Study Question
- 15 Marks
MA – L2 – Q13 – Cash budgets and master budgets
Prepare a cash budget for the Department of Commerce for Q2 202X, showing monthly and quarterly cash forecasts.
Question
On 31st March 202X, the bank balance standing in the books of the Department of Commerce was GHC 900,000. The Department provides you with the information below.
| Month | IGF GHC000 | GoG releases GHC000 | Donation GHC000 | Wages and salaries GHC000 | Goods and services GHC000 | Office equipment GHC000 | Advances GHC000 |
|---|---|---|---|---|---|---|---|
| Jan | 4,100 | 2,000 | 1,200 | 1,000 | 50 | ||
| Feb | 900 | 500 | 320 | 300 | 40 | ||
| March | 1,300 | 500 | 400 | 320 | 400 | 50 | |
| April | 1,200 | 600 | 200 | 620 | 320 | 40 | |
| May | 1,000 | 600 | 550 | 220 | 60 | ||
| June | 1,000 | 600 | 200 | 660 | 420 | 500 | 50 |
Relevant notes to the data:
(i) The Internally Generated Funds (IGF) is made up of 70% cash and 30% receivables. The receivables are collectible as follows: 60% in the month following the service delivery and the remaining 40% in the second month following the service delivery. The department is entitled to retention of 80% of IGF collected and the remaining 20% is payable into the National Treasury Fund in the month in which it was collected.
(ii) The department also enjoys a budget allocation from the Government of Ghana (GoG) and the government promises to make payments according to the schedule shown.
(iii) The department anticipates that it will receive some donations as scheduled above. It is expected that 30%, 40%, and 70% of donations in March, April, and June respectively will be in cash. The remaining portions are expected to come in the form of materials.
(iv) Wages and salaries will be paid at the end of each month.
(v) Goods and services are paid for one month in arrears.
(vi) The office equipment acquired in January will be paid for in the third month following the purchase and the one to be acquired in June will be paid for immediately.
(vii) The office equipment is to be depreciated at 2.5% of cost per month.
(viii) Staff of the department are granted advances under an advance scheme approved by the government. The advances will be recovered in four equal instalments beginning from the month following the month in which the advance is granted.
Required:
Prepare a cash budget for the department for the Second Quarter of 202X showing clearly the cash forecast for individual months and the total for the quarter as a whole.
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- 15 Marks
FA – L1 – Q22 – Non-current assets and depreciation
Prepare Patowato Motors’ vehicle accounts for 20X6-20X9 and explain why revaluing some vehicles is unethical
Question
Patowato Motors Limited leases second-hand German sports cars for special occasions. It started business on 1 January 20X6 and has decided to depreciate the cars on a straight line basis at 25% per annum on cost at the year-end. During the years 20X6 to 20X9 the following purchases and sales of cars took place.
20X6 Acquired 20 Porsche 928 Turbos at a cost of GH₵18.6 million each
20X7 Purchased 6 Porsche vehicles for a total cost of GH₵108.6 million.
20X8 Traded-in two of the cars acquired in 20X6 and received an allowance of GH₵9 million each which was set against the purchase of a further two cars costing GH₵19.8 million each
20X9 Replaced 15 cars purchased in 20X6 with another 15, each of which cost GH₵21 million. A trade-in allowance totalling GH₵48 million was received
Patowato Motors Limited prepares accounts to 31 December each year.
The finance director of Patowato Motors Limited, who is a qualified accountant, intends to apply the revaluation model to those of the company’s sports cars that appreciate in value. He intends to recognise revaluation increases in profit or loss and has told colleagues that this will boost the directors’ bonuses.
Required
(a) Prepare a vehicle account, an accumulated depreciation account, a depreciation account and a disposals account for the years 20X6 to 20X9.
(b) Explain why the finance director’s suggestion to revalue some vehicles is unethical
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- 10 Marks
FA – L1 – Q21 – Non-current assets and depreciation
Prepare Tabori Construction’s plant and machinery accounts for 20X8-20X9, correcting a past error.
Question
Tabori Construction, a sole proprietorship, recognises depreciation on plant and machinery at 20% per annum reducing balance. On July 1, 20X8 the balances on the plant and machinery and accumulated depreciation accounts were GH₵712,000 and GH₵240,000 respectively. Depreciation is recognised from the month of purchase. During 20X8-20X9, the auditors discovered that a repair which cost GH₵25,000 and incurred on October 1, 20X6 had been capitalised incorrectly. It was decided to correct this mistake while finalising the accounts for the year ended June 30, 20X9. Only one machine was purchased during the year ended June 30, 20X9 costing GH₵60,000. The machine was received in the factory on October 1, 20X8 and was installed on January 1, 20X9.
Required
Prepare the plant and machinery account and accumulated depreciation account for the year ended June 30, 20X9. (Show all workings)
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- 20 Marks
MA – L2 – Q12a – Activity-based costing
Calculate product costs for two products using traditional absorption costing based on machine hours.
Question
MCC has total budgeted production overheads for next year of GH₵816,000 and has traditionally absorbed overheads on a machine hour basis. It makes two products, Product A and Product B.
| Product A | Product B | |
|---|---|---|
| Direct material cost per unit | GH₵20 | GH₵60 |
| Direct labour cost per unit | GH₵50 | GH₵40 |
| Machine time per unit | 3 hours | 4 hours |
| Annual production | 6,000 units | 4,000 units |
Required:
(a) Calculate the product cost for each of the two products on the assumption the firm continues to absorb overhead costs on a machine hour basis.
The company is considering changing to an activity based costing (ABC) system and has identified the following information:
| Product A | Product B | |
|---|---|---|
| Number of setups | 18 | 32 |
| Number of purchase orders | 48 | 112 |
| Overhead cost analysis | GH₵ |
|---|---|
| Machine-related overhead costs | 204,000 |
| Setup related overhead costs | 280,000 |
| Purchasing-related overhead costs | 332,000 |
| Total production overheads | 816,000 |
Required:
(b) Calculate the unit cost for each of the two products on the assumption that the firm changes to an ABC system, using whatever assumptions you consider appropriate.
(c) Suggest how ABC analysis could be useful for measuring performance and improving profitability.
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- 12 Marks
FA – L1 – Q20 – Non-current assets and depreciation
Record Sophia’s machine transactions for 20X6-20X8 and show financial position extracts.
Question
Since she commenced business on 1 January 20X6, Sophia has purchased for cash the following three machines.
| Machine | Date of purchase | Cost (GH₵) | Rate of depreciation |
|---|---|---|---|
| Machine 1 | 20 January 20X6 | 4,200 | 25% |
| Machine 2 | 17 April 20X7 | 5,000 | 30% |
| Machine 3 | 11 July 20X8 | 3,500 | 35% |
Sophia’s policy is to charge a full year’s depreciation in the year of purchase irrespective of the date of purchase. The reducing balance method is used to calculate depreciation. Accounts are prepared to 31 December each year.
Required
(a) Prepare the machinery account and accumulated depreciation account showing the charge to the depreciation account for each year.
(b) Show the relevant statement of financial position extracts for each year.
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- 15 Marks
MA – L2 – Q11 – Activity-based costing
Calculate budgeted production cost per unit for products using traditional and activity-based costing methods.
Question
ADDO COMPANY
ADDO Company has a single production process, for which the following costs have been estimated for the period ending 31st December Year 7:
| GH¢ | |
|---|---|
| Material receipt and inspection costs | 31,200 |
| Power costs | 39,000 |
| Material handling costs | 27,300 |
ADDO Company makes three products – X, Y, and Z. These products are made by the same group of employees, using power drills. The employees are paid GH¢8 per hour. The following budgeted information has been obtained for the period ending 31st December Year 7:
| Product X | Product Y | Product Z | |
|---|---|---|---|
| Production quantity (units) | 2,000 | 1,500 | 800 |
| Batches of material | 10 | 5 | 15 |
| Direct material (metres) | 5 | 3 | 4 |
| Direct material cost (GH¢) | 6 | 4 | 6 |
| Direct labour (minutes) | 30 | 20 | 15 |
| Number of power drill operations (per unit) | 3 | 2 | 3 |
Overhead costs are currently absorbed into the cost of production units using an absorption rate per direct labour hour. A factory-wide absorption rate is used for work in all the production departments.
An activity-based costing investigation has revealed that the cost drivers for the overhead costs are as follows:
- Material receipt and inspection: number of batches of material
- Power: number of power drill operations
- Material handling: quantity of material (metres) handled.
Required:
Prepare a summary of the budgeted production cost per unit for each of the products X, Y, and Z for the period ending 31 December Year 7:
(a) using the existing method for the absorption of overhead costs, and
(b) using an approach based on activity-based costing, and the information available about cost drivers.
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- 10 Marks
FA – L1 – Q19 – Non-current assets and depreciation
Record Martin’s machine transactions for 20X8-20X9 and show financial position extracts.
Question
Martin bought a machine for GH₵10,000 on 1 January 20X8. He estimates a useful life of 8 years and a residual value of GH₵800. Depreciation is to be calculated on a straight-line basis.
Required:
(a) Write up for 20X8 and 20X9 the
(i) Machinery account (3 marks)
(ii) Accumulated depreciation account (3 marks)
(iii) Depreciation expense account (2 marks).
(b) Show how the machine would be presented in the statement of financial positions as at 31 December 20X8 and 31 December 20X9. (2 marks)
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- 6 Marks
FA – L1 – Q18 – Non-current assets and depreciation
Calculate annual depreciation for Avery’s van using straight-line and reducing balance methods.
Question
Avery purchased a van for GH₵800 cash. He estimates that in four years it will have a scrap value of GH₵104.
Required
(a) Calculate the annual depreciation charge on the straight-line method.
(b) Calculate the annual depreciation charge on the reducing instalment method (you will need to calculate the rate).
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- Tags: Depreciation, Non-current Assets, Reducing Balance Method, Straight-line Method, Van
- Level: Level 1
- 4 Marks
FA – L1 – Q17 – Non-current assets and depreciation
Calculate depreciation for a non-current asset and a building using the straight-line method.
Question
(a) The financial year of a company is 1st January to 31st December. A non-current asset was purchased on 1st May for GH₵60,000. Its expected useful life is five years and its expected residual value is zero. It is depreciated by the straight-line method.
Required
Calculate the charge for depreciation in the year of acquisition if a proportion of a full year’s depreciation is charged, according to the period for which the asset has been held. (2 marks)
(b) An office property cost GH₵5 million, of which the land value is GH₵2 million and the cost of the building is GH₵3 million. The building has an estimated life of 50 years.
Required
Calculate the annual depreciation charge on the property, using the straight-line method.
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- 25 Marks
FA – L1 – Q16 – Double entry bookkeeping
Prepare journal entries for Sparrow’s June 20X9 transactions in the main ledger.
Question
The following transactions in June are those of a new business entity, Sparrow.
June
| Date | Transaction |
|---|---|
| 1 | Set up the entity with capital in cash of GH₵6,500,000 paid into a bank account. |
| 2 | Bought goods on credit from C. Jenkins GH₵1,800,000. |
| 3 | Credit sales: J. Finch GH₵660,000, D. Swan GH₵250,000, Swift Enterprises GH₵430,000. (Total: GH₵1,340,000). |
| 4 | Purchased goods for cash (by cheque) GH₵230,000. |
| 5 | Bought second-hand motor van for GH₵2,560,000, paying by cheque. |
| 7 | Paid motor expenses GH₵120,000. |
| 9 | Credit sales: M. Partridge GH₵240,000, Finch Traders GH₵260,000, G. Sparrow GH₵680,000. (Total: GH₵1,180,000). |
| 11 | Purchased goods on credit: C. Jenkins GH₵2,400,000, E. Dawson GH₵620,000, A. Ellis GH₵460,000. (Total: GH₵3,480,000). |
| 13 | Purchases returned to C. Jenkins GH₵250,000. |
| 19 | Sales returns from D. Swan GH₵110,000. |
| 20 | Cash drawings taken by owner: GH₵440,000 by cheque. |
| 21 | Payments made to E. Dawson GH₵620,000, A. Ellis GH₵460,000. (Total: GH₵1,080,000). All payments were made by cheque. |
| 23 | Received payment from J. Finch: GH₵660,000 by cheque. |
| 25 | Received payment from Swift Enterprises: GH₵430,000 in cash which was kept in the office. |
| 28 | Purchases returned to C. Jenkins: GH₵420,000. |
| 29 | Purchased stationery GH₵40,000 (record as a sundry expense) using cash. |
| 30 | Credit sales: D. Swan GH₵420,000, Finch Traders GH₵540,000. (Total: GH₵960,000). |
Required
(a) Prepare journal entries to show how the following transactions in June 20X9 should be recorded in the main ledger accounts of Sparrow, a newly established business entity. The accounting system contains a receivables ledger and a payables ledger for individual accounts, and there are control accounts (Total: accounts) for receivables and payables in the main ledger. You are not required to include any narrative in the journal entries.
(b) List the transactions that will be entered in the receivables ledger accounts for the month.
(c) List the transactions that will be entered in the payables ledger accounts for the month.
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