Subject (SQ): FINANCIAL ACCOUNTING

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  • 20 Marks

FA – L1 – Q84 – Preparation of not-for-profit accounts

Prepare receipts and payments and income and expenditure accounts for Unity Sports Club for the year ended June 30, 20X9, using provided balances and membership data.

The following balances have been obtained from the books of Unity Sports Club:

June 30, 20X8 June 30, 20X9
Building 6,024,000 6,024,000
Furniture 3,012,000 3,012,000
Books 1,129,500 1,129,500
Sports equipment 1,807,200 1,807,200
Investments
Advance subscription 86,000 92,000
Prepaid expenses 122,000 176,000
Expenses payable 186,900 207,600
Subscriptions receivable 326,000 357,000
Cash 1,204,800 1,586,500

The following information is also available in respect of the year ended June 30, 20X9:
(i) Depreciation for the year has been credited directly to the asset accounts. The rates of depreciation are as follows:

  • Building: 5%
  • Furniture and books: 10%
  • Sports equipment: 20%

(ii) The club had 600 members on June 30, 20X9. No fresh members were admitted during the year but 10 members left the club on January 1, 20X9. Subscription per member is GH¢ 500 per month.

Required:
(a) Summary of receipts and payments made during the year ended June 30, 20X9.
(b) Income and expenditure account for the year ended June 30, 20X9.

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  • 20 Marks

FA – L1 – Q83 – Preparation of Partnership accounts

Define books of prime entry and list four examples.

(a) (i) Define book of prime entry.

(ii) Mention any four (4) books of prime entry.

(b) Farida, Jibril, and Esther are in partnership sharing profits and losses in the ratio of 5:3:2 respectively. According to the partnership agreement, partners’ capital accounts attract an interest of 20% per annum, while any drawings by a partner also attract 10% interest per annum.
The following trial balance has been extracted after the preparation of the statement of profit or loss for the period ending 31st December, 20X9.

Debit GH¢ Credit GH¢
Building 55,000 Capital – Farida 50,000
Furniture and Fittings 20,000 Capital – Jibril 30,000
Motor vehicle 45,000 Capital – Esther 20,000
Inventory 20,000 Payables 25,000
Receivables 20,000 Loan – Esther 20,000
Cash and bank 35,000 Current account – Farida 2,000
Current account – Jibril 5,000 Profit for the year 60,000
Current account – Esther 10,000
Total 210,000 Total 210,000

The following entries have not been recorded in the books:
(i) Salary of GH¢5,000 was paid to Esther during the period.
(ii) Farida personally paid general expenses of GH¢2,500 on behalf of the partnership.
(iii) Cash drawings made by partners: Farida GH¢500, Jibril GH¢1,500, and Esther GH¢1,200.
(iv) Interest on loan – Esther – GH¢2,000.
(v) Jibril took goods worth GH¢2,000 for personal use.
(vi) Interest on capital account. All capital accounts were to remain fixed.

You are required to prepare:
(i) Profit or loss and appropriation account.

(ii) Partners’ current account.

(iii) Farida, Jibril, and Esther Partnership

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  • 20 Marks

FA – L1 – Q81 – Preparation of Partnership accounts

Prepare capital accounts and statement of financial position for Alvin, Boris, and Gina partnership after Gina's admission, including adjustments for goodwill and revaluation.

Alvin and Boris are partners in a firm sharing profits and losses in the ratio of 3:2. The Statement of financial position of the firm as on 31 March 20X9 was as under:

Assets GH¢
Furniture and fixture 600,000
Office equipment 300,000
Motor car 375,000
Inventory 250,000
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Due to expansion in the business, Gina was admitted as a partner with effect from 1 April 20X9. Gina brought furniture worth GH¢120,000 and inventory costing GH¢80,000. She also contributed cash of GH¢150,000 plus her proportionate share of goodwill valued at two years’ purchase of the average profits of the last three years.
Following adjustments were considered necessary, at the time of admission:
(i) On 1 April 20X7, new furniture costing GH¢8,000 was purchased but wrongly debited to revenue account. The firm charges depreciation on furniture @ 10% on straight line basis.
(ii) An invoice dated 1 October 20X8 for purchase of goods amounting to GH¢24,000 has not been recorded.
(iii) Value of the sundry receivables on 31 March 20X9 is to be reduced by 6%.
The profits of the last three years, before the above adjustments were:

Year GH¢
20X8-11 352,100
20X7-10 232,000
20X9-09 128,000

It was decided that the future profits of the firm would be shared among Alvin, Boris, and Gina in the ratio of 5:3:2 respectively.

Required:
Prepare the capital accounts of the partners and the statement of financial position of the firm on Gina’s admission as a partner.

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  • 20 Marks

FA – L1 – Q80 – Preparation of Partnership accounts

Prepare capital accounts for Djembo, Akwele, and Eduvie partnership after Eduvie's admission, including revaluation, goodwill, and profit allocation.

Djembo and Akwele were in partnership and shared profits and losses in the ratio of 3:2 respectively. The balances on the partners’ capital accounts at July 1 20X8 were: Djembo GH₵250,000, Akwele GH₵400,000.
Due to expansion of business, Eduvie was admitted as a partner on October 1, 20X8 under the following arrangements:
(i) Assets were revalued upwards by GH₵200,000 but the revaluation was not recorded in the books.
(ii) Goodwill of the firm was assessed at GH₵300,000 and was retained in the books.
(iii) Eduvie invested GH₵500,000 as capital.
(iv) Eduvie was allowed a monthly salary of GH₵20,000 whereas Djembo and Akwele continued to receive salaries of GH₵28,000 and GH₵25,000 per month respectively, as in the past.
(v) The balance profit was to be shared: Djembo 35%; Akwele 35% and Eduvie 30%.
(vi) Mr. Atikpui was hired as manager from October 1, 20X8 at a salary equal to 5% of the profit remaining after deducting such salary but before charging partners’ salaries.
The profit for the year ended June 30, 20X9 amounted to GH₵486,000 after:
(i) Making allowance for a debt of GH₵48,000 incurred prior to July 20X8; and
(ii) providing for the partners’ salaries.
In addition to salaries, the partners withdrew the following amounts:
Djembo GH₵150,000; Akwele GH₵120,000; and Eduvie GH₵90,000

Required:
Partners’ capital accounts for the year ended June 30, 20X9.

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  • 10 Marks

FA – L1 – Q79 – Preparation of Partnership accounts

Prepare journal entries for partner retirement and admission, excluding goodwill in the books.

A summarized statement of financial position of ABC Partnership as on January 31, 20X9 is given below:

Debit GH₵ Credit GH₵
Non-current assets 1,700,000 Current liabilities 1,900,000
Current assets 4,700,000 James, Capital 1,000,000
Emma, Capital 1,500,000
Liam, Capital 2,000,000
6,400,000 6,400,000

James, Emma, and Liam share profits in the ratio of their capital in the partnership.
On January 31, 20X9, James retired from the partnership. For the purposes of his retirement, goodwill of the partnership was estimated at GH₵1.89 million. It was agreed that James would take cash from the business equal to the value of his closing capital after the goodwill adjustment.
On February 1, 20X9, Sophia was admitted to the partnership. The new profit sharing ratio was agreed at 3:4:2 for Emma, Liam, and Sophia respectively. Sophia agreed to bring in cash equivalent to her share of assets (excluding goodwill) in the new partnership plus an additional amount of GH₵0.5 million for goodwill.

Required:
Prepare journal entries to record the above transactions under the following assumption:
(a) Goodwill is not recorded in the books of account.

(b) Goodwill is recorded in the books of account.

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  • 20 Marks

FA – L1 – Q78 – Preparation of Partnership accounts

Prepare capital accounts and statement of financial position for M, N, O partnership after O's retirement and T's admission, adjusting for goodwill and revaluations.

M, N, and O are partners sharing profit in the ratio of their capitals. Their statement of financial position at June 30, 20X9 was as follows:

Statement of financial position as at June 30, 20X9

Assets GH₵
Land and building 450,000
Motor cars 350,000
Equipment 95,000
Inventories 500,000
Receivables 400,000
Less: Allowance (60,000)
340,000
Investments 300,000
Cash in hand 65,000
Cash at bank 450,000
Total Assets 2,550,000

Capital and Liabilities GH₵
Capital:
M 640,000
N 320,000
O 480,000
1,440,000
Payables and accrued expenses 485,000
Loan from N 625,000
Total Capital and Liabilities 2,550,000

On July 1, 20X9, O retired. His share of the net assets of the partnership was ascertained after taking into account the following adjustments:
(i) The allowance against receivables was to be adjusted to 10% of the book value of the receivables.
(ii) Inventories were to be written down by 5%.
(iii) The investments were revalued to their market value which was GH₵ 435,000.
(iv) Investments with a market value of GH₵ 160,000 were taken over by O.
(v) A motor car having a book value of GH₵ 150,000 was taken over by O for GH₵ 200,000.
(vi) O’s share of goodwill was agreed at GH₵ 216,000.

T was admitted as a partner on the same day that O retired and on the basis of the adjusted statement of financial position. He was given one-fourth share in the profits and he bought a proportionate share of capital and goodwill by paying cash into the business. The basis of valuation of goodwill for the purpose of admission of T as a partner was the same as at the time of O’s retirement.

M and N have decided that the cash paid in by T in respect of goodwill will be taken out of the business by them in their profit-sharing ratio.

Required:
Prepare capital accounts of the partners in columnar form and the statement of financial position of the firm as at July 1, 20X9 after the admission of T, assuming that goodwill is not retained in the books of account.

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  • 20 Marks

FA – L1 – Q77 – Preparation of Partnership accounts

Prepare partnership accounts for X and Y Dental Practice admitting a new partner, including goodwill valuation and capital adjustments.

X and Y are partners in a dental practice who share profits and losses in the ratio of 3:2. Their statement of financial position as on June 30, 20X9 is as follows:

Assets GH¢
Non-current assets 2,625,000
Investments 437,500
Long term receivables 875,000
Current assets 1,750,000
Total Assets 5,687,500

Capital and liabilities GH¢
Capital account:
X 1,050,000
Y 700,000
Total Capital 1,750,000
Long term loans 1,750,000
Current liabilities 2,187,500
Total Capital and Liabilities 5,687,500

They agree to admit Z as a new partner with effect from July 1, 20X9 on the following terms and conditions:

(i) The goodwill of the firm is to be valued at 2 years’ purchase of the average profits of the firm for the last three years GH¢ (This means that the average annual profit over the last three years is to be multiplied by 2). The profits over the last three years are as follows:

  • Year ended June 30, 20X7: GH¢675,000
  • Year ended June 30, 20X8: GH¢(700,000)
  • Year ended June 30, 20X9: GH¢1,000,000

(ii) Goodwill will not appear in the books of the firm.

(iii) Z will bring in cash amounting to GH¢1,460,000 which includes his share of goodwill in the firm.

(iv) Assets of the firm were agreed to be revalued as follows:

  • Non-current assets (net of depreciation): GH₵3,100,000
  • Long term receivables: GH₵875,000
  • Current assets: GH₵1,575,000

Investments will be taken over equally by Smith and Jones at their fair market value of GH₵400,000.

(v) The new profit sharing ratio is to be 7:5:8.

Required:
(a) Prepare the following ledger accounts:

  • Revaluation account
  • Partners’ capital accounts

(b) Prepare the opening statement of financial position of the new firm as on July 1, 20X9.

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  • 20 Marks

FA – L1 – Q76 – Preparation of limited liability company financial statements

Prepare Etabila Travel Limited's statement of profit or loss for 20X9 and statement of financial position as at 31 December 20X9 per IAS 1.

The trial balance of Etabila Travel Limited as at 31 December 20X9 is as follows:

DR (GH¢000) CR (GH¢000)
Ordinary share capital (GH¢1 shares) 600
Cash at bank 23
Tax (over-provision in 20X8) 25
10% loan notes (repayable in 2020) 300
General administrative expenses 300
Administrative salaries 46
General distribution expenses 160
Distribution salaries 24
Directors’ remuneration 35
Loan notes interest paid 10
Development costs (incurred during 20X9) 30
Dividend paid 15
Dividends received 30
Investments 45
Land and buildings – at cost 2,600
– accumulated depreciation at 1 January 20X9 200
Plant and machinery – at cost 320
– accumulated depreciation at 1 January 20X9 75
Retained earnings at 1 January 20X9 64
Purchases and sales 1,250 2,250
Profit on disposal of factory 60
Trade receivables and trade payables 100 220
Inventory at 1 January 20X9 60
Irrecoverable debts 5
Total 4,824 4,824

Additional Information:
(1) Closing inventory is valued at the lower of cost or net realisable value. At 31 December 20X9 it amounted to GH¢55,000.
(2) Non-current assets are depreciated on a straight-line basis assuming no residual value. The following depreciation rates are to be applied:

  • Buildings: 5%
  • Plant and machinery: 20%
    The depreciation charge for the year is to be apportioned as follows:

Distribution costs Administrative expenses
Buildings 70% 30%
Plant and machinery 75% 25%

The cost of the land was GH¢3,200,000. There were no purchases or sales of non-current assets during the year.
(3) Development costs are an intangible asset and are to be amortised (depreciated) over a three-year period. The amortisation (depreciation) charge is to be allocated to cost of sales.
(4) The profit (after tax) on disposal of the factory is considered to be a material amount for which separate disclosure is required.
(5) Tax on the profits for the year is estimated at GH¢95,000.
(6) Directors’ remuneration is to be analysed between distribution costs and administrative expenses as follows:

  • Distribution: GH¢15,000
  • Administration: GH¢20,000

Required:
Prepare the company’s statement of profit or loss for the year ended 31 December 20X9 and statement of financial position as at 31 December 20X9.

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  • 20 Marks

FA – L1 – Q75 – Preparation of limited liability company financial statements

Prepare Amswaim Beauty Products Limited's statement of profit or loss for the year ended 30 June 20X9 per IAS 1, with expense allocation by function.

The following draft statement of profit or loss has been prepared for Amswaim Beauty Products Limited for the year ended 30 June 20X9.

GH¢000 GH¢000
Opening inventory 78 Sales 2,282
Purchases 1,055 Sales returns (66)
Purchase returns (25)
Gross profit c/d 1,170 Closing inventory 62
2,278 2,278
Wages and salaries 160 Gross profit b/d 1,170
Office expenses 236 Dividends received 20
Depreciation:
Plant and machinery 84
Delivery vans 48
Office furniture 17
Directors’ salaries 163
Selling expenses 95
Rent of plant and machinery 21
Factory expenses 109
Legal expenses 25
Interest charges 70
Net profit c/d 162
1,190 1,190
Taxation on profits
Net profit after tax 116 Net profit b/d 162
Tax over-provided in the previous year 8
170 170

Additional Information:
(1) Directors’ salaries are classified as administrative expenses.
(2) Other wages and salaries are apportioned 70% to distribution costs and 30% to administrative expenses.
(3) Amswaim Beauty Products Limited analyses expenses by function.

Required:
Prepare the company’s statement of profit or loss for the year to 30 June 20X9 in accordance with IAS 1 Presentation of Financial Statements.

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