Subject: FINANCIAL ACCOUNTING

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  • 5 Marks

FA – Nov 2024 – L1 – Q5c – Profitability vs Liquidity Ratios

Explain the difference between profitability and liquidity ratios and provide two examples of each.

Accounting ratios cover a wide array of ratios that are used by accountants and act as different indicators that measure profitability, liquidity, and potential financial distress in a company’s financials.

Required:

Differentiate between profitability ratios and liquidity ratios and give TWO examples each.

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  • 10 Marks

FA – Nov 2024 – L1 – Q5a – Inventory Loss and Statement of Profit or Loss

Compute inventory loss due to fire and prepare a statement of profit or loss for a sole trader.

Mawulolo Enterprise is a retail business that prepares its accounts on 31 March each year. The business maintains a standard gross profit margin of 30% on sales.

The following financial information was extracted from its records as at 31 March 2024:

Item GH¢
Inventory at 1 April 2023 254,000
Operating Expenses 378,000
Finance Cost 58,000
Purchases 1,306,000
Sales 1,900,000
Inventory in good standing at 31 March 2024 192,000

On 31 March 2024, a fire outbreak in the warehouse destroyed some of the inventory records and goods.

The tax charge for the year is estimated at GH¢30,000.

Required:

i)Calculate the amount of inventory lost.

ii) Prepare the Statement of Profit or Loss for the year ended 31 March 2024

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  • 20 Marks

FA – Nov 2024 – L1 – Q4- Preparation of Financial Statements for a Sole Trader

Prepare the Statement of Profit or Loss and Statement of Financial Position for a sole trader from given financial data and adjustments.

The following list of assets, liabilities, and equity as at 30 June 2023 was extracted from the books of Akuorkor, a sole trader:

Trial Balance as at 30 June 2023

Item GH¢
Plant and equipment – cost 100,000
Accumulated depreciation – Plant & Equipment 36,000
Office fixtures – cost 25,000
Accumulated depreciation – Office Fixtures 2,500
Inventory 15,250
Trade receivables and prepayments 17,500
Trade payables and accrued expenses 8,800
Bank overdraft 4,425
Loan (10% interest per annum) 47,500
Capital 58,525

Summary of Receipts and Payments for the Year Ended 30 June 2024

Receipts GH¢
Capital introduced 11,000
Cash from customers 213,750
Total Receipts 224,750
Payments GH¢
Cash drawings (Note 5) 11,225
Loan repayments (Note 7) 10,000
Payment to suppliers 87,800
Rent 11,000
Wages 45,000
Office expenses 6,250
Total Payments 171,275

Additional Information:

  1. Closing inventory on 30 June 2024 was GH¢13,925.
  2. Depreciation policies:
    • Plant & Equipment: 20% per annum reducing balance.
    • Office Equipment: 10% per annum on cost.
    • Fixtures & Fittings: Straight-line method over 4 years with a full year’s charge in the year of acquisition.
  3. GH¢2,500 worth of fixtures & fittings was introduced into the business.
  4. Prepayments and accrued expenses as at 30 June 2023:
    • Rent paid in advance: GH¢1,250
    • Accrued wages: GH¢2,150
  5. Cash drawings included:
    • Wages: GH¢3,375
    • Payments to suppliers: GH¢2,100
    • Advertising leaflets: GH¢1,300 (Half not yet distributed).
  6. Bank balance per statement: GH¢53,350 after adjusting for unpresented cheques.
  7. Loan repayments include GH¢4,750 in interest payments.
  8. Assets and liabilities as at 30 June 2024:
    • Rent paid in advance: GH¢1,350
    • Accrued wages: GH¢2,625
    • Amounts due to suppliers: GH¢6,100
    • Amounts due from customers: GH¢11,150
  9. Major customer went into liquidation owing GH¢8,000; only 20% recoverable.

Required:

Prepare:
i) Statement of Profit or Loss for Akuorkor for the year ended 30 June 2024. 
ii) Statement of Financial Position as at 30 June 2024.

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  • 10 Marks

FA – Nov 2024 – L1 – Q3b – Bank Reconciliation

Prepare an adjusted cash book and reconcile it with the bank statement balance.

The cash book of Lawra Ltd as at 31 December 2023 shows a balance of GH¢36,900, which does not match the bank statement balance of GH¢41,100. Investigation revealed the following discrepancies:

  1. Cheques received of GH¢104,000, GH¢10,000, and GH¢24,900 were still in the business drawer.

  2. Standing orders for electricity charges (GH¢2,400) and insurance (GH¢3,600) were paid by the bank but not recorded in the cash book.

  3. The bank charged GH¢300 for a cheque book issued to Lawra Ltd.

  4. The bank incorrectly debited GH¢9,910 to Lawra Ltd’s account, which was intended for another customer.

  5. A credit transfer of GH¢10,000 was received but not recorded in the cash book.

  6. A cheque for GH¢140,000 drawn by Lawra Ltd was correctly recorded in the cash book but was debited as GH¢14,000 by the bank.

  7. The following cheques, paid in November 2023, remained unpresented:

    Cheque Number Amount (GH¢)
    0000111 4,000
    0000117 10,000
    0000120 9,310

Required:

i) Prepare the adjusted cash book for Lawra Ltd as at 31 December 2023.

ii) Prepare a bank reconciliation statement reconciling the adjusted cash book balance to the bank statement balance.  

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  • 5 Marks

FA – Nov 2024 – L1 – Q2b – Allowance for Receivables and Irrecoverable Debt

Prepare the allowance for receivables and irrecoverable debt expense accounts for a financial period.

At 1 August 2023, the balance on the allowance for receivables account was GH¢12,600.

At 31 August 2023, the company’s management decided that the revised balance should be 10% of the month-end accounts receivable.

Required:

Prepare the Allowance for Receivables and Irrecoverable Debt Expense accounts, showing the necessary entries for the financial period ending 31 August 2023.

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  • 15 Marks

FA – Nov 2024 – L1 – Q1 – Partnership Financial Statements

Prepare the profit or loss and appropriation account and financial position statement for a partnership at retirement and admission of partners.

Atsu, Baba, and Chawe are in partnership, providing management services, sharing profits in the ratio 5:3:2 after charging annual salaries of GH¢18,000 each. Current accounts are not maintained. On 30 June 2024, Atsu retired.

Dua was admitted on 1 July 2024 to the partnership and is entitled to 30% of the profits of the current partnership, with the balance being shared equally between Baba and Chawe.

The previous partnership trial balance as of 30 June 2024 was as follows:

Description GH¢ GH¢
Capital accounts – Atsu 12,519
Capital accounts – Baba 65,844
Capital accounts – Chawe 33,618
Trade receivables 138,615
Inventories at 1 July 2023 6,000
Operating expenses 419,166
Investment 300
Bank overdraft 33,510
Trade payables 52,218
Revenue 565,296
Total 663,543 663,543

Additional Information:

  1. Inventory remains at GH¢6,000.
  2. Full provision is required for an irrecoverable debt of GH¢3,450.
  3. Adjustments agreed by partners:
    • The investment is to be included at GH¢4,500.
    • Goodwill, which remains in the books, is valued at GH¢72,000.
  4. On 1 July 2024, GH¢30,000 due to Atsu was transferred to Dua. The balance due to Atsu is to be repaid over three years, commencing on 1 July 2024.
  5. Dua introduced cash of GH¢22,500 to the partnership.

Required:
i) Prepare the statement of profit or loss and appropriation account of the previous partnership for the year ended 30 June 2024 and a statement of financial position at that date. (9 marks)
ii) Prepare the statement of financial position for the current partnership as of 1 July 2024. (6 marks)

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  • 15 Marks

FA – May 2012 – L1 – SB – Q6 – Financial Statements Preparation

Prepare Statements of Affairs for two years and calculate opening capital, net worth, and profit.

Fortward Geso Trading Store maintained a single-entry system. The following information was extracted from the records:

Year Ended 31 December 2011 31 December 2010
Accrued expenses 10,000 —
Accounts receivable 196,000 130,000
Prepaid expenses — 16,000
Bank balances (40,000) 200,000
Investment 500,000 —
Cash balance 366,000 106,000
Accounts payable 74,000 90,000
Land and buildings 1,500,000 1,500,000
Delivery van 260,000 260,000
Inventories 190,000 74,000
Loan from bank 300,000 300,000

The following additional information was also made available in respect of the 2011 accounting year:
(i) Provision for doubtful debts should be made for N3,000.
(ii) Depreciation is to be provided on book value as follows:
(a) Land and buildings 5%
(b) Delivery van 10%
(iii) Additional capital of N250,000 was introduced into the business during the year.
(iv) The owner of the store withdrew a total sum of N20,000 during the year.

You are required to:
Prepare the Statements of Affairs of Fortward Geso Trading Stores for the two years to show:
(a) The opening capital (6 Marks)
(b) Net worth of the business (6 Marks)
(c) Profit (3 Marks)

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  • 1 Marks

FA – Nov 2011 – L1 – SA – Q5 – Partnership Accounts

Partnership Accounting, Profit Sharing

What is A’s share of profit?
A. N76,000
B. N76,200
C. N76,267
D. N76,300
E. N80,000

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  • 1 Marks

FA – Nov 2011 – L1 – SA – Q4 – Partnership Accounts

This question calculates the profit share between partners.

What is the profit to be shared by the partners for the year?
A. N104,000
B. N108,000
C. N114,400
D. N120,000
E. N126,000

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  • 1 Marks

FA – Nov 2011 – L1 – SA – Q3 – Control Accounts

This question tests knowledge on the description and function of control accounts in accounting.

Which of the following describes a Control Account?
A. Conglomerate of ledger system
B. Combined ledger system
C. Self-balancing ledger system
D. Standardized ledger system
E. List of balances

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  • 1 Marks

FA – Nov 2011 – L1 – SA – Q2 – Accounting Concepts

This question tests the limitation of the money measurement concept in accounting.

Which of the following is a limitation of the money measurement concept?
A. An efficient management is not disclosed
B. There is no basis for comparison
C. Inter-period comparison is impossible
D. It does not allow for choice of method
E. It does not allow for performance measurement

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  • 1 Marks

FA – Nov 2011 – L1 – SA – Q1 – Regulatory Environment of Accounting

This question tests knowledge on what legally brings a company into existence.

Which of the following brings a company into legal existence?
A. Memorandum of Association
B. Articles of Association
C. Companies and Allied Matters Act Cap C20 LFN 2004
D. Certificate of Incorporation
E. Corporate Affairs Commission

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  • 15 Marks

FA – Nov 2020 – L1 – SB – Q6b – Partnership Accounts

Prepare the revaluation account, partners' capital accounts, and the statement of financial position.

b. Emeka has been in business as a Japan spare part dealer. The last statement of financial position of his business as at September 30, 2019, is given below:

N’000 N’000
Equity
Capital 1,000
Retained earnings 130
1,130
Drawings (60)
1,070
Non-current assets:
PPE 1,100
Current assets:
Inventories 190
Trade payables 40
Bank 45
1,375 1,375

On October 1, 2019, he agreed with Bode to join him, and the new business will trade under the name and style EmBo Ventures.

Terms of the new business:

  1. Bode is to contribute capital of N1,250,000 for an equal share of profits.
  2. The firm will take over the assets and liabilities of Emeka at their book values, except for:
    • PPE: N1,250,000
    • Inventories: N175,000
  3. The partners will maintain equal capital, and any shortfall in Emeka’s capital should be made good by credit from revaluation or through additional funds.

Required:

Prepare for EmBo Ventures: i. Revaluation account (5 Marks)
ii. Partners’ capital accounts (5 Marks)
iii. Statement of financial position as at October 1, 2019 (5 Marks)

(Total: 15 Marks)

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  • 5 Marks

FA – Nov 2020 – L1 – SB – Q6a – Partnership Accounts

Explain the general rules under articles of partnership.

In the absence of any express agreement between partners in a firm, outline
six general rules to be applied in resolving issues between the partners.
(5 Marks)

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  • 20 Marks

FA – Nov 2020 – L1 – SB – Q5 – Elements of Financial Statements

Classify expenditure as capital or revenue and state recognition in financial statements.

Given below are items of revenue and capital expenditure:

  1. A number of new cars recently cleared by a motor car dealing company.
  2. Two new motor boats acquired by a ferry service agency.
  3. Vacant houses owned by an estate developing company, for which negotiations are ongoing for sale to prospective landlords.
  4. New buildings acquired for the purpose of holding items of plant and machinery belonging to a detergent manufacturing company.
  5. Cost of acquiring a leasehold property for office use.
  6. Granites purchased by an engineering contractor for use at a construction site.
  7. Cost of rehabilitating a dilapidated housing unit owned by an estate developer.
  8. Pre-production testing cost.

Required:

a. Using the tabular format below, classify the above transactions into capital or revenue expenditure. (8 Marks)

S/N | Capital Expenditure | Revenue Expenditure

b. State whether each of the items above will be recognized in the statement of profit or loss or in the statement of financial position. (8 Marks)

c. In respect of the information in (a) above, outline the details of information of the capital expenditure that should be included in the property, plant, and equipment (PPE) register. (4 Marks)

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  • 20 Marks

FA – Nov 2020 – L1 – SB – Q4 – Accounts of Not-for-Profit Entities

Prepare bar’s statement of profit or loss, income and expenditure account, and statement of financial position for Surulere Social Club.

The following is a summary of the receipts and payments of Surulere Social Club for the period ended October 31, 2019:

Receipts:

  • Membership subscriptions: N255,000
  • Donation: N22,500
  • Income from Christmas party: N12,750
  • Bar takings: N405,000

Payments:

  • Rates: N13,500
  • General expenses: N393,000
  • Bar purchases: N277,500
  • Christmas party expenses: N2,500

Other relevant information for the period is as follows:

Item Nov 1, 2018 Oct 31, 2019
Subscription due N13,500 N9,000
Subscription paid in advance N750 N1,500
Rates owing N6,750 N7,500
Bar inventory N30,000 N37,500
Club premises (cost N750m) N300,000 N270,000
Furniture & fittings (cost N150m) N45,000 N30,000
Bank balance N24,000 N33,000

Required:

a. The club bar’s statement of profit or loss for the year ended October 31, 2019. (3 Marks)
b. The income and expenditure account for the year ended October 31, 2019. (8 Marks)
c. Statement of financial position as at October 31, 2019. (9 Marks)

(Show workings)
(Total: 20 Marks)

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  • 15 Marks

FA – Nov 2020 – L1 – SB – Q3b – Correction of Errors

Provide journal entries to correct errors and prepare a suspense account.

Your subordinate in POP-Two Ventures, an inexperienced bookkeeper, has informed you that the trial balance failed to agree by a difference of N170,000, recorded on the credit side of a suspense account. After investigating, you discovered the following errors:

Errors Amount (N’000)
Cash payment debited to the bank cash book 360
Overcasting of sales 700
Overcasting of purchases 700
Returns inwards omitted from the books 380
Bank charges posted into the cash book without a corresponding entry elsewhere 370
Opening receivables balance brought down incorrectly 180
PPE sold, credited to sales account instead of the correct account 5,000

Required:

i. Effect the necessary corrections by means of journal entries (11 Marks)
ii. Prepare the suspense account (4 Marks)

(Total 15 Marks)

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