- 10 Marks
Question
| Revenue | GH₵ | GH₵ | |
|---|---|---|---|
| GOG Subvention | 152,000 | ||
| Internally Generated Fund (IGF) | 1 | 187,000 | |
| Donations | 4 | 45,000 | 384,000 |
Expenditure
| Description | GH₵ | GH₵ | |
|---|---|---|---|
| Compensation | 2 | 68,000 | |
| Use of Goods & Services | 3 & 5 | 35,000 | |
| Consumption of Fixed Asset | 13,000 | (116,000) | |
| Surplus | 268,000 |
Additional Information:
- The entity received an IGF of GH¢ 13,000 in advance for the year 2023. This transaction is not included in the IGF amount stated in the financial statement.
- Included in Compensation is an amount of GH¢ 17,000 accrued as at the end of 31 December 2022.
- Excluded from the Use of Goods & Services is an amount of GH¢ 1,000 paid in advance for the year 2023.
- Included in Donations is Motor Vehicle received from a donor partner amounting to GH¢ 12,000.
- Included in the Use of Goods and Services is Furniture acquired on 31 December 2022 at the cost of GH¢ 2,000.
- The Statement of Financial Performance is prepared under Accrual Accounting Basis.
Required:
i) Redraft the financial statement under Cash Accounting Basis for the year ended 31 December 2022, showing the necessary adjustments. (7 marks)
ii) Justify THREE (3) reasons management would want to prepare the financial statement under Cash Accounting Basis. (3 marks)
Answer
i) Statement of Financial Performance for the Year Ended 31 December 2022 (Under Cash Accounting Basis):
| Revenue | GH₵ | GH₵ |
|---|---|---|
| GOG Subvention | 152,000 | |
| Internally Generated Fund(187,000+13,000) | 200,000 | |
| Donations (45,000 – 12,000) | 33,000 | 385,000 |
| Expenditure | GH₵ | GH₵ |
|---|---|---|
| Compensation (68,000 – 17,000) | 51,000 | |
| Use of Goods & Services (35,000 + 1,000 – 2,000) | 34,000 | |
| Assets (Capex) | 2,000 | (87,000) |
| Surplus | 298,000 | |
(Marks are evenly spread using = 7 marks)
ii) Advantages of Cash Accounting Basis are:
- It is very simple to prepare.
- The simplicity of cash accounting makes it easy to understand.
- Cash accounting facilitates accountability and control of cash.
- The legislature can easily play its role of effecting control.
- It lends itself to easy understanding so control of expenditure becomes easy and compliance can be easily determined by the legislature.
- Unlike Accrual Basis, cash accounting avoids subjective estimates and adjustments.
(3 points @ 1 mark each = 3 marks)
- Tags: Adjustments, Cash Basis, Financial Statement
- Level: Level 2
- Topic: General purpose financial reporting framework
- Series: NOV 2023
- Uploader: Sarah