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  • 15 Marks

MA – L2 – Q46 – Decision making techniques

Compute Ouluto Limited's net profit for February 20X9 based on the optimum product mix, given resource constraints and cost data.

Ouluto Limited (OUL) is engaged in the manufacture and sale of three products viz. WBA, QPR and SC. The following information is available from OUL’s records for the month of February 20X9:

WBA QPR SC
Sales price per unit (GH₵) 2,300 1,550 2,000
Material cost per Kg. (GH₵) 250 250 250
Labour time per unit (Minutes) 20 30 45
Machine time per unit (Hours) 4 2.5 3
Net weight per unit of finished product (Kg.) 6 4 5
Yield (%) 90 95 92
Estimated demand (Units) 10,000 20,000 9,000

Each worker is paid monthly wages of GH₵15,000 and works a total of 200 hours per month. OUL’s total overheads are estimated at 20% of the material cost.
Fixed overheads are estimated at GH₵5 million per month and are allocated to each product on the basis of machine hours. 100,000 machine hours are estimated to be available in February 20X9.
Required:
Based on optimum product mix, compute OUL’s net profit for the month of February 20X9.

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  • 20 Marks

FA – L1 – Q78 – Preparation of Partnership accounts

Prepare capital accounts and statement of financial position for M, N, O partnership after O's retirement and T's admission, adjusting for goodwill and revaluations.

M, N, and O are partners sharing profit in the ratio of their capitals. Their statement of financial position at June 30, 20X9 was as follows:

Statement of financial position as at June 30, 20X9

Assets GH₵
Land and building 450,000
Motor cars 350,000
Equipment 95,000
Inventories 500,000
Receivables 400,000
Less: Allowance (60,000)
340,000
Investments 300,000
Cash in hand 65,000
Cash at bank 450,000
Total Assets 2,550,000

Capital and Liabilities GH₵
Capital:
M 640,000
N 320,000
O 480,000
1,440,000
Payables and accrued expenses 485,000
Loan from N 625,000
Total Capital and Liabilities 2,550,000

On July 1, 20X9, O retired. His share of the net assets of the partnership was ascertained after taking into account the following adjustments:
(i) The allowance against receivables was to be adjusted to 10% of the book value of the receivables.
(ii) Inventories were to be written down by 5%.
(iii) The investments were revalued to their market value which was GH₵ 435,000.
(iv) Investments with a market value of GH₵ 160,000 were taken over by O.
(v) A motor car having a book value of GH₵ 150,000 was taken over by O for GH₵ 200,000.
(vi) O’s share of goodwill was agreed at GH₵ 216,000.

T was admitted as a partner on the same day that O retired and on the basis of the adjusted statement of financial position. He was given one-fourth share in the profits and he bought a proportionate share of capital and goodwill by paying cash into the business. The basis of valuation of goodwill for the purpose of admission of T as a partner was the same as at the time of O’s retirement.

M and N have decided that the cash paid in by T in respect of goodwill will be taken out of the business by them in their profit-sharing ratio.

Required:
Prepare capital accounts of the partners in columnar form and the statement of financial position of the firm as at July 1, 20X9 after the admission of T, assuming that goodwill is not retained in the books of account.

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  • 20 Marks

FA – L1 – Q77 – Preparation of Partnership accounts

Prepare partnership accounts for X and Y Dental Practice admitting a new partner, including goodwill valuation and capital adjustments.

X and Y are partners in a dental practice who share profits and losses in the ratio of 3:2. Their statement of financial position as on June 30, 20X9 is as follows:

Assets GH¢
Non-current assets 2,625,000
Investments 437,500
Long term receivables 875,000
Current assets 1,750,000
Total Assets 5,687,500

Capital and liabilities GH¢
Capital account:
X 1,050,000
Y 700,000
Total Capital 1,750,000
Long term loans 1,750,000
Current liabilities 2,187,500
Total Capital and Liabilities 5,687,500

They agree to admit Z as a new partner with effect from July 1, 20X9 on the following terms and conditions:

(i) The goodwill of the firm is to be valued at 2 years’ purchase of the average profits of the firm for the last three years GH¢ (This means that the average annual profit over the last three years is to be multiplied by 2). The profits over the last three years are as follows:

  • Year ended June 30, 20X7: GH¢675,000
  • Year ended June 30, 20X8: GH¢(700,000)
  • Year ended June 30, 20X9: GH¢1,000,000

(ii) Goodwill will not appear in the books of the firm.

(iii) Z will bring in cash amounting to GH¢1,460,000 which includes his share of goodwill in the firm.

(iv) Assets of the firm were agreed to be revalued as follows:

  • Non-current assets (net of depreciation): GH₵3,100,000
  • Long term receivables: GH₵875,000
  • Current assets: GH₵1,575,000

Investments will be taken over equally by Smith and Jones at their fair market value of GH₵400,000.

(v) The new profit sharing ratio is to be 7:5:8.

Required:
(a) Prepare the following ledger accounts:

  • Revaluation account
  • Partners’ capital accounts

(b) Prepare the opening statement of financial position of the new firm as on July 1, 20X9.

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  • 20 Marks

MA – L2 – Q45 – Decision making techniques

Compute units of each product for Image Solutions to maximize profit and calculate contribution at optimal mix, considering machine hour constraints.

Image Solutions Limited deals in various products. Relevant details of the products are as under:

PW PX PY PZ
Estimated annual demand (units) 5,000 10,000 7,000 8,000
Sales price per unit (GH¢) 150 180 140 175
Material consumption:
R (kg) 2 2.5 1.5 1.75
T (kg) 0.5 0.6 0.4 0.65
Labour hours 2 2.25 1.75 2.5
Variable overheads (based on labour cost) 75% 80% 100% 90%
Fixed overheads per unit (GH¢) (based on 80% capacity utilisation) 10 20 14 16
Machine hours required:
Processing machine hours 5 6 8 10
Packing machine hours 2 3 2 4

Company has a long term contract for purchase of material R and T at a price of GH¢ 15 and GH¢ 20 per kg respectively. Wage rate for 8 hours shift is GH¢ 200.

The estimated overheads given in the above table are exclusive of depreciation expenses. The company provides depreciation on number of hours used basis. The depreciation on each machine based on full capacity utilisation is as follows:

Hours GH¢
Processing machine 150,000 150,000
Packing machine 100,000 50,000

The company has launched an advertising campaign to promote the sale of its products. GH¢ 2 million have been spent on such campaign. This cost is allocated to the products on the basis of sale.

Required:
Compute the number of units of each product that the company should produce in order to maximize the profit and also compute the product wise and total contribution at optimal product mix.

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  • 20 Marks

FA – L1 – Q76 – Preparation of limited liability company financial statements

Prepare Etabila Travel Limited's statement of profit or loss for 20X9 and statement of financial position as at 31 December 20X9 per IAS 1.

The trial balance of Etabila Travel Limited as at 31 December 20X9 is as follows:

DR (GH¢000) CR (GH¢000)
Ordinary share capital (GH¢1 shares) 600
Cash at bank 23
Tax (over-provision in 20X8) 25
10% loan notes (repayable in 2020) 300
General administrative expenses 300
Administrative salaries 46
General distribution expenses 160
Distribution salaries 24
Directors’ remuneration 35
Loan notes interest paid 10
Development costs (incurred during 20X9) 30
Dividend paid 15
Dividends received 30
Investments 45
Land and buildings – at cost 2,600
– accumulated depreciation at 1 January 20X9 200
Plant and machinery – at cost 320
– accumulated depreciation at 1 January 20X9 75
Retained earnings at 1 January 20X9 64
Purchases and sales 1,250 2,250
Profit on disposal of factory 60
Trade receivables and trade payables 100 220
Inventory at 1 January 20X9 60
Irrecoverable debts 5
Total 4,824 4,824

Additional Information:
(1) Closing inventory is valued at the lower of cost or net realisable value. At 31 December 20X9 it amounted to GH¢55,000.
(2) Non-current assets are depreciated on a straight-line basis assuming no residual value. The following depreciation rates are to be applied:

  • Buildings: 5%
  • Plant and machinery: 20%
    The depreciation charge for the year is to be apportioned as follows:

Distribution costs Administrative expenses
Buildings 70% 30%
Plant and machinery 75% 25%

The cost of the land was GH¢3,200,000. There were no purchases or sales of non-current assets during the year.
(3) Development costs are an intangible asset and are to be amortised (depreciated) over a three-year period. The amortisation (depreciation) charge is to be allocated to cost of sales.
(4) The profit (after tax) on disposal of the factory is considered to be a material amount for which separate disclosure is required.
(5) Tax on the profits for the year is estimated at GH¢95,000.
(6) Directors’ remuneration is to be analysed between distribution costs and administrative expenses as follows:

  • Distribution: GH¢15,000
  • Administration: GH¢20,000

Required:
Prepare the company’s statement of profit or loss for the year ended 31 December 20X9 and statement of financial position as at 31 December 20X9.

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  • 20 Marks

FA – L1 – Q75 – Preparation of limited liability company financial statements

Prepare Amswaim Beauty Products Limited's statement of profit or loss for the year ended 30 June 20X9 per IAS 1, with expense allocation by function.

The following draft statement of profit or loss has been prepared for Amswaim Beauty Products Limited for the year ended 30 June 20X9.

GH¢000 GH¢000
Opening inventory 78 Sales 2,282
Purchases 1,055 Sales returns (66)
Purchase returns (25)
Gross profit c/d 1,170 Closing inventory 62
2,278 2,278
Wages and salaries 160 Gross profit b/d 1,170
Office expenses 236 Dividends received 20
Depreciation:
Plant and machinery 84
Delivery vans 48
Office furniture 17
Directors’ salaries 163
Selling expenses 95
Rent of plant and machinery 21
Factory expenses 109
Legal expenses 25
Interest charges 70
Net profit c/d 162
1,190 1,190
Taxation on profits
Net profit after tax 116 Net profit b/d 162
Tax over-provided in the previous year 8
170 170

Additional Information:
(1) Directors’ salaries are classified as administrative expenses.
(2) Other wages and salaries are apportioned 70% to distribution costs and 30% to administrative expenses.
(3) Amswaim Beauty Products Limited analyses expenses by function.

Required:
Prepare the company’s statement of profit or loss for the year to 30 June 20X9 in accordance with IAS 1 Presentation of Financial Statements.

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  • 20 Marks

FA – L1 – Q74 – Preparation of limited liability company financial statements

Prepare Pakasa Bepo Industries Ltd's statement of profit or loss and financial position for 20X9 per IAS 1, using trial balance and additional info.

The list of balances of Pakasa Bepo Industries Limited shows the following balances at 31 December 20X9.

Dr GH¢000 Cr GH¢000
Inventory (goods for resale) at 1 January 20X9 330 Share capital (600,000 shares) 300
Revenue 1,000
Purchases 484
Purchases returns 60
Sales returns 28
Carriage outwards 28
Warehouse wages 80
Sales representatives salaries 60
Administrative wages 40
Warehouse plant and equipment – cost 126
Accumulated depreciation – 1 January 20X9 50
Delivery vehicle hire 20
Goodwill 100
Distribution expenses 10
Administrative expenses 30
Directors’ salaries (charge to administrative expenses) 30
Rental income 16
Trade receivables 60
Cash at bank 60
Trade payables 60
Total 1,542 Total 1,542

Additional Information
(1) Inventory (goods for resale) at 31 December 20X9 amounted to GH¢100,000.
(2) Annual depreciation on warehouse plant and equipment of GH¢32,000 should be provided.
(3) Income tax for 20X9 should be taken as GH¢50,000.
(4) Goodwill is to be written down to GH¢90,000.

Required:
Prepare the company’s statement of profit or loss for the year to 31 December 20X9 and a statement of financial position at that date in accordance with IAS 1 Presentation of Financial Statements.

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  • 20 Marks

FA – L1 – Q73 – Preparation of limited liability company financial statements

Prepare Kamisa Health Limited's statement of profit or loss and financial position for 31 March 20X9 per IAS 1, using trial balance and additional info.

The following trial balance has been extracted from the books of account of Kamisa Health Limited, a limited liability company, at 31 March 20X9.

Description ZMW ‘000 (DR) ZMW ‘000 (CR)
Administrative expenses 210
Share capital (ordinary shares of ZMW 1 fully paid) 600
Trade receivables 470
Bank overdraft 80
Income tax (overprovision in 20X8) 25
Retirement benefit liability 180
Distribution costs 420
Non-current asset investments 560
Investment income 75
Plant and equipment (At cost) 750
Accumulated depreciation (at 31 March 20X9) 220
Accumulated profit (at 1 April 20X8) 240
Purchases 960
Inventories (at 1 April 20X8) 140
Trade payables 260
Revenue 1,950
Dividend paid 120
Total 3,630 3,630

Additional Information
(1) Inventories at 31 March 20X9 were valued at ZMW 150,000.
(2) The following items are already included in the balances listed in the above trial balance.
(3) The income tax expense based on the profit on ordinary activities is estimated to be ZMW 54,000.
(4) The retirement benefit liability is to be increased by ZMW 16,000. The increase should be charged to administrative expenses. No retirement benefits are expected to be paid for the foreseeable future.

Required:
Prepare the company’s statement of profit or loss for the year to 31 March 20X9 and a statement of financial position at that date in accordance with IAS 1 Presentation of Financial Statements.

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  • 20 Marks

FA – L1 – Q72 – Preparing financial statements of a sole trader

Prepare Zanko Ventures' statement of profit or loss for 20X9 using trial balance and adjustments.

(a) Distinguish between capital expenditure and revenue expenditure.
(b) (i) The following trial balance was extracted from the books of Zanko Ventures, a second-hand bags dealer as at 31st December, 20X9.

Description DR (GH₵) CR (GH₵)
Inventory 120,000
Vehicle (Cost) 150,000
Trade receivables 25,000
Accumulated depreciation: Vehicle 30,000
Accumulated depreciation: Furniture & fittings 10,120
Trade payables 100,000
Drawings 120,000
General expenses 65,000
Allowance for receivables 2,500
Rate & rent 14,000
Insurance 5,000
Irrecoverable debt 7,000
Discount received 25,150
Discount allowed 15,160
Bank balance 165,240
Wages & salaries 250,000
Sundry expenses 6,150
Vehicle running expenses 15,650
Furniture & fittings 50,600
Repairs to the shop 6,500
Purchases 650,120
Sales 1,079,130
Capital 473,520
Total 1,720,420 1,720,420

The following additional information is provided:
(i) Allowance for receivables is to be reduced by 10%.
(ii) Rate and rent has been paid in advance by two (2) months. Note that Zanko Ventures pays GH₵1,000 each month.
(iii) Inventory as at 31st December, 20X9 is GH₵80,150.
(iv) A bill of GH₵6,150 for vehicle running was outstanding as at 31st December, 20X9.
(v) The enterprise provides depreciation as follows:

  • Vehicle: 20% per annum on straight-line basis.
  • Furniture and fittings: 20% per annum on straight-line basis.

You are required to:
(i) Prepare the statement of profit or loss for the year ending 31st December 20X9.

(ii) Prepare the statement of financial position as at 31st December 20X9.

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  • 20 Marks

FA – L1 – Q71 – Preparing financial statements of a sole trader

Prepare Harmony Ventures' statement of profit or loss for the year ended 30 September 20X9 using the trial balance and additional info.

Harmony Ventures is run by a sole trader. The following Trial Balance was prepared from the business accounts on 30th September 20X9.

Harmony Ventures: Trial Balance as at 30th September 20X9

DR GH₵ CR GH₵
Capital 185,280
Inventory 37,360
Sales 421,450
Purchases 193,150
Purchase returns 6,040
Electricity 3,410
Discounts allowed 2,230
Discounts received 2,420
Motor expenses 4,270
Drawings 32,000
Bank 24,511
Salaries 108,000
Insurance 15,400
Receivables 110,140
Irrecoverable debts 1,420
Allowance for receivables 3,153
Payables 76,283
General expenses 6,780
9% Loan (20Y16 – 20Y3) 150,000
Loan interest 12,000
Land and buildings 340,000
Accumulated depreciation for buildings 16,000
Equipment 22,000
Accumulated depreciation for equipment 10,300
Motor vehicles 26,000
Accumulated depreciation for motor vehicles 13,250
Total 896,031 896,031

The following information is also available:
(i) Only 10 months’ salaries are shown in the Trial Balance. An equal amount is paid for salaries for each month of the year.
(ii) As at 30th September 20X9, GH₵3,200 had been prepaid for insurance, whilst GH₵410 was owing for general expenses.
(iii) GH₵4,600 had been charged to general expenses for the owner’s private holiday.
(iv) As at 30th September 20X9, inventory was valued at GH₵22,500.
(v) A customer, owing GH₵5,040 has been declared bankrupt. This amount is to be written off in full.
(vi) An allowance for receivables is to be maintained at 3% of the remaining receivables.
(vii) As at 30th September 20X9, the business’s land was valued at GH₵100,000. Land is not depreciated.
(viii) Depreciation is to be provided as follows:

  • Buildings: 4% per annum using the straight line method.
  • Equipment: 25% per annum using the straight line method.
  • Motor vehicles: 40% per annum using the reducing balance method.
    (ix) There were no additions or disposals of non-current assets during the financial year.

Required:
(a) Prepare the statement of profit or loss for the year ended 30th September 20X9.

(b) Prepare the statement of financial position as at 30th September 20X9.

(c) (i) Identify the accounting concept involved in each of the footnotes/items (i), (iii) and (v).

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