Series: MAY 2020

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CR – May 2020 – L3 – Q1 – Consolidated Statement of Financial Position

Prepare the consolidated statement of financial position for Phato Ltd and its subsidiaries as at 30 September 2019, including relevant calculations for goodwill, non-controlling interest, and asset impairments.

Question

Phato Ltd, is a Public Limited Liability Company which operates in the service sector in Ghana. Phato Ltd has a business relationship with two other Ghanaian companies, Sakara Ltd and Saadi Ltd, which are public limited liability companies too. The draft statements of financial position of these three companies are as below as at 30 September 2019.

Phato Ltd GH¢ million	Sakara Ltd GH¢ million	Saadi Ltd GH¢ million
Assets:
Non-current assets
Property, plant, and equipment	460.0	150.0
Investment in subsidiaries
Sakara Ltd	365.0
Saadi Ltd	160.0
Investment in Azuri Ltd	24.0
Intangible assets	99.0	15.0
Total Non-current assets	948.0	325.0
Current assets	447.5	240.0
Total assets	1,395.5	565.0
Equity and liabilities:
Equity:
Share capital	460.0	200.0
Other components of equity	36.5	18.5
Retained earnings	447.5	221.0
Total equity	944.0	439.5
Non-current liabilities	247.5	61.5
Current liabilities	204.0	64.0
Total liabilities	451.5	125.5
Total equity and liabilities	1,395.5	565.0

Additional relevant information:

Phato Ltd, on 1 October 2017, acquired 60% of the equity interests of Sakara Ltd. The cost of the investment comprised cash of GH¢360 million. At acquisition, the fair value of the non-controlling interest in Sakara Ltd was estimated at GH¢146 million. The fair value of the identifiable net assets acquired totaled GH¢417.5 million, including retained earnings of GH¢159.5 million and other components of equity at GH¢13.5 million. The excess in fair value results from non-depreciable land.
Sakara Ltd, on 1 October 2018, acquired 70% of Saadi Ltd for GH¢160 million. The fair value of non-controlling interest was estimated at GH¢36 million. The fair value of the identifiable net assets of Saadi Ltd at acquisition was GH¢181 million, retained earnings GH¢53 million, and other components of equity GH¢10 million.
Phato Ltd acquired a 14% interest in Azuri Ltd for GH¢9 million on 1 October 2017. On 1 April 2019, Phato Ltd acquired an additional 16% interest in Azuri Ltd for GH¢13.5 million, achieving significant influence.
Phato Ltd purchased patents for GH¢5 million and incurred other development costs for product development.
Impairment tests were conducted on Sakara Ltd and Saadi Ltd.

Required:
Prepare the consolidated statement of financial position for the Phato Ltd Group as at 30 September 2019.

Answer

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Tags: Business Combinations, Consolidation, Goodwill, IFRS, Impairment, Investment
Level: Level 3

Topic: Business combinations and consolidation, Consolidated Financial Statements
Series: MAY 2020

CR – May 2020 – L3 – Q2a – Government Grants for Factory Construction

Discuss the accounting treatment for a government grant received for the construction of a factory, showing calculations and relevant entries.

Question

On 1 January 2018, Asankragua Ltd (Asankragua) applied to a government agency for a grant to assist with the construction of a factory in Enchi. The proposed construction cost of the factory was GH¢52 million and the company projected that 350 people would be employed after completion. The land was already owned by Asankragua.

On 1 March 2018, the government agency offered to grant a sum amounting to 25% of the factory’s construction cost to a maximum of GH¢13 million. The grant aid was to be advanced on completion and would be repayable on demand if total employment at the factory fell below 300 people within 5 years of completion.

At the financial year end, 31 March 2018, Asankragua had accepted the offer of grant aid and had signed contracts for the construction of the factory at a total cost of GH¢52 million. Construction work was due to commence on 1 April 2018.

By 31 March 2019, the factory had been completed on budget, 400 people were employed ready to commence manufacturing activities, and the government agency agreed that the conditions necessary for the drawdown of the grant had been met.

On 1 April 2019, the factory was brought into use. It was estimated that it would have a ten-year useful economic life. On 1 June 2019, the government agency paid over the agreed GH¢13 million. In addition, the company sought and was paid an employment grant of GH¢1.2 million as employment exceeded original projections. This is expected to be payable annually for 5 years in total, at a rate of GH¢12,000 per additional person employed over 300 in each year. There are no repayment provisions attached to the employment grant.

The directors of Asankragua expect employment levels to exceed 350 people for at least 4 further years from 31 March 2020.

Required:
Demonstrate, showing calculations and relevant entries, how Asankragua Ltd should record the above transactions and events in its financial statements for years ended 31 March 2018, 2019, and 2020.

Answer

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Tags: Capital Commitment, Deferred Income, Factory Construction, Government Grants, IAS 20
Level: Level 3

Topic: IAS 20 and IAS 40)
Series: MAY 2020

CR – May 2020 – L3 – Q2b – Capitalization of Borrowing Costs

Question

Dompoase Ltd incurred the following borrowing costs during the financial year 2018:

GH¢’000
Overdraft interest	12
Foreign currency loan interest (correctly translated into GH¢)	84
Foreign currency loan exchange differences on capital	140

In addition, a three-year fixed-rate GH¢2 million loan was taken out on 1 January 2018 at 6.5%. A loan set-up fee was charged at GH¢20,000. This increased the effective interest rate on the loan to 6.88%.

Required:
Determine the maximum amount that could potentially be capitalized as borrowing costs during the period (assuming an asset was being financed using all available finance).

Answer

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Tags: Borrowing Costs, Capitalization, Foreign Currency Loan, Interest, Overdraft
Level: Level 3

Series: MAY 2020

CR – May 2020 – L3 – Q2c – Defined Benefit Pension Plan

Recommend the accounting treatment for a defined benefit pension plan with supporting calculations.

Question

Nzema prepares its financial statements in accordance with International Financial Reporting Standards (IFRS) with a financial year end of 31 December 2018. On 1 January 2018, Nzema commenced a defined benefit pension plan for a number of head office employees. Under the pension scheme, Nzema has an obligation to provide these staff with agreed post-employment benefits. Nzema carries the actuarial and investment risk associated with the pension scheme.

The following information has been compiled from workings by Nzema’s accounting staff and actuarial reports for the 2018 financial year:

GH¢
Interest income on plan assets	16,500
Employer contributions to plan	550,000
Current service cost	600,000
Interest on plan liability	18,000
Fair value of plan assets at 31/12/2018	580,000
Present value of plan obligation at 31/12/2018	620,000

The Accountant was not sure which accounting standard to apply when accounting for the pension scheme. The only adjustment made to account for the scheme was to expense the company’s contributions of GH¢550,000 for the 2018 financial year in the Statement of Profit or Loss and Other Comprehensive Income and to credit the ‘Cash’ account.

Required:
Recommend, with appropriate calculations, the necessary accounting treatment for this accounting issue.

Answer

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Tags: Actuarial Gains/Losses, Defined Benefit Plan, Employee Benefits, Interest on Plan Liability, Pension Liability
Level: Level 3

Topic: IAS 19: Employee Benefits
Series: MAY 2020

CR – May 2020 – L3 – Q3a – Foreign Currency Transactions

Foreign currency transactions related to purchases, sales, and investment property with exchange rate variations and reporting implications.

Question

Medina Power Ltd has carried out certain transactions denominated in foreign currency during its financial year ended 31 October 2019 and has also conducted foreign operations through a foreign entity. Medina Power Ltd.’s functional and presentation currency is the cedi.

On 31 July 2019, Medina Power Ltd purchased goods from a foreign supplier for 16 million dinars. At 31 October 2019, the supplier had not yet been paid and the goods were still held in inventory by Medina Power Ltd.

On 31 July, Medina Power Ltd sold goods to a foreign customer for 8 million dinars, and it received payment for the goods in dinars on 31 October 2019.

Medina Power Ltd had also purchased an investment property on 1 November 2018 for 56 million dinars. At 31 October 2019, the investment property had a fair value of 48 million dinars. The company uses the fair value model in accounting for investment properties.

Medina Power Ltd wants advice on how to treat these transactions in the financial statements for the year ended 31 October 2019.

Required:
Discuss the accounting treatment of the above transactions in accordance with the advice required by the directors. (You should show detailed workings as well as a discussion of the accounting treatment used.)

Answer

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Tags: Foreign Exchange, Investment properties, Monetary and non-monetary transactions, Revenue Recognition
Level: Level 3

Topic: Foreign currency
Series: MAY 2020

CR – May 2020 – Q3b(i) – Ethical Issues in Contract Bidding

This question requires a discussion on the ethical issues related to conflict of interest, confidentiality, and professional behavior in a contract bidding scenario.

Question

You have just obtained your full membership with the Institute of Chartered Accountants (Ghana). Following this successful achievement, you have been appointed as the Head of Finance at Asasiyemedeh Company Limited, a Ghanaian company, which provides catering services. Your former employer, Akwaba Limited, is a large public sector organization operating in Accra, where, as the Financial Accountant, you had the opportunity to work on areas relating to financial accounting, procurement, contracts, and bids. One of Asasiyemedeh Company Limited’s major contracts is with Akwaba Limited, your former employer. The contract is now due for renewal, and Asasiyemedeh Company Limited is preparing a competitive bid for this contract.

You have been tasked to lead the team responsible for bidding for this contract, but you are concerned as a professional that you might breach confidentiality if you accept this role. You also suspect that your knowledge and experience of Akwaba Limited were seen as good reasons for appointing you to the position of Head of Finance at Asasiyemedeh Company Limited. You do not in any way want to let your new employer down as you are aware that the loss of such a major contract would have a significant effect on the financial performance of Asasiyemedeh Company Limited, and its performance-related bonus scheme for management members.

Required:
Discuss the ethical issues raised in the above scenario.

Answer

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Tags: Confidentiality, Conflict of Interest, Ethics, Professional Behavior
Level: Level 3

Topic: Regulatory Framework and Ethics
Series: MAY 2020

CR – May 2020 – Q3b(ii) – Ethical Actions in Contract Bidding

This question requires recommendations for maintaining ethical standards in a contract bidding situation involving a conflict of interest.

Question

Recommend the possible courses of action that you will take in order to be ethically responsible as expected from a Professional Accountant.

Answer

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Tags: Confidentiality, Conflict of Interest, Ethics, Professional Responsibility
Level: Level 3

Topic: Regulatory Framework and Ethics
Series: MAY 2020

CR – May 2020 – Q4b – Statement of Financial Position for Sasasila Ltd

This question requires the preparation of a statement of financial position for Sasasila Ltd following its restructuring.

Question

Prepare the statement of financial position as at 31 December 2019 for Sasasila Ltd.

Answer

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Tags: Assets and liabilities, Corporate reorganization, Financial restructuring, Statement of Financial Position
Level: Level 3

Topic: Corporate reconstruction and reorganisation
Series: MAY 2020

CR – May 2020 – Q5 – Financial Performance and Position of Bossman Ltd

This question involves analyzing the financial performance and position of Bossman Ltd over three years using ratio analysis.

Question

Answer

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Tags: Financial Analysis, Liquidity, Performance Analysis, Profitability, Solvency
Level: Level 3

Topic: Analysis and Interpretation of Financial Statements
Series: MAY 2020

CR – May 2020 – Q4a – Capital Reduction Account

This question requires the preparation of a Capital Reduction Account for Sasasila Ltd following a reorganization.

Question

Sasasila Ltd has been operating profitably for a number of years. However, in recent times, the company has been making losses. Below is the statement of financial position as at 30 June 2019:

Assets	GH¢000
Non-Current Assets
Patents and copyrights	75,000
Land and buildings (net)	200,000
Plant and machinery (net)	150,000
Current Assets
Inventories	125,000
Trade receivables	125,000
Bank	37,500
Investments (cost)	100,000
Total Assets	812,500

Equity and liabilities:
Equity
Ordinary share capital (issued at GH¢10 each)	375,000
20% cumulative preference shares (issued at GH¢10 each)	175,000
Retained earnings	(75,000)
Non-current Liabilities
15% Debentures	125,000
Current Liabilities
Interest on debentures	18,750
Trade payables	93,750
Provision for business restructuring	50,000
Provision for legal damages & claims	12,500
Provision for warranties	37,500
Total Equity and Liabilities	812,500

Additional relevant information: The following scheme of reconstruction was approved by all parties as well as the High Court with the exception of only one ordinary shareholder:

The ordinary shares were to be reduced to GH¢5 per share.
The preference shares were to be reduced to GH¢7.5 per share and arrears in dividends for three years were to be canceled from the company’s books.
The fair values of the assets were agreed at the following values:
- Patents and copyrights: Nil
- Land and buildings: GH¢225,000
- Plant and machinery: GH¢75,000
- Investments: GH¢75,000
- Inventories: GH¢105,000
- Trade receivables: GH¢70,000
The balance on retained earnings is to be eliminated in full.
The liability for legal damages and claims was to be settled for GH¢10 million, and the provision for warranties reduced to GH¢27.5 million.
The accrued debenture interest was to be paid in cash.
Investments with a carrying amount of GH¢52.5 million were to be sold for cash at that value to strengthen the working capital position.
The amount set aside for business restructuring was to be eliminated as well.
The High Court directed a payment of GH¢0.2 million to a member who opposed the scheme for 50 ordinary shares held by him.

Prepare the Capital Reduction Account as at 30 June 2019.

Answer

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Tags: Capital Reduction, Corporate reorganization, Equity, Liabilities
Level: Level 3

Topic: Corporate reconstruction and reorganisation
Series: MAY 2020

FA – May 2020 – L1 – Q4 – Preparations of accounts from Incomplete Records | Preparation of financial statements of a sole trader

This question involves preparing a statement of profit or loss and a statement of financial position for a sole trader from incomplete records.

Question

On 30 June 2019, the accounting records of Kofi, a sole trader, were partly destroyed by fire. The following list of assets, liabilities, and equity as at 30 June 2018 is available:

Assets, Liabilities, and Equity	Amount (GH¢)
Plant and equipment – cost	200,000
– Accumulated depreciation	72,000
Office fixtures– cost	50,000
– Accumulated depreciation	5,000
Inventory	30,500
Trade receivables and prepayments – Note (iv)	35,000
Trade payables and accrued expenses – Note (iv)	17,600
Bank overdraft	8,850
Loan (10% interest per annum)	95,000
Capital	117,050

The following summary of receipts and payments for the year to 30 June 2019 has been extracted from the bank statements:

Receipts	Amount (GH¢)
Capital introduced	22,000
From credit customers	427,500

Payments	Amount (GH¢)
Cash drawings – Note (v)	22,450
Loan repayments – Note (vii)	20,000
To credit suppliers	175,600
Rent	22,000
Wages	90,000
Office expenses	12,500

In preparing the statement of profit or loss and statement of financial position at 30 June 2019, the following further information is relevant:

Notes
i) Inventory at 30 June 2019 was GH¢27,850.
ii) Depreciation is to be provided as follows:

Plant and equipment 20% per annum, reducing balance basis
Office equipment 10% per annum on cost
iii) During the year, Kofi introduced a motor vehicle valued at GH¢5,000 into the business. It is to be depreciated over 4 years on the straight-line basis with a full year’s depreciation charge in the year of acquisition.
iv) Prepayments and accrued expenses as at 30 June 2018 were:
Rent paid in advance GH¢2,500
Accrued wages GH¢4,300
v) Cash drawings during the year included GH¢6,750 for wages, GH¢4,200 for cash payments to suppliers, and GH¢2,600 for advertising leaflets (of which half are yet to be distributed). The remainder was Kofi’s personal expenditure.
vi) The bank balance per the bank statement as at 30 June 2019 after adjusting for unpresented cheques was GH¢106,700. Any difference is assumed to be cash takings (i.e., in respect of cash sales).
vii) Loan repayments include interest amounting to GH¢9,500.
viii) At 30 June 2019 the following assets and liabilities existed:
Rent paid in advance GH¢2,700
Accrued wages GH¢5,250
Amounts due to suppliers GH¢12,200
Amounts due from customers GH¢22,300
ix) On 3 July 2019, Kofi’s major customer, Yaw, went into liquidation owing GH¢16,000. A statement from the customer’s liquidator indicates that Kofi should expect to recover 20 pesewas for every GH¢1 owing.

Required:
Prepare Kofi’s statement of profit or loss for the year ended 30 June 2019 and a statement of financial position as at that date. Ignore taxation. (20 marks)

Answer

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Tags: Financial Statements, Incomplete Records, Profit or Loss Statement, Statement of Financial Position
Level: Level 1

FA – May 2020 – L1 – Q3 – Bank reconciliations | Correction of errors

This question involves preparing an adjusted cash book, reconciling it with the bank statement, and explaining the reasons for regular bank reconciliation.

Question

a) On 15 October 2019, Mr. Ladzagla received his bank statement for the month ended 30 September 2019. The statement showed a balance of GH¢208,700 (overdraft) as at 30 September, while the cash book showed a balance of GH¢262,995 (credit) as at that date.

On examination of the cash book and the bank statement, the following were discovered:

i) Mr. Ladzagla exceeded his overdraft limit during the month of September. The bank had therefore charged him a penalty of GH¢1,250. This has not been effected in the cash book.
ii) A sum of GH¢6,250 had been credited to Ladzagla’s bank account in error by the bank.
iii) Bank charges of GH¢1,005 had not been recorded in the cash book.
iv) A cheque for GH¢6,150 had been returned by the bank as dishonoured. Due to the dishonoured cheque, the bank charged Ladzagla GH¢75. Both the dishonoured cheque and the fee charged have not been effected in the cash book.
v) Cash receipts of GH¢18,700 were posted as cash payment of GH¢23,650 in the cash book.
vi) On 21 September, Mr. Ladzagla lodged cash of GH¢3,250 to his personal bank account. This was lodged into the business bank account in error by the bank.
vii) Standing order and direct debits of GH¢5,575 had not been posted to the cash book.
viii) Payment of GH¢10,850 received from customers had been lodged in the bank account but is yet to be posted to the cash book.
ix) Lodgements of GH¢25,600 to bank on 30 September 2019 had not been credited by the bank.
x) The following cheques drawn on the bank accounts had not been presented to the bank for payment as at 30 September 2019:

Cheque Number	Date cheque was written	Amount (GH¢)
No. 3528	11 September 2019	4,200
No. 3535	28 September 2019	8,700
No. 3557	30 September 2019	18,350

Required:
i) Prepare the adjusted cash book for the month of September 2019. (8 marks)
ii) Prepare a statement on 30 September 2019 reconciling the adjusted cash book with the bank statement balance. (8 marks)
iii) State TWO (2) reasons for preparing bank reconciliation on a regular basis. (4 marks)

Answer

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Tags: Bank Reconciliation, Cash Book, Errors, Financial Statements
Level: Level 1

Topic: Bank reconciliations, Correction of errors
Series: MAY 2020

FA – May 2020 – L1 – Q2 – Preparation of Partnership accounts

This question involves preparing a trial balance, correcting errors through a suspense account, and preparing partnership capital and appropriation accounts.

Question

Sodzedo is sole proprietor with a small business. Below is a list of balances of the trial
balance extracted as at 30 June 2019 which failed to agree:
GH¢
Purchases 66,450
Payables 44,520
Sales 213,390
Discount allowed 2,220
Receivables 158,550
Sales Returns 6,300
Expenses 32,130
Non-Current Assets 68,250
Bank Overdraft 9,420
Capital 37,500
VAT Liabilities 18,960

a) Prepare the trial balance for Sodzedo as at 30 June 2019 and derive the balance in suspense account as at 30 June 2019. (5 marks)

b) A detailed examination of the books was undertaken, and the following matters were uncovered:

i) The total in the purchases day book was GH¢126,450, but the figure used when posting to the purchases account was GH¢66,450.
ii) An invoice from a supplier for goods amounting to GH¢25,500 plus VAT at 10% was not recorded in the books and records of Sodzedo.
iii) During the bank reconciliation process, it came to light that GH¢525.70 was earned in interest during the year and has not been accounted for.
iv) A review of the ledgers revealed that receivables were overcast by GH¢75,720.
v) Cash drawings by Sodzedo of GH¢5,610 were treated as cash sales in error.

Required:
Prepare a suspense account to clear the difference. (5 marks)

c) Ansah and Boakye have been in partnership for a number of years. The partners did not have a partnership agreement. The following balances have been extracted from the books as at 1 January 2018:

Capital Accounts:

Partner	Amount (GH¢)
Ansah	160,000
Boakye	240,000

Current Accounts:

Partner	Amount (GH¢)
Ansah	10,400 Dr
Boakye	8,200 Dr

On 1 July 2018, they decided to admit Owusu to the partnership. On this date:
Owusu introduced capital of GH¢150,000 into the partnership. The amount was paid into the bank account.

Non-current assets were revalued from GH¢280,000 to GH¢420,000. Inventory was revalued from GH¢70,000 to GH¢30,000. Goodwill was valued at GH¢150,000. It was decided that goodwill would not remain in the books of the new partnership.

The three partners agreed that:

Profits and losses would be shared equally.
Under the new partnership agreement, 10% interest per annum on capital is allowed. The interest on capital is calculated on the adjusted balances after admission of Owusu.
Each partner would receive a salary of GH¢27,000 per annum. No interest on drawings would be paid.

The net profit before appropriation for the year ended 31 December 2018 was calculated at GH¢471,800. Profits earned accrued evenly throughout the year.

The partners’ drawings were:

Partner	Amount (GH¢)
Ansah	85,000
Boakye	62,000
Owusu	38,000

Required:

i) Prepare the Capital Accounts for Ansah, Boakye, and Owusu for the year ended 31 December 2018. (8 marks)
ii) Prepare the Appropriation Account for Ansah and Boakye for the half year ended 30 June 2018. (2 marks)

Answer

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Tags: Errors Correction, Partnership Accounting, Suspense account, Trial Balance
Level: Level 1

Topic: Preparation of Partnership accounts
Series: MAY 2020

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.

Question

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)

Answer

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Tags: Depreciation, Disposal of assets, Financial Statements, Ledger Accounts
Level: Level 1

Topic: Double entry bookkeeping, Non-current assets and depreciation, Preparation of financial statements of a sole trader
Series: MAY 2020

IMAC – MAY 2020 – L1 – Q5 – Forecasting | Standard Costing and Variance Analysis

Calculate sales trend using moving average and line of best fit; identify sources of information for standard prices.

Question

a) The monthly sales of Danamo Company Limited have been given as follows:

Monthly Sales (GH¢’000)	Moving Total (GH¢’000)
April	150
May	140
June	160
July	180
August	200
September	190
October	220
November	230
December	250

Required:
i) Using the three-month moving average, calculate the trend. (3 marks)

ii) Using the line of best fit, estimate the sales of January, February, and March of the following year. (12 marks)

b) State and explain FIVE (5) sources of information that may be considered in setting standard prices for materials in Management Accounting. (5 marks)

Answer

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Tags: Forecasting, Moving Average, Standard Prices, Trend Analysis
Level: Level 1

Topic: Forecasting, Standard Costing and Variance Analysis
Series: MAY 2020

IMAC – MAY 2020 – L1 – Q4 – Accounting for Inventory and Labour | Standard Costing and Variance Analysis

Compare FIFO and weighted average inventory valuation, compute profit, and explain standard costing concepts.

Question

a) Grains Dealers Ltd is in the business of buying farm produce in bulk from out-growers for onward sale to manufacturers. In view of the huge volumes of receipt and sale transactions, the company is unable to use the specific pricing method for valuing inventories. The company needs advice on the impact on profit of using the FIFO or Weighted Average methods of inventory valuation. The following data has been extracted for the month of October 2019 for use:

Inventory balance as at 01/10/19 was 800 units at GH¢4 per unit.

Date	Purchases	Sales
	Quantity	Price (GH¢)
05/10/2019	1,200	5.00
10/10/2019
12/10/2019	1,500	6.00
15/10/2019	1,800	7.25
18/10/2019
25/10/2019	2,400	8.00
28/10/2019

Additional information:
A physical inventory count on 31 October 2019 revealed a shortage of 200 units.

Required:
i) Prepare the inventory ledger showing the value of costs of inventory sold, and the closing inventory on the basis of the perpetual inventory valuation system under:

FIFO Method (6 marks)
Weighted Average Method (6 marks)

ii) Compute the profit for the month for each method in columnar form. (3 marks)

b) Explain the following as used in standard costing and variance analysis:
i) Ideal standard;
ii) Attainable standard; (5 marks)

Answer

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Tags: FIFO Method, Inventory Valuation, Standard Costing, Weighted Average Method
Level: Level 1

Topic: Accounting for Inventory and Labour, Standard Costing and Variance Analysis
Series: MAY 2020

IMAC – MAY 2020 – L1 – Q3 – Cost-Volume-Profit (CVP) Analysis | Decision-making techniques

Identify public sector decision areas for management accounting, suggest improvement techniques, and state CVP analysis assumptions.

Question

) Management Accounting provides information for planning, control, and decision-making. It has been argued that Public Sector entities can even benefit more from Management Accounting than profit-making entities.

Required:
i) Identify FOUR (4) decision areas of the Public Sector where Management Accounting can be applied. (6 marks)
ii) Suggest an appropriate technique that can be used to improve decision-making in such areas. (9 marks)

b) State FIVE (5) assumptions underlying cost-volume-profit analysis in managerial accounting. (5 marks)

Answer

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Tags: CVP Analysis Assumptions, Investment Appraisal, Public Sector Decision Areas, Relevant Costing
Level: Level 1

Topic: Cost-Volume-Profit (CVP) Analysis, Decision-making techniques
Series: MAY 2020

IMAC – MAY 2020 – L1 – Q2 – Budgeting

Explain objectives of budgeting, prepare production and material budgets, and describe principal budget factor.

Question

a) Budgeting has several objectives:
i) Planning;
ii) Control;
iii) Performance evaluation;
iv) Motivation.

Required:
Explain TWO (2) of the above objectives of budgeting and how the TWO (2) objectives explained could conflict with each other. (4 marks)

b) A company produces two products, A1 and A2, that are sold to retailers. The budgeted sales volumes for the products are as follows:

Product	Units
A1	32,000
A2	56,000

The inventory of finished goods is budgeted to increase by 1,000 units of A1 and decrease by 2,000 units of A2 by the end of the quarter.

Materials B3 and B4 are used in the production of both products.
The quantities required of each material to produce one unit of the finished product and the purchase prices are shown in the table below:

Material	B3	B4
A1	8kg	4kg
A2	4kg	3kg
Purchase price per kg	GH¢1.25	GH¢1.80
Budgeted opening inventory	30,000kg	20,000kg

The company plans to hold inventory of raw materials, at the end of the quarter, of 5% of the quarter’s material usage budget.

Required:
Prepare the following budgets for the quarter:
i) The production budget (in units) (2 marks)
ii) The material usage budget (in kg) (4 marks)
iii) The material purchases budget (in kg and GH¢) (6 marks)

c) Explain the term “Principal Budget Factor” as used in budgeting control and give TWO (2) examples from a financial institution. (4 marks)

Answer

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Tags: Budgeting Objectives, Material Purchases, Material Usage, Principal Budget Factor, Production Budget
Level: Level 1

Topic: Budgeting
Series: MAY 2020

IMAC – MAY 2020 – L1 – Q1 – Marginal Costing and Absorption Costing

Prepare profit or loss statements using marginal and absorption costing for Smooth Sailing Ltd.

Question

Additional information:
Fixed production overheads are budgeted to be GH¢40,000 per month for a budgeted monthly
production of 20,000 units. Production overheads are absorbed on a unit of production basis.
Required:
a) Using marginal costing principles, prepare a statement of profit or loss for the THREE (3)
months to September 2019. (10 marks)
b) Using absorption costing principles, prepare a statement of profit or loss for the THREE (3)
months to September 2019. (10 marks)

Answer

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Tags: Absorption Costing, Marginal Costing, Profit or Loss Statement
Level: Level 1

Topic: Marginal Costing and Absorption Costing
Series: MAY 2020

Series: MAY 2020

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CR – May 2020 – L3 – Q1 – Consolidated Statement of Financial Position

Prepare the consolidated statement of financial position for Phato Ltd and its subsidiaries as at 30 September 2019, including relevant calculations for goodwill, non-controlling interest, and asset impairments.

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CR – May 2020 – L3 – Q2a – Government Grants for Factory Construction

Discuss the accounting treatment for a government grant received for the construction of a factory, showing calculations and relevant entries.

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CR – May 2020 – L3 – Q2b – Capitalization of Borrowing Costs

Required: Determine the maximum amount that could potentially be capitalized as borrowing costs during the period (assuming an asset was being financed using all available finance).

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CR – May 2020 – L3 – Q2c – Defined Benefit Pension Plan

Recommend the accounting treatment for a defined benefit pension plan with supporting calculations.

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CR – May 2020 – L3 – Q3a – Foreign Currency Transactions

Foreign currency transactions related to purchases, sales, and investment property with exchange rate variations and reporting implications.

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CR – May 2020 – Q3b(i) – Ethical Issues in Contract Bidding

This question requires a discussion on the ethical issues related to conflict of interest, confidentiality, and professional behavior in a contract bidding scenario.

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CR – May 2020 – Q3b(ii) – Ethical Actions in Contract Bidding

This question requires recommendations for maintaining ethical standards in a contract bidding situation involving a conflict of interest.

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CR – May 2020 – Q4b – Statement of Financial Position for Sasasila Ltd

This question requires the preparation of a statement of financial position for Sasasila Ltd following its restructuring.

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CR – May 2020 – Q5 – Financial Performance and Position of Bossman Ltd

This question involves analyzing the financial performance and position of Bossman Ltd over three years using ratio analysis.

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CR – May 2020 – Q4a – Capital Reduction Account

This question requires the preparation of a Capital Reduction Account for Sasasila Ltd following a reorganization.

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FA – May 2020 – L1 – Q4 – Preparations of accounts from Incomplete Records | Preparation of financial statements of a sole trader

This question involves preparing a statement of profit or loss and a statement of financial position for a sole trader from incomplete records.

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FA – May 2020 – L1 – Q3 – Bank reconciliations | Correction of errors

This question involves preparing an adjusted cash book, reconciling it with the bank statement, and explaining the reasons for regular bank reconciliation.

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FA – May 2020 – L1 – Q2 – Preparation of Partnership accounts

This question involves preparing a trial balance, correcting errors through a suspense account, and preparing partnership capital and appropriation accounts.

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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.

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IMAC – MAY 2020 – L1 – Q5 – Forecasting | Standard Costing and Variance Analysis

Calculate sales trend using moving average and line of best fit; identify sources of information for standard prices.

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IMAC – MAY 2020 – L1 – Q4 – Accounting for Inventory and Labour | Standard Costing and Variance Analysis

Compare FIFO and weighted average inventory valuation, compute profit, and explain standard costing concepts.

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IMAC – MAY 2020 – L1 – Q3 – Cost-Volume-Profit (CVP) Analysis | Decision-making techniques

Identify public sector decision areas for management accounting, suggest improvement techniques, and state CVP analysis assumptions.

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IMAC – MAY 2020 – L1 – Q2 – Budgeting

Explain objectives of budgeting, prepare production and material budgets, and describe principal budget factor.

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IMAC – MAY 2020 – L1 – Q1 – Marginal Costing and Absorption Costing

Prepare profit or loss statements using marginal and absorption costing for Smooth Sailing Ltd.

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Required:
Determine the maximum amount that could potentially be capitalized as borrowing costs during the period (assuming an asset was being financed using all available finance).