FINANCIAL ACCOUNTING – Page 8

FA – L1 – Q34 – Bad and doubtful debt

Write up irrecoverable debt expense and allowance for receivables accounts for three years with specific and general allowances.

Question

Kwame commenced trading on 1 April 20X6. He extracted the following list of balances from his sales ledger as at 31 March 20X7:

	GH₵
Kojo	200,000
Ama	400,000
Others	6,300,000
	6,900,000

In the year to 31 March 20X7:
(1) Kojo emigrated leaving numerous debts.
(2) Ama is disputing certain invoices, amounting to GH₵100,000, which have been outstanding for more than six months. Kwame estimates that Ama will eventually pay half the disputed amount.

In the year to 31 March 20X8:
The sales ledger listing as at 31 March 20X8 is as follows:

	GH₵
Esi	240,000
Adwoa	400,000
Ama	60,000
Others	6,600,000
	7,300,000

(1) Esi has been declared bankrupt and her debt is to be written off.
(2) Adwoa is experiencing cash flow difficulties. Kwame considers a 50% allowance to be appropriate.
(3) Kwame is no longer supplying goods to Ama. The balance, which is in respect of last year’s disputed invoices, is to be written off.

In the year to 31 March 20X9:
(1) Total receivables per the sales ledger listing are GH₵7,500,000 as at 31 March 20X9.
(2) There are no debts requiring specific allowance.
(3) GH₵50,000 has been received from Esi.

Required
Assuming that Kwame requires a general allowance for receivables of 5%, write up the irrecoverable debt expense and allowance accounts for the three years to 31 March 20X9.

Answer

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Tags: Allowance for receivables, Bad Debts, Credit Sales, Doubtful debts, Ghana, Irrecoverable debts, Ledger accounts, Trade Receivables, Year-end adjustments
Level: Level 1

Topic: Bad and doubtful debt

FA – L1 – Q33 – Bad and doubtful debt

Write up receivables, irrecoverable debts expense, and allowance for receivables accounts for two years, including recovery of written-off debt.

Question

Kofi, a trader, had receivables of GH₵50,000,000 at 30 June 20X7. He decided to establish an allowance for receivables balance based on 5% of the account balance at the statement of financial position date. He made the first allowance at 30 June 20X7.
The following relates to the years ended 30 June 20X8 and 30 June 20X9:

	Year ended 30 June
	20X8	20X9
	GH₵(000)	GH₵(000)
Credit sales	480,000	550,000
Cash received from customers	432,000	560,600
Irrecoverable debts written off	6,000	2,000

On 30 September 20X8, cash was received in respect of an irrecoverable debt written off in the year ended 30 June 20X8. The amount is included in the GH₵560,600 “cash received from customers” above.

Required
Write up the receivables account, the irrecoverable debts expense account, and allowance for receivables account.

Answer

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Tags: Allowance for receivables, Bad Debts, Cash receipts, Credit Sales, Doubtful debts, Ghana, Irrecoverable debts, Ledger accounts, Trade Receivables, Year-end adjustments
Level: Level 1

Topic: Bad and doubtful debt

FA – L1 – Q32 – Bad and doubtful debt

Write up irrecoverable debts and allowance for receivables accounts for three years, including financial statement extracts.

Question

Nana makes allowance for receivables at varying percentages based on statistical analysis and the level of outstanding trade receivables. The result of this policy for the last three years is as follows.

Year to December	20X6	20X7	20X8
	GH₵(000)	GH₵(000)	GH₵(000)
Trade receivables at the year end (before adjusting for any irrecoverable debts)	196,860	151,020	216,020
Estimated irrecoverable debts (accounts in liquidation)	1,860	1,020	6,020
Allowance for receivables (%)	5%	6%	7.5%

The allowance for receivables at 1 January 20X6 was GH₵10,000.

Required
Write up the irrecoverable debts expense account and allowance for receivables account for each of the three years. Show the relevant extracts from the statement of financial position for each of the three years.

Answer

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Tags: Accounting entries, Allowance for receivables, Bad Debts, Doubtful debts, Financial Statements, Ghana, Irrecoverable debts, Ledger accounts, Trade Receivables, Year-end adjustments
Level: Level 1

Topic: Bad and doubtful debt

FA – L1 – Q31 – Bad and doubtful debt

Prepare journal entries and ledger accounts for irrecoverable debts and allowance for receivables for Kwame Boateng over two years.

Question

The following information is available for Kwame Boateng:
Year 1
(1) 1 January: Allowance for receivables of GH¢860,000 standing on the books.
(2) 31 December: Trade receivables amount to GH¢15,000,000.
(3) Irrecoverable debts written off during the year amounted to GH¢1,000,000.
(4) An allowance for 7.5% of trade receivables is required.
Year 2
(1) 31 December: Trade receivables, before adjustments are GH¢13,700,000.
(2) Irrecoverable debts to be written off are GH¢1,100,000.
(3) Allowance for 7.5% of receivables is still considered necessary.

Required:
Show the journal entries to record the above and the relevant irrecoverable debt expense and allowance for receivables ledger accounts.

Answer

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Tags: Allowance for receivables, Bad Debts, Doubtful debts, Financial accounting, Journal entries, Ledger accounts
Level: Level 1

Topic: Bad and doubtful debt

FA – L1 – Q30 – Bad and doubtful debt

Prepare irrecoverable debts expense and allowance for receivables accounts for Kojo Mensah.

Question

The financial records of Kojo Mensah include an allowance for receivables of GH¢206,000 brought forward on 1 January. Trade receivables at 31 December amount to GH¢2,440,000 and irrecoverable debts to be written off total GH¢55,000. An allowance for receivables of 5% of receivables is to be carried forward.

Required:
Write up the irrecoverable debts expense account and the allowance for receivables account.

Answer

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Tags: Allowance for receivables, Bad Debts, Doubtful debts, Financial accounting, Ledger accounts
Level: Level 1

Topic: Bad and doubtful debt

FA – L1 – Q29 – Bad and doubtful debt

Prepare irrecoverable debts expense and allowance for receivables accounts for Kwame Asare.

Question

The allowance for receivables brought forward on 1 January in the books of Kwame Asare was GH¢86,000. Trade receivables at 31 December amounted to GH¢2,840,000 and irrecoverable debts to be written off totalled GH¢115,000. Kwame Asare has estimated that the closing balance on the allowance for receivables account should be 5% of accounts receivable.

Required:
Write up the irrecoverable debts expense account and the allowance for receivables account.

Answer

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Tags: Allowance for receivables, Bad Debts, Doubtful debts, Financial accounting, Ledger accounts
Level: Level 1

Topic: Bad and doubtful debt

FA – L1 – Q28 – Bad and doubtful debt

Prepare ledger accounts and financial statement extracts for Ama Kusi's receivables adjustments for Year 7.

Question

Ama Kusi is a sole trader making up accounts to 31 July each year.
At 31 July Year 6 the balance on the allowance for receivables account was GH¢1,420,000. During the following financial period ending 31 July Year 7, Ama Kusi suffered a number of irrecoverable debts amounting to GH¢723,000, which she wrote off to the irrecoverable debts account.
At 31 July Year 7 Ama Kusi listed out all receivables balances, which totalled GH¢32,456,000. After reviewing the list Ama Kusi decided that three balances – namely Kwame Boateng GH¢230,000, Adwoa Mensah GH¢562,000, and Kofi Owusu GH¢56,000 – were all doubtful and had to be allowed for as doubtful debts. In addition, Ama Kusi considered that 2% of all the remaining balances were doubtful and an allowance for receivables should be recognised.

Required:
Show the ledger accounts reflecting the necessary adjustments, and the relevant extracts from the financial statements.

Answer

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Tags: Allowance for receivables, Bad Debts, Doubtful debts, Financial accounting, Financial Statements, Ledger accounts
Level: Level 1

Topic: Bad and doubtful debt

FA – L1 – Q27 – Non-current assets and depreciation

Explain the terms depreciation and useful life of a non-current asset for Kofi Ansah. List four factors/causes contributing to depreciation of a non-current asset.

Question

(A) Explain the following Terms:

(i) Depreciation.

(ii) Useful life of a non-current asset.

(B) There are four (4) factors/causes that contribute to depreciation of a Non-current asset. List these factors or causes.

(C).

Kofi Ansah is a trader who prepares accounts to 31st December each year. The following transactions with regard to assets have taken place:
(i) 3rd January, 20X7 purchased one office equipment (laptop) for GH¢2,000.
(ii) 5th July, 20X8 purchased plant and machinery costing GH¢50,000.
(iii) 1st December, 20X8 purchased plant and machinery for GH¢20,000.
(iv) 15th December, 20X9 bought office equipment (printer) for GH¢1,000.
Mr. Kofi maintains its non-current assets at cost and depreciates its assets at a constant rate of 20% using the straight-line method of providing for depreciation for all assets. Assets purchased attract full depreciation charge in the year of purchase, whilst any asset disposed of attracts no depreciation charge.

Required:
Prepare the following:
(i) Plant and machinery account.
(ii) Office equipment account.
(iii) Accumulated depreciation account.

Answer

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Tags: Depreciation, Financial accounting, Ledger accounts, Non-current Assets, Office equipment, Plant and Machinery, Straight-line Method
Level: Level 1

Topic: Non-current assets and depreciation

FA – L1 – Q26 – Non-current assets and depreciation

Calculate the cost of machinery including delivery and modification costs, excluding warranty, for ledger entry.

Question

(1) A company purchased some heavy machinery. The invoice for the machinery showed the following items:

Description	GH¢000
Cost of machinery	46,000
Cost of delivery	900
Cost of 12-month warranty on the machinery	1,600
Total amount payable	48,500

In addition, the company incurred GH¢3.4 million in making modifications to its factory so that the heavy machinery could be installed.
What should be the cost of the machinery in the company’s machinery account in the ledger?

(2)

A business acquired new premises at a cost of GH¢400 million on 1 January 20X9. In the period to the year end of 31 March 20X9 the following further costs were incurred:

Description	GH¢000
Costs of initial adaptation of the building	12,000
Legal costs relating to the purchase	2,500
Monthly cleaning contract	3,400
Cost of air conditioning unit necessary for machinery to be used	2,800
Cost of machinery	12,300

What amount should appear as the cost of premises in the company’s statement of financial position at 31 March 20X9?

(3)

The plant and machinery account for a company for the year ended 30 June 20X9 is as follows:

20X8		GH¢	20X9		GH¢
1 July	Balance	960,000	31 March	Transfer to disposal account	80,000
31 Dec	Cash: purchase of machines	200,000	30 June	Balance	1,080,000
		1,160,000			1,160,000

The company’s policy is to charge depreciation on plant and machinery at 25% each year on the straight-line basis, with proportionate charges in the year of acquisition and the year of disposal. None of the assets held at 1 July 20X8 was more than three years old.
What is the charge for depreciation of plant and machinery for the year ended 30 June 20X9?

(4)

A motor car was purchased in May 20X6 for GH¢7.8 million. The accounting policy is depreciation at 20% straight line on the cost of the assets in use at the year end. The car was traded in for a replacement vehicle purchased in July 20X9 with the agreed part exchange value being GH¢2.4 million. The company’s year-end is 31 December.

What was the profit or loss on disposal?

Answer

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Tags: Depreciation, Disposal, Financial accounting, Motor car, Non-current Assets, Profit or Loss, Straight-line Method
Level: Level 1

Topic: Non-current assets and depreciation

FA – L1 – Q25 – Non-current assets and depreciation

Adjust plant and equipment and accumulated depreciation accounts for Akosua Pharmaceuticals Limited for errors in 20X9 financial statements.

Question

The draft statement of financial position of Akosua Pharmaceuticals Limited as on December 31, 20X9, depicts the following:

Description	GH¢
Plant and equipment – Cost	12,387,060
Less: Accumulated Depreciation	(4,792,540)
	7,594,520

On reviewing the accounts of the business, its auditor found that the records have been correctly maintained except for the following events:
(i) On January 17, 20X9, a contract was signed for the purchase of a packaging machine from Kofi Enterprises Limited for GH¢1,125,000 which is to be delivered on July 17, 20Y0. The company paid an advance of GH¢450,000 on the signing of the contract and the balance was to be paid on delivery of the machine. The advance was debited to the plant and equipment account.
(ii) Installation of a production machine was completed on January 21, 20X9. The cost of the machine of GH¢2,700,000 was debited to the plant and equipment account. The cost of installation amounting to GH¢300,000 had been debited to a repairs account.

Depreciation is charged on a reducing balance method at 10% per annum. Depreciation on new assets commences in the month in which the asset is acquired.
The depreciation expense for the year 20X9 have been correctly calculated and recorded except for the impact of errors discussed above.

Required
Determine the correct balances as at December 31, 20X9 by recording appropriate adjustments in the following accounts:
(a) Plant and equipment
(b) Accumulated depreciation – plant and equipment

Answer

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Tags: Accounting errors, Adjustments, Depreciation, Financial Statements, Ledger accounts, Non-current Assets, Plant and equipment, Reducing Balance Method
Level: Level 1

Topic: Non-current assets and depreciation

Subject (SQ): FINANCIAL ACCOUNTING

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FA – L1 – Q34 – Bad and doubtful debt

Write up irrecoverable debt expense and allowance for receivables accounts for three years with specific and general allowances.

FA – L1 – Q33 – Bad and doubtful debt

Write up receivables, irrecoverable debts expense, and allowance for receivables accounts for two years, including recovery of written-off debt.

FA – L1 – Q32 – Bad and doubtful debt

Write up irrecoverable debts and allowance for receivables accounts for three years, including financial statement extracts.

FA – L1 – Q31 – Bad and doubtful debt

Prepare journal entries and ledger accounts for irrecoverable debts and allowance for receivables for Kwame Boateng over two years.

FA – L1 – Q30 – Bad and doubtful debt

Prepare irrecoverable debts expense and allowance for receivables accounts for Kojo Mensah.

FA – L1 – Q29 – Bad and doubtful debt

Prepare irrecoverable debts expense and allowance for receivables accounts for Kwame Asare.

FA – L1 – Q28 – Bad and doubtful debt

Prepare ledger accounts and financial statement extracts for Ama Kusi's receivables adjustments for Year 7.

FA – L1 – Q27 – Non-current assets and depreciation

Explain the terms depreciation and useful life of a non-current asset for Kofi Ansah. List four factors/causes contributing to depreciation of a non-current asset.

FA – L1 – Q26 – Non-current assets and depreciation

Calculate the cost of machinery including delivery and modification costs, excluding warranty, for ledger entry.

FA – L1 – Q25 – Non-current assets and depreciation

Adjust plant and equipment and accumulated depreciation accounts for Akosua Pharmaceuticals Limited for errors in 20X9 financial statements.

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Subject (SQ): FINANCIAL ACCOUNTING

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Write up irrecoverable debt expense and allowance for receivables accounts for three years with specific and general allowances.

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Write up receivables, irrecoverable debts expense, and allowance for receivables accounts for two years, including recovery of written-off debt.

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Write up irrecoverable debts and allowance for receivables accounts for three years, including financial statement extracts.

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Prepare journal entries and ledger accounts for irrecoverable debts and allowance for receivables for Kwame Boateng over two years.

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Prepare irrecoverable debts expense and allowance for receivables accounts for Kojo Mensah.

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Prepare irrecoverable debts expense and allowance for receivables accounts for Kwame Asare.

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Prepare ledger accounts and financial statement extracts for Ama Kusi's receivables adjustments for Year 7.

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Explain the terms depreciation and useful life of a non-current asset for Kofi Ansah. List four factors/causes contributing to depreciation of a non-current asset.

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Calculate the cost of machinery including delivery and modification costs, excluding warranty, for ledger entry.

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Adjust plant and equipment and accumulated depreciation accounts for Akosua Pharmaceuticals Limited for errors in 20X9 financial statements.

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