- 20 Marks
Question
a) A businessman who wants to take advantage of the One District One Factory initiative has approached you to assist him with the following accounting issues raised from (i) to (iii):
i) State TWO objectives of financial statements. (2 marks)
ii) Explain the accrual and going concern concepts. (4 marks)
iii) State FOUR duties of directors of a company. (4 marks)
b) From the following information, draw up a Payables ledger control account for the month of October 2017.
| Items | GH¢ |
|---|---|
| Payable to Suppliers at 01/10/2017 | 2,127,721 |
| Receivable from Suppliers at 01/10/2017 | 127,721 |
| Credit Purchases excluding VAT | 4,000,100 |
| VAT on Purchases | 123,714 |
| Returns Outwards including VAT | 25,100 |
| Cash Purchases excluding VAT | 2,150,150 |
| Cheques paid to Suppliers | 5,222,100 |
| Discounts received from Suppliers | 22,500 |
| Contra entries to Receivables ledger | 950 |
A reconciliation of the books of accounts with some of the suppliers revealed that some of the
products were overpriced leading to an over invoiced amount of GH¢52,330. Amount
receivable from suppliers at 31/10/2017 amounted to GH¢33,100
Answer
a)
i) Objectives of Financial Statements
- To provide information about the financial position, performance, and changes in financial position of an entity.
- To assist users in making economic decisions by assessing the stewardship of management.
(2 marks)
ii) Accrual Concept
- Revenue is recognized when earned, and expenses are recognized when incurred, regardless of cash flow timing.
Going Concern Concept
- Assumes that a business will continue to operate indefinitely, or at least for the foreseeable future.
(4 marks)
iii) Duties of Directors of a Company
- Act within powers according to the company’s constitution.
- Promote the success of the company for the benefit of its members.
- Exercise independent judgment.
- Avoid conflicts of interest.
b) Payables Ledger Control Account
- Tags: Accruals, Control Accounts, Director Duties, Financial Statements, Going Concern
- Level: Level 1
- Uploader: Theophilus