Question Tag: Depreciation

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  • 7 Marks

PSAF – Nov 2024 – L2 – Q2a – Valuation of Legacy Fixed Assets

Valuation and accounting treatment of legacy fixed assets in compliance with IPSAS.

The Ministry of Indigenous Enterprises has been charged to collect legacy fixed assets data and value them in accordance with International Public Sector Accounting Standards (IPSAS). The Fixed Assets Coordinating Unit (FACU) of the Ministry has collected for valuation the following data for your action:

The Ministry owns a four (4) storey Office Administration block. The average cost per floor is GH¢4,741,256.25. The building was constructed on a land size of 20 plots of land owned by the Ministry. Currently, a plot of land in that area costs GH¢2,500,000. The FACU has measured the sizes of the building as follows:

  • Length: 87.5 meters
  • Width: 42.65 meters
  • Reference Price per Square Meter: GH¢4,432

However, a professional body, the Institute of Architects and Engineers, has given the reference price for the cost of such an office building at an estimated price of GH¢87,965,025. The building has not seen any further facelift ever since. However, a fence wall with a gate to enforce security and secure the land has just been completed in the current year at a cost of GH¢8,970,000 with a lifespan of 50 years.

The year of construction of the office building could not be determined, yet an old watchman who had been there for ages remembers that the building was constructed some 42 years ago, a time when his seventh child was born. It is the decision of the Government of Ghana on the adoption of IPSAS not to take advantage of the three-year exemption period but to account for legacy fixed assets by taking 60% of the reference cost of the legacy assets as the deemed cost, with a reduced lifespan of 30 years.

Required:

i) Calculate the cost of the land and buildings with structures to be brought into the books on the adoption of IPSAS and determine the depreciation chargeable in the first year in respect of these assets.                                                                                              ii) Show the extract of Statement of Financial Position of the Ministry of Indigenous
Enterprises as at that date

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  • 2 Marks

PT – Nov 2024 – L2 – Q4c – Tax Treatment of Repairs and Renovations

Explains the tax treatment of repairs and renovations for businesses.

Question:
Repairs are essential for maintaining the safety of a property, and renovation improves the overall functionality of a property.

Required:
What is the tax treatment of repairs and renovations?

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  • 20 Marks

FR – Nov 2024 – L2 – Q3 – Financial Statements Preparation

Preparation of Fahnbulleh LTD’s Statement of Comprehensive Income and Statement of Financial Position using IFRS.

Fahnbulleh LTD (Fahnbulleh) is a well-known company manufacturing thrill rides. During the current economic climate, Fahnbulleh has experienced some difficulties and has had to close down its Merry Go Round division.

The company’s trial balance as at 31 October 2023 is as follows:

Account Description Dr (GH¢’000) Cr (GH¢’000)
Revenue 1,296,000
Cost of Sales 546,480
Distribution Costs 127,080
Administrative Expenses 142,560
Investment Income 28,080
Investment Property 270,000
Interest Paid 17,280
Income Tax 10,800
Property, Plant & Equipment (PPE) – Carrying Value at 1 Nov 2022 1,620,000
Inventories (31 October 2023) 108,000
Trade Receivables 135,000
Bank 64,800
Payables 43,200
Deferred Tax (1 Nov 2022) 75,600
8% Loan Note 432,000
Ordinary Share Capital (GH¢1 per share) 540,000
Retained Earnings (1 Nov 2022) 605,520
Totals 3,031,200 3,031,200

Additional Information:

  1. Revenue Adjustments:

    • Revenue includes VAT of GH¢72 million.

  2. Property, Plant & Equipment (PPE):

    • A building with a carrying value of GH¢54 million was revalued on 1 November 2022 to GH¢72 million.
    • The building had an estimated useful life of 25 years when purchased, and this has not changed after the revaluation.
    • All other PPE should be depreciated at 20% per annum (reducing balance method).
    • All depreciation should be charged to cost of sales.

  3. Closure of the Merry Go Round Division (Discontinued Operations):

    • Closure Date: 1 October 2023
    • Division’s Results (1 Nov 2022 – 1 Oct 2023):
    Item GH¢’000
    Revenue 58,800
    Cost of Sales 38,700
    Distribution Costs 12,240
    Administrative Expenses 11,880
    • The division’s net assets were sold at a loss of GH¢19.2 million, recorded in cost of sales.

  4. Investment Property Revaluation (IAS 40):

    • Investment property value increased by 5%, which should be incorporated into the financial statements.

  5. Income Tax and Deferred Tax (IAS 12):

    • The estimated income tax provision for the year: GH¢140.4 million.
    • Deferred tax liability should be adjusted for temporary differences (GH¢129.6 million) at a 25% tax rate.

  6. Damaged Inventory (IAS 2):

    • Inventory worth GH¢46 million was damaged.
    • It can be reconditioned at a cost of GH¢12 million and sold for GH¢52 million.
    • Appropriate adjustments should be made.

Required:

Prepare and present the Statement of Comprehensive Income for the year ended 31 October 2023 and the Statement of Financial Position as at 31 October 2023 for Fahnbulleh LTD.

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  • 20 Marks

FA – Nov 2024 – L1 – Q4- Preparation of Financial Statements for a Sole Trader

Prepare the Statement of Profit or Loss and Statement of Financial Position for a sole trader from given financial data and adjustments.

The following list of assets, liabilities, and equity as at 30 June 2023 was extracted from the books of Akuorkor, a sole trader:

Trial Balance as at 30 June 2023

Item GH¢
Plant and equipment – cost 100,000
Accumulated depreciation – Plant & Equipment 36,000
Office fixtures – cost 25,000
Accumulated depreciation – Office Fixtures 2,500
Inventory 15,250
Trade receivables and prepayments 17,500
Trade payables and accrued expenses 8,800
Bank overdraft 4,425
Loan (10% interest per annum) 47,500
Capital 58,525

Summary of Receipts and Payments for the Year Ended 30 June 2024

Receipts GH¢
Capital introduced 11,000
Cash from customers 213,750
Total Receipts 224,750
Payments GH¢
Cash drawings (Note 5) 11,225
Loan repayments (Note 7) 10,000
Payment to suppliers 87,800
Rent 11,000
Wages 45,000
Office expenses 6,250
Total Payments 171,275

Additional Information:

  1. Closing inventory on 30 June 2024 was GH¢13,925.
  2. Depreciation policies:
    • Plant & Equipment: 20% per annum reducing balance.
    • Office Equipment: 10% per annum on cost.
    • Fixtures & Fittings: Straight-line method over 4 years with a full year’s charge in the year of acquisition.
  3. GH¢2,500 worth of fixtures & fittings was introduced into the business.
  4. Prepayments and accrued expenses as at 30 June 2023:
    • Rent paid in advance: GH¢1,250
    • Accrued wages: GH¢2,150
  5. Cash drawings included:
    • Wages: GH¢3,375
    • Payments to suppliers: GH¢2,100
    • Advertising leaflets: GH¢1,300 (Half not yet distributed).
  6. Bank balance per statement: GH¢53,350 after adjusting for unpresented cheques.
  7. Loan repayments include GH¢4,750 in interest payments.
  8. Assets and liabilities as at 30 June 2024:
    • Rent paid in advance: GH¢1,350
    • Accrued wages: GH¢2,625
    • Amounts due to suppliers: GH¢6,100
    • Amounts due from customers: GH¢11,150
  9. Major customer went into liquidation owing GH¢8,000; only 20% recoverable.

Required:

Prepare:
i) Statement of Profit or Loss for Akuorkor for the year ended 30 June 2024. 
ii) Statement of Financial Position as at 30 June 2024.

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  • 15 Marks

ATAX – May 2016 – L3 – Q5 – Taxation of Companies

Compute the original and revised tax liabilities of Atlas Nigeria Limited, considering tax official adjustments.

Atlas Nigeria Limited is into the sale of Mobile Phones, and the company’s year-end is December 31 of each year. The company’s Annual Tax Returns for the year ended December 31, 2012, were submitted in January 2014. Tax officials found a number of irregularities during a routine examination of the Tax Returns. They discovered that trade payables included N940,000 representing VAT for the two months to December 31, 2012. All sales attract VAT. There was no Input VAT during 2012. Tax officials were, however, of the opinion that the income of the company accrued uniformly throughout the 12 months of the year.

The accounts showed Adjusted Profits of N44,062,500, and Capital Allowances totaled N33,025,000. The tax liability arrived at was N4,406,250. The tax officials were not satisfied with the explanations received in connection with the Withholding Tax on the Director’s fee of N1,562,500, as well as Consultancy fee of N812,500. They also decided to write back 2/3 of the following expenses:

  • Printing and Stationery N168,750
  • Donations and Subscription N1,320,620
  • Losses claimed, amounting to N128,025 was disallowed. Included in the adjusted profit figure is N6,962,500 for Depreciation.

REQUIRED:

i. Show the computations resulting in the Original Tax Liability of N4,406,250 (5 marks)

ii. Compute a revised Tax liability based on the findings of the Tax Officials (10 marks)

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  • 7 Marks

CR – May 2021 – L3 – Q5b – Provisions, Contingent Liabilities, and Discounted Cash Flows (IAS 37)

Calculate provisions and charges for emission modifications in 2015 and 2016 for Gama Plastic Limited.

Gama Plastic Limited owns a number of plastic recycling plants in various parts of the country which supply most of the raw material used by Gama Plastic Limited for its production of household and corporate plastic products.

On December 1, 2015, the directors of Gama Plastic Limited announced publicly that it intends to voluntarily reduce the level of harmful emissions from its recycling plants through modifications of the plants.

The average useful economic life of these plants as of December 31, 2015, was 15 years. Gama Plastic Limited charges depreciation in relation to the recycling plants to cost of sales on a straight-line basis.

The directors believe that while the modifications will be effective from early 2016 onward, the actual cash costs of the modifications will be as follows:

Date Amount (N’000)
December 31, 2016 100,000
December 31, 2017 80,000
December 31, 2018 140,000

No contract was signed until 2016, but Gama Plastic Limited prides itself on its excellent public image and has a well-known reputation for meeting both legal and constructive obligations.

The directors of Gama Plastic Limited believe that it is appropriate to use discounted cash flow techniques and that an appropriate rate would be 10%, with the following discount factors:

Year PV Factor
1 0.909
2 0.826
3 0.751
4 0.683
5 0.620
6 0.564

Required:

Assuming the actual cash cost of the modification is a reliable estimate, calculate the provisions that should be included in the statement of financial position and the charges to the statement of profit or loss of Gama Plastic Limited in respect of the proposal for each of the years 2015 and 2016. (7 Marks)

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  • 10 Marks

CR – May 2021 – L3 – Q1c – Property, Plant and Equipment (IAS 16)

Record journal entries for PPE acquisition and related foreign exchange adjustments in the books of Ngono Plc.

c. Ngono Plc. has a financial year end of September 30. The Company buys property, plant and equipment for its office in Nigeria from foreign supplier Omaha Inc. in USA. On June 30, 2020, Ngono Plc. took delivery of PPE from Omaha Inc. with invoice value amounting to $100,000 and is due for settlement in equal instalments on August 30, 2020 and November 30, 2020. Clearing cost and import duty paid on the acquisition of the PPE amounted to N1,250,000. It is the policy of Ngono Plc to depreciate PPE at 20% on cost using the straight –line method. The depreciation is provided in full in the year of acquisition and none in the year of disposal.
Both Ngono Plc. and Omaha Inc. honoured their own part of the agreement in the transaction.
Movement recorded in the exchange rate were as follows:

Required:
Show the journal accounting entries to record the above transaction in the books of Ngono Plc. (10 Marks)

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  • 30 Marks

CR – May 2022 – L3 – Q1 – Leases (IFRS 16)

Adjust lease accounting for right-of-use asset and lease liability in compliance with IFRS 16.

The draft financial statements of Gbola Limited group and its investee companies Tanko Limited and Eze Limited at December 31, 2018 are shown below:

Draft Statements of Profit or Loss for the Year Ended December 31, 2018

Item Gbola Limited (N’000) Tanko Limited (N’000) Eze Limited (N’000)
Revenue 17,070 7,320 2,235
Cost of Sales (8,640) (3,210) (885)
Gross Profit 8,430 4,110 1,350
Other Operating Expenses (2,070) (810) (600)
Profit from Operations 6,360 3,300 750
Interest Expense (570) (660) (210)
Profit Before Tax 5,790 2,640 540
Income Tax Expense (810) (360) (90)
Profit for the Year 4,980 2,280 450

Draft Statements of Financial Position as at December 31, 2018

Additional Information

  1. On January 1, 2014, Gbola Limited acquired 9,000,000 ordinary shares in Tanko Limited for N23,250,000 when the reserves of Tanko Limited were N3,000,000.
  2. A new asset with a fair value of N1,500,000 was acquired during the year under a lease agreement by Gbola Limited. A clause in the lease agreement stipulated that N300,000 payments must be paid on December 31, each year for six years, starting from December 31, 2018. The interest rate implicit in the lease is 5.47%. Gbola Limited treated this as an operating expense; because the only accounting entry that the company believes must be made in relation to this asset is the N300,000 payment it has made.
  3. Gbola Limited had an intangible asset of N750,000 for software in its statement of financial position. The directors of Gbola Limited believed that the software will have no recoverable value at the date of acquisition, and Tanko Limited wrote it off shortly after its acquisition.
  4. At the date of acquisition of Tanko Limited, the carrying amount of its property, plant, and equipment, considered to have a remaining life of 10 years, was N5,625,000 lower than its fair value.
  5. On January 1, 2017, Gbola Limited acquired 2,250,000 ordinary shares in Eze Limited for N6,000,000 when the reserves of Eze Limited were N1,350,000. The carrying amount of assets of Eze Limited was the same as their fair values at that date. Depreciation should be treated as an operating expense.
  6. A component used by both Tanko Limited and Eze Limited is produced by Gbola Limited, and it sells this component at a margin of 25%. Goods worth N780,000 were sold to Tanko Limited during the year. None of these goods had been sold by Tanko Limited at December 31, 2018. Gbola Limited also sold goods worth N1,200,000 to Eze Limited, and Eze Limited sold all of these goods as at December 31, 2018.
  7. N900,000 in respect of amounts owed by Tanko Limited and N525,000 in respect of amounts owed by Eze Limited were included in the receivables of Gbola Limited. The corresponding balances in Tanko Limited and Eze Limited payables were N600,000 and N525,000, respectively. On December 31, 2018, Tanko Limited sent a cheque of N300,000 to Gbola Limited.
  8. There has been no impairment for Eze Limited. However, the impairment test conducted on Tanko Limited’s goodwill showed that goodwill is being impaired by 10% per annum on a straight-line basis.
  9. Gbola Limited’s cash and cash equivalents included a Director’s loan of N1,500,000. The Directors are of the view that the inclusion does not contravene any International Financial Reporting Standard.
  10. The goodwill arising on the acquisition of Tanko Limited is being amortized over a 10-year period, though this practice contravenes IAS 36, which prohibits goodwill amortization and instead requires annual impairment tests.

a. Prepare the necessary adjustments to account for the lease contract based on additional information provided in (ii) above in accordance with IFRS 16. (5 Marks)
b. Prepare the consolidated statement of profit or loss and other comprehensive income for the group for the year ended December 31, 2018. (8 Marks)
c. Prepare the consolidated statement of financial position of Gbola Limited group as at December 31, 2018. (12 Marks)
d. Discuss the ethical implication of the Director’s action in note (ix) above. (5 Marks)

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  • 15 Marks

CR – Nov 2016 – L3 – Q6 – Events After the Reporting Period (IAS 10)

Discuss IFRS 5 requirements for non-current assets held for sale and evaluate event impacts per IAS 10.

Maranathan Plc acquired a property for N4 million with annual depreciation on a straight-line basis at 7.5%. An impairment loss of N350,000 was recognized as of May 31, 2013, with accumulated depreciation at N1 million. The property was classified as held for sale on October 1, 2013, with fair value less costs to sell of N2.4 million. In December 2013, interim financials reported an improved fair value less costs to sell of N2.52 million. By May 31, 2014, fair value increased to N2.95 million, and the property was eventually sold on June 5, 2014, for N3 million.

Required:

a. Assess these transactions per IFRS 5 Non-current Assets Held for Sale and Discontinued Operations. (5 Marks)
b. Evaluate the impact of events on the property over time and on reported gain per IAS 10 Events After the Reporting Period. (10 Marks)

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  • 30 Marks

FM – Nov 2021 – L3 – Q1 – Strategic Cost Management

Analyze costs and investment requirements for Femi Appliances Ltd's new motor vehicle vacuum cleaner product line.

Femi Appliances Limited (FAL) is a Nigerian-based manufacturer of household appliances with many distribution centers across various locations in Nigeria and along the ECOWAS sub-region. FAL is now considering the development of a new motor vehicle vacuum cleaner – VC4.

The product can be introduced quickly and has an expected life of four years, after which it may be replaced with a more efficient model. Costs associated with the product are estimated as follows:

Direct Costs (per unit):

  • Labour:
    • 3.5 skilled labour hours at ₦500 per hour
    • 4 unskilled labour hours at ₦300 per hour
  • Materials:
    • 6 kilos of material Z at ₦146 per kilo
    • Three units of component P at ₦480 per unit
    • One unit of component Q at ₦640
  • Other variable costs: ₦210 per unit

Indirect Costs:

  • Apportionment of management salaries: ₦10,500,000 per year
  • Tax allowable depreciation of machinery: ₦21,000,000 per year
  • Selling expenses (excluding salaries): ₦16,600,000 per year
  • Apportionment of head office costs: ₦5,000,000 per year
  • Rental of buildings: ₦10,000,000 per year
  • Annual interest charges: ₦10,400,000
  • Other annual overheads: ₦7,000,000 (includes building rates ₦2,000,000)

If the new product is introduced, it will be manufactured in an existing factory, having no effect on rates payable. The factory could be rented out for ₦12,000,000 per year to another company if the product is not introduced.

New machinery costing ₦86,000,000 will be required, depreciated on a straight-line basis over four years with a salvage value of ₦2,000,000. The machinery will be financed by a four-year fixed-rate bank loan at 12% interest per year. Additional working capital requirements may be ignored.

The new product will require two additional managers at an annual gross cost of ₦2,500,000 each, while one current manager (₦2,000,000) will be transferred and replaced by a deputy manager at ₦1,700,000 per year. Material Z totaling 70,000 kilos is already in inventory, valued at ₦9,900,000.

FAL will utilize the existing advertising campaigns for distribution centers to also market the new product, saving approximately ₦5,000,000 per year in advertising expenses.

The unit price of the product in the first year will be ₦11,000, with projected demand as follows:

  • Year 1: 12,000 units
  • Year 2: 17,500 units
  • Year 3: 18,000 units
  • Year 4: 18,500 units

An inflation rate of 5% per year is anticipated, with prices rising accordingly. Wage costs are expected to increase by 7% per year, and other costs (including rent) by 5% annually. No price or cost increases are expected in the first year of production.

Income tax is set at 35%, payable in the year the profit occurs. Assume all sales and costs are on a cash basis and occur at the end of the year, except for the initial purchase of machinery, which would take place immediately. No inventory will be held at the end of any year.

Required:

a. Calculate the expected internal rate of return (IRR) associated with the manufacture of VC4. Show all workings to the nearest ₦million. (19 Marks)

b. i. Explain what is meant by an asset beta and how it differs from an equity beta. (2 Marks)
ii. Given the company’s equity beta is 1.2, the market return is 15%, and the risk-free rate is 8%, discuss whether introducing the product is advisable. (4 Marks)

c. The company is concerned about a potential increase in corporate tax rates. Advise the directors by how much that the tax rate would have to change before the project is not financially viable. A discount rate of 17% per year may be assumed for part (c). (5 Marks)

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  • 20 Marks

FA – Nov 2021 – L1 – Q4 – Bad and doubtful debt | Inventory | Non-current assets and depreciation | Preparation of financial statements of a sole trader

Preparation of the Statement of Profit or Loss and Statement of Financial Position for a sole trader, including adjustments for depreciation, inventory, and receivables.

Additional Information:
i) The inventory count on 30 June 2019 showed closing inventory valued at GHȼ34,380.
ii) A review of receivables as at 30 June 2019 showed that a further GHȼ2,300 was to be written off as an irrecoverable debt. Therefore, it was decided that the closing allowance for receivables was 10% of the outstanding receivables balance as at 30 June 2019.
iii) On 30 June 2019, Sintim received a cheque of GHȼ1,680 in relation to an irrecoverable debt previously written off.
iv) A supplier of Sintim has charged an interest of GHȼ1,490 on a payable balance that has been outstanding for over 200 days.
v) GHȼ16,000 of insurance in the trial balance above relates to 1 January 2019 to 31 December 2019.
vi) Allowance to be made for depreciation is as follows:

  • Land: Not depreciated.
  • Delivery van: 10% straight line basis.
    vii) Upon investigation, it was revealed that the balance in the suspense account relates to a cash receipt from a customer of GHȼ800 that was credited to the bank account in error.

Required:
a) Prepare the statement of Profit or Loss for the year ended 30 June 2019.
(12 marks)
b) Prepare the statement of Financial Position as at that date.
(8 marks)

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  • 20 Marks

FA – May 2021 – L1 – Q4 – Inventory | Non-current assets and depreciation | Preparation of limited liability company financial statements

Preparation of financial statements for a limited liability company, including adjustments for inventory, prepayments, accruals, depreciation, and allowance for receivables.

The following is the trial balance of Poloo Ltd as at 31 December 2020:

Account Debit (GH¢) Credit (GH¢)
Authorised, issued, and called-up capital:
– 500,000 equity shares of GH¢1 each 500,000
– 60,000 7% redeemable preference shares of 50p each 30,000
Equipment: cost 350,000
Equipment: accumulated depreciation 75,000
Motor vehicle: cost 160,000
Motor vehicle: accumulated depreciation 25,650
Premises 220,000
Inventory as at 1 January 2020 51,980
Bank 10,050
Sales 508,420
Purchases 225,000
Trade receivables 130,010
Trade payables 10,200
Distribution costs 80,400
Administrative expenses 45,240
Irrecoverable debts 1,250
Allowance for receivables 14,360
Rent received 8,500
Income from investments 17,040
Interim dividend on equity shares 7,420
Retained earnings 51,760
General reserve 40,420
Total 1,281,350 1,281,350

Additional information:
i) Inventories as at 31 December 2020 are valued at GH¢85,420.
ii) Insurance includes GH¢840 for one and half years ending 30 June 2021. Insurance is included in administrative expenses.
iii) Rent received includes an amount of GH¢2,400 paid in advance as at 31 December 2020.
iv) Distribution costs of GH¢750 were prepaid, and administrative expenses of GH¢800 were owing as at 31 December 2020.
v) The total trade receivables balance of GH¢130,010 includes a balance of GH¢1,010 which has been outstanding for ten months. Poloo Ltd has decided to write off this balance.
vi) Poloo Ltd’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 December 2020 and the required allowance are shown below:

Age of Debt Balance (GH¢) Allowance Required
0 – 30 days 80,000 Nil
31 – 60 days 40,000 20% of balances
Over 60 days 10,010 85% of balances

vii) On 15 January 2020, Poloo Ltd purchased premises at a cost of GH¢105,000. This cost included GH¢3,500 relating to legal costs. The legal costs of GH¢3,500 had been included in administrative expenses and not in the cost of premises. Premises are not depreciated.
viii) On 1 April 2020, Poloo Ltd purchased equipment that cost GH¢50,000. This transaction was entered in the accounts on 1 April 2020.
ix) Depreciation is to be provided as follows:

  • Equipment: 20% per annum on cost
  • Motor vehicles: 20% per annum reducing balance basis
    x) Depreciation on equipment is apportioned 20% to administrative expenses and 80% to distribution costs. Depreciation is charged for each month of use. Depreciation of motor vehicles is treated as a distribution cost.

Required:
Prepare, for Poloo Ltd, the following statements in accordance with International Financial Reporting Standards (IFRS):
a) Statement of Profit or Loss for the year ended 31 December 2020.
(10 marks)
b) Statement of Financial Position as at 31 December 2020.
(10 marks)

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  • 20 Marks

FA – May 2021 – L1 – Q1 – Non-current assets and depreciation | The IASB’s Conceptual Framework

Explanation of stakeholders' interest in financial statements and preparation of a schedule for non-current assets with depreciation and revaluation adjustments.

a) Explain why each of the following would be interested in the published financial statements of a company.
i) Shareholders
ii) Lenders
iii) Customers
iv) Suppliers
v) Financial analysts and advisers
(10 marks)

b) The following details were taken from the books of Suban Ltd for the year ended 31 July 2020.
i) Tangible non-current assets at cost as at 1 August 2019 were:

Item Amount (GH¢)
Land and Buildings (Land GH¢120,000) 520,000
Motor Vehicles 310,000
Equipment 115,000

ii) Accumulated depreciation as at 1 August 2019:

Item Amount (GH¢)
Land and Buildings 75,000
Motor Vehicles 110,000
Equipment 40,000

Suban Ltd depreciates non-current assets as follows:

  • Buildings: 3% per annum on cost.
  • Motor vehicles: 20% per annum reducing balance basis.
  • Equipment: 10% per annum on cost.
    Depreciation is charged for each month of ownership.

iii) On 1 October 2019, Land was revalued at GH¢200,000.
iv) A Motor Vehicle purchased on 1 May 2018 for GH¢40,000 was sold on 1 February 2020.
v) All equipment as at 1 August 2019 had been purchased after 1 February 2013, except for one equipment which cost GH¢10,000 purchased on 1 August 2008.
vi) During the year, the following assets were purchased:

  • Motor vehicles GH¢35,000 on 1 November 2019.
  • Equipment GH¢20,000 on 1 February 2020.

Required:
Prepare the Schedule of Non-Current Assets for the year ended 31 July 2020.
(10 marks)

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  • 20 Marks

FA – Nov 2020 – L1 – Q4 – Accruals and prepayments | Inventory | Non-current assets and depreciation | Preparation of financial statements of a sole trader

Preparation of the income statement and statement of financial position for a sole trader with adjustments for inventory, accruals, prepayments, depreciation, and other relevant adjustments.

Kofi Badu, a sole trader, extracted the following Trial Balance from the business books as of 30 April 2019:

The following information is also relevant:
i) The closing inventory as at 30 April 2019 was valued at GH¢8,010.
ii) As at 30 April 2019, accrued rent income for the year amounted to GH¢420; heat and light accrued was GH¢260; whilst salaries of GH¢720 was paid in advance.
iii) During the year, Kofi Badu had withdrawn goods costing GH¢720 for his personal use. This had not been recorded in the accounts.
iv) New equipment costing GH¢2,650 was purchased during the year but had been mistakenly included in purchases. This is yet to be corrected.
v) A cheque for GH¢440 received from a customer in full settlement of a debt of GH¢450 has not yet been entered in the accounts.
vi) Allowance for doubtful debt is to be maintained at 2% of receivables.
vii) Depreciation is to be provided for as follows:

  • Equipment- 20% per annum using the straight-line method. A full year’s depreciation is provided on all equipment held at 30 April 2019, regardless of the date of purchase.
  • Motor vehicles- 40% per annum using the reducing balance method.

Required:
a) Prepare a statement of profit or loss for Kofi Badu for the year ended 30 April 2019.
(12 marks)

b) Prepare a statement of financial position for Kofi Badu as at 30 April 2019.

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  • 20 Marks

FA – May 2020 – L1 – Q1 – Double entry bookkeeping | Non-current assets and depreciation | Preparation of financial statements of a sole trader

This question requires preparing ledger accounts related to depreciation, disposal, and asset balances for Tansah Ltd.

a) Write a short note to a client explaining the following issues:

i) Outline the differences between Cost and Management Accounting and Financial Accounting. (3 marks)

ii) Explain FOUR (4) roles of an Accountant in an organization. (4 marks)

iii) Outline SIX (6) key information provided by a Statement of Profit or Loss and Other Comprehensive Income and the Statement of Financial Position. (3 marks)

b) At 1 July 2017, the following information was extracted from the books of Tansah Ltd:
Non-current assets at cost:

Reference Description Amount (GH¢)
M1 Machinery 25,000
E1 & E2 Equipment 15,400
MV1 Motor Vehicle 18,500

Provision for depreciation:

Reference Description Amount (GH¢)
M1 Machinery 18,500
E1 & E2 Equipment 8,600
MV1 Motor Vehicle 6,500

During the financial year ended 30 June 2018, the following transactions took place:
Purchases:

Date Description Reference Amount (GH¢)
1 April 2018 Machinery M2 M2 10,800
1 January 2018 Equipment E3 E3 6,800

Disposals:

Reference Description Purchase Date Disposal Date Original Cost (GH¢) Sale Proceeds (GH¢)
E2 Equipment 1 January 2015 31 March 2018 7,200 6,400

All transactions took place through the bank account.

Depreciation rates per annum:

  • Machinery: 10% straight line on cost
  • Equipment: 12.5% straight line on cost
  • Motor Vehicle: 15% reducing balance

Depreciation for new assets commences in the month in which the asset is acquired.

Required:
For Tansah Ltd, prepare the following ledger accounts for the year ended 30 June 2018:

i) Provision for Depreciation of Machinery (2 marks)
ii) Provision for Depreciation of Equipment (4 marks)
iii) Disposal of Equipment (3 marks)
iv) Motor vehicle (1 mark)

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  • 20 Marks

FA – Nov 2019 – L1 – Q4 – Non-current assets and depreciation | Preparation of limited liability company financial statements

Prepare the statement of profit or loss and financial position for Tudu Ltd with adjustments for depreciation, allowances, and accruals.

The following balances were extracted from the books of Tudu Ltd on 31 December 2018.

Additional information:

  1. Inventories at 31 December 2018 was valued at GH¢18,226.
  2. Directors’ bonuses for the year ended 31 December 2018 calculated at GH¢1,160 have not been accounted for.
  3. Distribution costs include a payment of GH¢3,750 for rent for the three months to 28 February 2019.
  4. The company’s depreciation policies are as follows:
    • Fixtures and Fittings – Straight line over 5 years.
    • Motor vehicles – Reducing balance method at 20% per annum.
    • All non-current asset residual values are estimated at zero.
  5. The company reviewed the trade receivables at 31 December 2018, and the following adjustments are required:
    • Irrecoverable debts of GH¢450 in addition to those already written off.
    • Specific allowance for receivables of GH¢650.
    • General allowance of 3% against the remaining receivables.

Required:

a) Prepare the Statement of Profit or Loss for Tudu Ltd for the year ended 31 December 2018. (10 marks)

b) Prepare the Statement of Financial Position for Tudu Ltd as at 31 December 2018. (10 marks)

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  • 20 Marks

FA – May 2019 – L1 – Q4 – Preparation of accounts from incomplete records

Prepare the statement of affairs and financial position for Mr. Preprah, adjusting for transactions and depreciation.

a) Mr. Preprah is a dealer in spare parts who has not kept proper books of accounts. As at 31 December 2017, the following balances were available:

Description of Assets GH¢
Cash in hand 1,500
Cash at bank 15,000
Inventories 17,440
Trade receivables 8,540
Trade payables 9,520
Motor Vehicle (at valuation) 45,000
Furniture and Fittings 14,500

The following activities took place during the 2018 accounting year:

  • His drawings amounted to GH¢47,400. Winnings from a lottery of GH¢5,000 were put into the business.
  • He bought extra Furniture for GH¢2,000.
  • Furniture and Fittings is to be depreciated at GH¢2,175 for the year.

As at 31 December 2018, his assets and liabilities apart from Furniture and Fittings were as follows:
Cash in hand 1,000
Bank overdraft 12,000
Inventory 12,845
Trade receivables 5,750
Trade payables 5,290
Motor Vehicle to be valued at 40,000
Prepaid rent 10,000

Required:
i) Prepare the Statement of affairs for December 2017. (2 marks)
ii) Prepare the statement of financial position (showing the movements in retained earnings
made by Mr Preprah) as at 31 December 2018. (5 marks)
b) ABC Ltd started business on 1/1/14, and its financial year ends on 31 December each year.
It had the following Machinery as at December 2018.
GH¢
 2014 January 1, bought one machine costing 130,000
 2015 June 30, bought one machine costing 780,000
 2015 October 1, bought two machines costing 1,040,000 each
 2017 April 1, bought one machine costing 520,000
 2018 March 1, bought two machines costing 1,170,000 each
The company’s policy is to depreciate assets at a rate of 15% per annum on a straight line
basis proportionate to the date of purchase.
Required:
Prepare:
i) The assets accounts (2014-2018); (4 marks)
ii) Provision for depreciation account (2014-2018); and (6 marks)
iii) Statement of financial position extract for each year from 2014 to 2018. (3 marks)

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  • 20 Marks

FA – May 2019 – L1 – Q3 – Accruals and prepayments | Non-current assets and depreciation

Explain accruals and depreciation concepts, and adjust the financial statements of a sole trader for various accruals, prepayments, and depreciation.

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 depreciation charge in the statement of profit or loss. (2 marks)

c) A newly qualified accountant has prepared draft accounts for a client for the year ended September 2018, but has not dealt with the adjustments for accrued expenses, prepaid expenses, irrecoverable debts, allowance for receivables, and depreciation.

Below is the statement of financial position prepared by the newly qualified accountant.

The newly qualified accountant has given the following information about the remaining adjustments:

  • The last fixed bill paid for electricity covered three months period to 31 July 2018. The bill was GH¢34,350.
  • Rent of GH¢142,500 for six months to December 2018 was paid in March 2018.
  • The trade receivables figure of GH¢747,055 in the draft account is stated after deducting allowance for doubtful debts of GH¢39,500 from the total receivable balance of GH¢786,555.
  • The trade receivable balance of GH¢786,555 includes a balance of GH¢3,300 which has been outstanding for 10 months. The client has decided to write this balance off his books.
  • The policy of the client is to allow for receivables on the basis of the length of time the debt has been outstanding. The aged analysis of trade receivables as at 30 September 2018 is as follows:

Required:
i) Calculate the accrued electricity expense and the prepayment for rent, and update the financial statements. (4 marks)

ii) Calculate the new allowance for receivables and update the financial statements. (3 marks)

iii) Calculate the depreciation charge and update the financial statements. (2 marks)

iv) Prepare the updated Statement of Financial Position after accounting for the above adjustments. (6 marks)

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