales of party tickets	6,000
Donation from friends of the club	15,000
Subscription received: 20X8	6,000
Subscription received: 20X9	30,000

Additional Information:
(i) Cash in hand as at 01/01/20X9: GH₵18,000
(ii) Subscription owing as at 01/01/20X9: GH₵8,000
(iii) Any subscription outstanding is written off in the following year if it is not paid.

You are required to prepare:
(i) Receipts and payments account for the year ended 31st December, 20X9.

(ii) Subscription account

(iii) Income and expenditure for the year ended 31st December, 20X9

Answer

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Tags: Financial Statements, Income and expenditure, Not-for-profit accounts
Level: Level 1

Topic: Preparation of not-for-profit accounts

MA – L2 – Q52a – Relevant Cost and Revenue

Advise whether Okonku Enterprises should discontinue Double bed production based on contribution and profit impact.

Question

Okonku Enterprises produces Single, Double, and King size beds for sale to hotels in West Africa. Its manufacturing plant is located in Keta and is currently producing at 100% capacity. Below is the annual output and sales for each product and the associated costs.

Product	Single bed	Double bed	King Size
Units sold	5,000 units	3,500 units	4,000 units
Sales	GH₵ 2,500,000	GH₵ 2,800,000	GH₵ 3,800,000
Cost
Material cost	750,000	1,400,000	1,520,000
Labour costs	600,000	1,050,000	1,200,000
Manufacturing O’head	200,000	650,000	300,000
Administrative cost	200,000	100,000	200,000
Total cost	1,750,000	3,200,000	3,220,000
Profit /Loss	750,000	(400,000)	580,000

The Director of Okonku is of the view that the product Double bed is not doing well and must not be produced any longer. The following additional information has been provided.
(i) 40% of the labour cost for all bed types are fixed costs.
(ii) 50% of the manufacturing overhead is variable costs for all products.
(iii) 80% of the administrative cost is fixed.

Required:
(a) Advise whether the company should shut down the production of Double beds.

(b) Should the company accept the new order assuming Double beds will still be produced?

Answer

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Tags: Contribution Analysis, decision making, fixed costs, Hotel Industry, Manufacturing costs, Product Discontinuation, Profit Impact, Relevant Cost, Short-Term Decisions, variable costs
Level: Level 2

Topic: Relevant cost and revenue

FA – L1 – Q89 – Preparation of not-for-profit accounts

Prepare the bar trading account for KNUST Social Club for the year ended 31 December 20X8 using provided receipts and payments data.

Question

The KNUST Social Club prepares its accounts annually on 31st December. The receipts and payments account for the year ended 31st December 20X8 was prepared by the treasurer as follows:

	GH¢		GH¢
Balance b/d	7,000	Caretaker’s wages	18,000
Subscriptions received		Heating and lighting	4,000
for the year: 20X7	600	Insurance	1,000
20X8	13,500	Bar payables	22,000
20X9	1,100	Dinner dance expenses	1,000
Dinner dance ticket sales	1,800	Equipment purchases	12,000
Bar takings	55,000	Bar staff wages	16,000
Donations	2,500	Savings account	3,000
Sale of equipment	450	Balance c/d	18,350
	81,350		81,350

The following additional information is available:
(i) The equipment sold during the year was valued in the books at GH¢600 as at 1st January 20X8. The club’s policy is to provide a full year’s depreciation in the year of purchase but none in the year of sale.
(ii) The savings account (short term) pays a fixed rate of interest of 5% per annum. An additional amount of GH¢400 was paid into the account on 1st July 20X8. There were no withdrawals made during the year. Interest due on 31st December 20X8 has not been received.
(iii) The remaining assets and liabilities of the club at the beginning and end of the year were:

	1st January 20X8	31st December 20X8
	GH¢	GH¢
Clubhouse	230,000	230,000
Equipment	26,000	25,200
Bar inventory	2,000	2,400
Savings account	2,000	2,400
Insurance prepaid	100	80
Subscriptions owing	180	160
Subscriptions in advance	800	300
Bar payables	700	1,000
Bar staff wages owing	2,400	1,400
Cash at bank	7,500	8,700

(iv) All subscriptions due for the year 20X7, but unpaid on 31st December 20X7, are considered to be irrecoverable debts.
(v) Bar staff wages are the only expense to be charged to the bar trading account.

Required:
(a) Prepare the bar trading account for the year ended 31st December 20X8.

(b) Prepare the income and expenditure account for the year ended 31st December 20X8.

Answer

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Tags: Accumulated fund, Assets, Financial Statements, Liabilities, Not-for-profit, Statement of Financial Position
Level: Level 1

Topic: Preparation of not-for-profit accounts

MA – L2 – Q51 – Decision Making Techniques

Determine the optimal plant hire contract for Terra Works Ltd using expected value based on sales probabilities.

Question

Terra Works Limited is a company that is engaged in site clearance and site preparation work. Information about its operations is as follows:
(1) It is Terra Works Limited’s policy to hire all the plant and machinery it needs rather than to purchase its own plant and machinery.
(2) Terra Works Limited will enter into an advance hire agreement contract for the coming year at one of three levels – high, medium, or low – which correspond to the requirements of a high, medium, or low level of orders obtained.
(3) The level of orders obtained will not be known when the advance hire agreement contract is entered into. Probabilities have been estimated by management as to the likelihood of the orders being at a high, medium, or low level.
(4) Where the advance hire agreement entered into is lower than that required for the level of orders actually obtained, a premium rate must be paid to obtain the additional plant and machinery required.
(5) No refund is obtainable where the advance hire agreement for plant and machinery is at a level in excess of that required to satisfy the site clearance and preparation orders actually obtained.
A summary of the information relating to the above points is as follows:

Level of Sales orders	Probability	Revenue GH¢000	Variable costs GH¢000	Plant and machinery hire costs
				Advance GH¢000	Conversion GH¢000
High	0.25	15,000	10,500	2,300	1,500
Medium	0.45	8,500	5,950	1,500	850
Low	0.30	4,000	2,800	1,000	–
Low to medium					850
Medium to high					1,300
Low to high					2,150

Required:
(a) Prepare a table showing the outcomes for each decision and outcome combination.
(b) Prepare a pay-off matrix and determine the advance hire contract that maximizes the expected value.

Answer

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Tags: Contract management, Cost Management, decision making, Expected value, Pay-off matrix, Plant hire, Probability, Resource Allocation
Level: Level 2

Topic: Decision making techniques

FA – L1 – Q88 – Preparation of not-for-profit accounts

Prepare income and expenditure account and statement of financial position for XY Healthcare Co Sports and Social Club for 20X9, including subscriptions and inventory adjustments.

Question

You have agreed to take over the role of bookkeeper for the XY Healthcare Co Sports and Social Club.
The summarised statement of financial position on 31 December 20X8 as prepared by the previous bookkeeper contained the following items.

Assets	GH₵
Heating oil for clubhouse	700
Shop and cafe inventories	5,000
New sportswear, for sale, at cost	4,000
Used sportswear, for hire, at valuation	1,000
Equipment for groundsman
Cost	10,000
Depreciation	(2,000)
Subscriptions due	200
Bank
Current account	800
Deposit account	20,000
Capital and liabilities	GH₵
Accumulated fund	29,200
Payables
Shop and cafe inventories	600
Sportswear	900

The bank account summary for the year to 31 December 20X9 contained the following items.

Receipts	GH₵
Subscriptions	11,000
Bankings
Shop and cafe	10,000
Sale of sportswear	6,000
Hire of sportswear	4,500
Interest on deposit account	400

Payments	GH₵
Rent and repairs of clubhouse	6,000
Heating oil	4,000
Sportswear	4,500
Grounds person	9,000
Shop and cafe purchases	9,000
Transfer to deposit account	3,000

You discover that the subscriptions due figure as at 31 December 20X8 was arrived at as follows.

Subscriptions due	GH₵
Subscriptions unpaid for 20X7	10
Subscriptions unpaid for 20X8	230
Subscriptions paid for 20X9	(40)

Corresponding figures at 31 December 20X9 are:

Subscriptions due	GH₵
Subscriptions unpaid for 20X7	10
Subscriptions unpaid for 20X8	20
Subscriptions unpaid for 20X9	90
Subscriptions paid for 20X0	(200)

Subscriptions due for more than 12 months should be written off with effect from 1 January 20X9.

Asset balances at 31 December 20X9 include:

Assets	GH₵
Heating oil for clubhouse	700
Shop and cafe inventories	5,000
New sportswear, for sale, at cost	4,000
Used sportswear, for hire, at valuation	1,000
Closing payables at 31 December 20X9 are for:
Shop and cafe inventories	800
Sportswear	450
Heating oil for clubhouse	200

Two thirds of the sportswear purchases made in 20X9 had been added to inventory of new sportswear in the figures given in the list of assets above, and one third had been added directly to the inventory of used sportswear for hire.
Half of the resulting ‘new sportswear for sale at cost’ at 31 December 20X9 is actually over two years old. You decide, with effect from 31 December 20X9, to transfer these older items into the inventory of used sportswear, at a valuation of 25% of their original cost.
No cash balances are held at 31 December 20X8 or 31 December 20X9. The equipment for the grounds person is to be depreciated at 10% per annum, on cost.

Required:
Prepare the income and expenditure account and statement of financial position for the XY Healthcare Co Sports and Social Club for 20X9.

Answer

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Topic: Preparation of not-for-profit accounts

FA – L1 – Q87 – Preparation of not-for-profit accounts

Prepare income and expenditure account and statement of financial position for Sankofa Hockey Club for the year ended 30 June 20Y0 using provided cash transactions and asset details.

Question

The Sankofa Hockey Club does not have any formal accounting records but the following information is available.

(1) The payments that have been made by the club for the year ending 30 June 20Y0 are as follows:

Description	GH¢(000)
Purchase of second hand table tennis table	250
Rent	600
Tea stall purchases	980
Annual fair expenses	1,450
Outings expenses	370
Prizes for whist evenings	190
Repairs to snooker table	110
Refreshments at social evenings	180

(2) The club’s income, apart from annual subscriptions, is as follows:

Description	GH¢(000)
Contributions to outings	300
Takings at the annual fair	2,150

The club also runs a tea stall in the community park every Sunday in the summer months. This sells tea and coffee, cakes, biscuits, and ice creams, etc. The profit margin on the tea stall is normally 20% of selling price.

(3) All the club’s transactions are in cash, but if there are any surplus funds, they are banked in a local bank account. The balance on the bank account was GH¢30,000 at 1 July 20X9.

(4) The club has an annual subscription rate of GH¢20,000 per annum per person or GH¢50,000 per annum for a family membership. Members are asked to pay their subscription in July at the beginning of the club’s accounting year.

There are 10 family members of the club. Of these, two paid their 20Y0 subscription in June 20X9, and all the rest were received before 30 June 20Y0.

No individual members had paid their 20Y0 subscriptions in advance, but at 30 June 20Y0, four members still owed their subscriptions. They had been contacted, and all four had promised to pay at the next evening social event. There are in total 80 individual members.

(5) The club has the following other assets and liabilities:

Description	1 July 20X9 (GH¢(000))	30 June 20Y0 (GH¢(000))
Sports equipment	2,560	–
Inventory for the tea stall	110	190
Payables for the tea purchases	100	–
Prepayment of rent	50	50

(6) The sports equipment is all depreciated at 20% per annum on carrying amount on the basis of the equipment held at 30 June each year.

(7) The old table tennis table was sold during the year for GH¢40,000. Its value as recorded by the club at 30 June 20X9 was GH¢30,000.

You are required to prepare an income and expenditure account for the year ended 30 June 20Y0 and a statement of financial position at that date.

Answer

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Tags: Cash Transactions, Depreciation, Income and expenditure account, Not-for-profit accounts, Statement of Financial Position, Subscriptions, Tea stall profit
Level: Level 1

Topic: Preparation of not-for-profit accounts

MA – L2 – Q50 – Pricing Strategies

Calculate prices for simplified Product Z using full cost-plus and budgeted profit pricing policies for Nexco Industries.

Question

Nexco Industries Limited makes Product Z in department C. For the year commencing 1 January Year 7, the following budget has been formulated for department C:

	GH¢000
Direct costs
Materials	60
Labour	40
	100
Production overheads	100
Full production cost	200
Administrative and marketing overheads	50
Full cost of sale	250
Profit	50
Revenue (see note)	300

Note: This revenue is from budgeted sales of 20,000 units.
Production overheads are absorbed on the basis of 100% of direct costs. However, half of these costs are fixed, and the other half are variable. It is assumed that they vary with the cost of materials.
The administrative and marketing overheads are based on 25% of factory costs and do not vary within wide ranges of activity. A profit margin of 20% is applied to the full cost of sale. This also results in a price that appears to be fair to customers.
Halfway through the year to 31 December Year 7, it became clear that actual sales of Product Z would be 25% below budget. At about the same time that this shortfall in sales became evident, a customer asked about buying 5,000 units of a simplified version of Product Z. If Nexco Industries Limited were to produce this simplified model for the customer, the direct material and labour costs would be lower. It is estimated that materials costing GH¢12,000 and direct labour of GH¢8,000 would be required to produce the 5,000 units. As the production could take place within the firm’s existing capacity, fixed costs would not be affected.

Required:
(a) Calculate the prices that Nexco Industries Limited should quote to the customer for each unit of the simplified product, assuming that the following pricing policies are applied:
(i) Full cost plus pricing, on the current basis.
(ii) A price that would enable the company to achieve its original budgeted profit.

(b) Give your advice on the price that should be quoted to the customer.

Answer

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Tags: Budgeted profit, Cost-plus pricing, Overhead absorption, Pricing, Profit Margin, Selling price, variable costs
Level: Level 2

Topic: Decision making techniques

FA – L1 – Q86 – Preparation of not-for-profit accounts

Prepare income and expenditure account and statement of financial position for Sunridge Golf Club for the year ended 31 March 20X9.

Question

The treasurer of the Sunridge Golf Club has prepared the following receipts and payments account for the year ended 31 March 20X9.

	N₦(000)
Balance at 1 April 20X8	682	Functions	305
Subscriptions	2,930	Repairs	65
Functions	367	Telephone	67
Sale of land	1,600	Extension of club house	600
Bank interest	60	Furniture	135
Bequest (legacy)	255	Heat and light	115
Sundry income	46	Salary and wages	2,066
		Sundry expenses	110
		Balance at 31 March 20X9	2,520
	5,940		5,940

(a) Subscriptions received included N₦65,000 which had been in arrears at 31 March 20X8 and N₦35,000 which had been paid for the year commencing 1 April 20X9.
(b) Land sold had been valued in the club’s books at cost N₦500,000.
(c) Accrued expenses

	31 March 20X8 N₦(000)	31 March 20X9 N₦(000)
Heat and light	32	40
Salaries and wages	12	14
Telephone	14	10
Total	58	64

(d) Depreciation is to be charged on the original cost of assets appearing in the books at 31 March 20X9 as follows:

Buildings: 5%
Fixtures and fittings: 10%
Furniture: 20%

(e) The following balances are from the club’s books at 31 March 20X8:

Land at cost: N₦4,000,000
Buildings at cost: N₦3,200,000
Buildings allowance for depreciation: N₦860,000
Fixtures and fittings at cost: N₦470,000
Fixtures allowance for depreciation: N₦82,000
Furniture at cost: N₦380,000
Furniture allowance for depreciation: N₦164,000
Subscriptions in arrears (including N₦15,000 irrecoverable – member had emigrated): N₦80,000
Subscriptions in advance: N₦30,000

Required:
Prepare an income and expenditure account for the year ended 31 March 20X9 and a statement of financial position as at that date.

Answer

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Tags: Accruals, Adjustments, Club accounting, Depreciation, Financial Statements, Income and expenditure, Non-profit organizations, Not-for-profit, Statement of Financial Position, Subscriptions
Level: Level 1

Topic: Preparation of not-for-profit accounts

Program (SQ): PROFESSIONAL PROGRAM

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FA – L1 – Q92 – Preparation of accounts from incomplete records

Calculate sales for Iridescent's business for 20X9 using incomplete records and a 40% mark-up

FA – L1 – Q91 – Inventory

Calculate closing inventory given sales, purchases, opening inventory, and a 25% mark-up.

FA – L1 – Q90 – Preparation of not-for-profit accounts

Explain the IFRS Foundation and list two objectives.

MA – L2 – Q52a – Relevant Cost and Revenue

Advise whether Okonku Enterprises should discontinue Double bed production based on contribution and profit impact.

FA – L1 – Q89 – Preparation of not-for-profit accounts

Prepare the bar trading account for KNUST Social Club for the year ended 31 December 20X8 using provided receipts and payments data.

MA – L2 – Q51 – Decision Making Techniques

Determine the optimal plant hire contract for Terra Works Ltd using expected value based on sales probabilities.

FA – L1 – Q88 – Preparation of not-for-profit accounts

Prepare income and expenditure account and statement of financial position for XY Healthcare Co Sports and Social Club for 20X9, including subscriptions and inventory adjustments.

FA – L1 – Q87 – Preparation of not-for-profit accounts

Prepare income and expenditure account and statement of financial position for Sankofa Hockey Club for the year ended 30 June 20Y0 using provided cash transactions and asset details.

MA – L2 – Q50 – Pricing Strategies

Calculate prices for simplified Product Z using full cost-plus and budgeted profit pricing policies for Nexco Industries.

FA – L1 – Q86 – Preparation of not-for-profit accounts

Prepare income and expenditure account and statement of financial position for Sunridge Golf Club for the year ended 31 March 20X9.

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Calculate sales for Iridescent's business for 20X9 using incomplete records and a 40% mark-up

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Calculate closing inventory given sales, purchases, opening inventory, and a 25% mark-up.

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Explain the IFRS Foundation and list two objectives.

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Advise whether Okonku Enterprises should discontinue Double bed production based on contribution and profit impact.

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Prepare the bar trading account for KNUST Social Club for the year ended 31 December 20X8 using provided receipts and payments data.

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Determine the optimal plant hire contract for Terra Works Ltd using expected value based on sales probabilities.

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Prepare income and expenditure account and statement of financial position for XY Healthcare Co Sports and Social Club for 20X9, including subscriptions and inventory adjustments.

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Prepare income and expenditure account and statement of financial position for Sankofa Hockey Club for the year ended 30 June 20Y0 using provided cash transactions and asset details.

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Calculate prices for simplified Product Z using full cost-plus and budgeted profit pricing policies for Nexco Industries.

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Prepare income and expenditure account and statement of financial position for Sunridge Golf Club for the year ended 31 March 20X9.

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