FINANCIAL ACCOUNTING – Page 9

FA – L1 – Q24 – Non-current assets and depreciation

Prepare vehicle, accumulated depreciation, and depreciation accounts for Ama's car leasing business for 20X6 to 20X9.

Question

Ama leases out German sports cars on a short-term basis. She 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 took place:

Year	Purchase Details	Cost (GH¢000)
20X6	Acquired 20 Porsche 924 Turbos at a cost of GH¢18,600,000 each	372,000
20X7	Purchased 6 Porsches for a total cost of GH¢108,600,000	108,600
20X8	Purchased a further two cars costing GH¢19,800,000 each	39,600
20X9	Purchased 15 cars for GH¢21,000,000 each	315,000

Ama prepares accounts to 31 December each year.

Required
Prepare a vehicle account, an accumulated depreciation account, and a depreciation account for the years 20X6 to 20X9.

Answer

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Tags: Accumulated Depreciation, Asset management, Depreciation, Financial accounting, Ledger accounts, Non-current Assets, Straight-line Method, Vehicle account
Level: Level 1

Topic: Non-current assets and depreciation

FA – L1 – Q23 – Non-current assets and depreciation

Prepare ledger accounts for lorries, disposals, and depreciation for Akosua Transport Limited for the year to 30 April 20X9.

Question

Akosua Transport Limited is a haulage contractor. At 1 May 20X8 the company had three lorries, details of which are as follows:

Lorry registration number	Date purchased	Cost (GH¢000)
KWE 1	1 July 20X5	16,000
AMA 2	1 February 20X7	21,000
EFI 3	1 April 20X8	31,000

During the year to 30 April 20X9, the following lorry transactions took place:
(a) KWE 1 was sold on 31 July 20X8 for GH¢3 million on cash terms. On 1 August 20X8 Akosua Transport Limited replaced it with a new lorry, registration number NAA 4 for which he paid GH¢35 million in cash.
(b) On 1 December 20X8, the new lorry (NAA 4) was involved in a major accident, and as a result was completely written off. The company was able to agree a claim with his insurance company, and on 31 December 20X8 he received GH¢30 million from the insurance company. On 1 January 20X9 he bought another lorry (registration number KOF 5) for GH¢41 million.
(c) During March 20X9, the company decided to replace the lorry bought on 1 April 20X8 (registration number EFI 3) with a new lorry. It was delivered on 1 April 20X9 (registration number ADU 6). The company agreed a purchase price of GH¢26 million for the new lorry, the terms of which were GH¢20 million in part-exchange for the old lorry and the balance to be paid immediately in cash.

Notes:
(1) Akosua Transport Limited uses the straight-line method of depreciation.
(2) The lorries are depreciated over a five-year period by which time they are assumed to have an exchange value of GH¢1 million each.
(3) A full year’s depreciation is charged in the year of acquisition, but no depreciation is charged if a lorry is bought and sold or otherwise disposed of within the same financial year.
(4) Akosua Transport Limited does not keep separate ledger accounts for each individual lorry.

Required
(a) Write up the following accounts for the year to 30 April 20X9:
(i) lorries account
(ii) lorries disposal account
(iii) allowance for depreciation on lorries account.

(b) Show how the lorries account and the allowance for depreciation account would be presented in Akosua Transport Limited’s statement of financial position as at 30 April 20X9.

Answer

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Tags: Depreciation, Financial Reporting, Non-current Assets, Statement of Financial Position, Straight-line Method, Transport Industry
Level: Level 1

Topic: Non-current assets and depreciation

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

Answer

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Tags: Depreciation, Disposals, IAS 16, Non-current Assets, Revaluation Ethics, Straight-line Method, Vehicle Accounts
Level: Level 1

Topic: Non-current assets and depreciation

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)

Answer

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Tags: Correction of Errors, Depreciation, Non-current Assets, Plant and Machinery, Reducing Balance Method
Level: Level 1

Topic: Non-current assets and depreciation

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.

Answer

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Tags: Accumulated Depreciation, Depreciation, Financial Position, Machinery Account, Non-current Assets, Reducing Balance Method
Level: Level 1

Topic: Non-current assets and depreciation

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)

Answer

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Tags: Accumulated Depreciation, Depreciation, Financial Position, Machinery Account, Non-current Assets, Straight-line Method
Level: Level 1

Topic: Non-current assets and depreciation

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).

Answer

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Tags: Depreciation, Non-current Assets, Reducing Balance Method, Straight-line Method, Van
Level: Level 1

Topic: Non-current assets and depreciation

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.

Answer

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Tags: Asset Acquisition, Depreciation, Non-current Assets, Proportional Depreciation, Straight-line Method
Level: Level 1

Topic: Non-current assets and depreciation

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.

Answer

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Tags: Account Balances, Control Accounts, Credit Purchases, Payables Ledger, Payments, Purchase Returns
Level: Level 1

Topic: Control accounts and account reconciliations

FA – L1 – Q15 – Control accounts and account reconciliations

Record Kweku's May transactions in receivables and payables control accounts using T accounts.

Question

The following are the transactions of Kweku, who commenced a new business on 1 May.

May

Transaction	Details
1	Started the business with capital of GH₵2,500,000, paid into a business bank account.
2	Bought goods on credit from the following entities: Elliot GH₵810,000; Martinez Traders GH₵1,305,000; Grayson GH₵375,000; Legacy GH₵1,140,000; Linden GH₵960,000. (Total: GH₵4,590,000).
3	Sold goods on credit to: Benson Retail for GH₵753,000, Quickmart for GH₵1,120,000 and Sanders for GH₵3,080,000. (Total: GH₵4,953,000).
4	Benson Retail paid by cheque GH₵723,000 taking a discount of GH₵30,000 for early payment. Benson Retail had not been expected to take the discount when the goods were originally sold to them.
5	Sanders paid GH₵1,500,000 by cheque.
6	GH₵700,000 was paid to Elliot.
7	The following payment was made to Grayson: GH₵350,000. A discount of GH₵25,000 was received for early payment.
8	Paid carriage outwards: GH₵345,000.
9	Purchase returns to Legacy GH₵400,000.
10	Sales returns from Sanders: GH₵270,000.
11	Purchases on credit from Martinez Traders GH₵753,000; Legacy GH₵1,650,000. (Total: GH₵2,403,000).
12	Sold goods on credit to Quickmart GH₵1,005,000.

Kweku maintains control accounts for receivables and payables in the main ledger, and accounts for individual customers and suppliers in a receivables ledger and a payables ledger respectively.

Required
(a) Use T accounts to show how the relevant transactions will be recorded in the receivables control account and the payables control account in the main ledger of Kweku in May. (You are not required to prepare T accounts for any of the other main ledger accounts.)

(b) Show the list of balances in the receivables ledger after recording the above transactions.

Answer

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Tags: Account Balances, Control Accounts, Discounts, Payables Ledger, Purchase Returns, Reconciliation
Level: Level 1

Topic: Control accounts and account reconciliations

Subject (SQ): FINANCIAL ACCOUNTING

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FA – L1 – Q24 – Non-current assets and depreciation

Prepare vehicle, accumulated depreciation, and depreciation accounts for Ama's car leasing business for 20X6 to 20X9.

FA – L1 – Q23 – Non-current assets and depreciation

Prepare ledger accounts for lorries, disposals, and depreciation for Akosua Transport Limited for the year to 30 April 20X9.

FA – L1 – Q22 – Non-current assets and depreciation

Prepare Patowato Motors’ vehicle accounts for 20X6-20X9 and explain why revaluing some vehicles is unethical

FA – L1 – Q21 – Non-current assets and depreciation

Prepare Tabori Construction’s plant and machinery accounts for 20X8-20X9, correcting a past error.

FA – L1 – Q20 – Non-current assets and depreciation

Record Sophia’s machine transactions for 20X6-20X8 and show financial position extracts.

FA – L1 – Q19 – Non-current assets and depreciation

Record Martin’s machine transactions for 20X8-20X9 and show financial position extracts.

FA – L1 – Q18 – Non-current assets and depreciation

Calculate annual depreciation for Avery’s van using straight-line and reducing balance methods.

FA – L1 – Q17 – Non-current assets and depreciation

Calculate depreciation for a non-current asset and a building using the straight-line method.

FA – L1 – Q16 – Double entry bookkeeping

Prepare journal entries for Sparrow’s June 20X9 transactions in the main ledger.

FA – L1 – Q15 – Control accounts and account reconciliations

Record Kweku's May transactions in receivables and payables control accounts using T accounts.

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Subject (SQ): FINANCIAL ACCOUNTING

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Prepare vehicle, accumulated depreciation, and depreciation accounts for Ama's car leasing business for 20X6 to 20X9.

You're reporting an error for "FA – L1 – Q24 – Non-current assets and depreciation"

Prepare ledger accounts for lorries, disposals, and depreciation for Akosua Transport Limited for the year to 30 April 20X9.

You're reporting an error for "FA – L1 – Q23 – Non-current assets and depreciation"

Prepare Patowato Motors’ vehicle accounts for 20X6-20X9 and explain why revaluing some vehicles is unethical

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Prepare Tabori Construction’s plant and machinery accounts for 20X8-20X9, correcting a past error.

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Record Sophia’s machine transactions for 20X6-20X8 and show financial position extracts.

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Record Martin’s machine transactions for 20X8-20X9 and show financial position extracts.

You're reporting an error for "FA – L1 – Q19 – Non-current assets and depreciation"

Calculate annual depreciation for Avery’s van using straight-line and reducing balance methods.

You're reporting an error for "FA – L1 – Q18 – Non-current assets and depreciation"

Calculate depreciation for a non-current asset and a building using the straight-line method.

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Prepare journal entries for Sparrow’s June 20X9 transactions in the main ledger.

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Record Kweku's May transactions in receivables and payables control accounts using T accounts.

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