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 2020 – L1 – SA – Q3 – Recording Financial Transactions (Including Source Documents, Books of Prime Entry, and Cash Books)

Identifies an item that is not a source document in accounting.

Which of the following is NOT a source document?
A. Proforma invoice
B. Debit note
C. Journal
D. Statement of account
E. Cheque stub

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  • 1 Marks

FA – Nov 2020 – L1 – SA – Q2 – Financial Statements Preparation

Difference between an income statement and an income and expenditure account.

The difference between an income statement and an income and expenditure account is that:
A. An income and expenditure account is another name for an income statement.
B. An income statement is prepared for a business while an income and expenditure account is prepared for a not-for-profit organization.
C. An income statement is prepared for a business while an income and expenditure account is prepared on a cash flow basis.
D. An income statement is prepared on an accrual basis while an income and expenditure account is prepared on a cash basis.
E. An income statement is prepared for a manufacturing business while an income and expenditure account is prepared for a non-manufacturing business.

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  • 1 Marks

FA – Nov 2020 – L1 – SA – Q1 -Trial Balance: Usefulness and Limitations

Identifies an item not found on the debit column of a trial balance.

Which of the following items is NOT found on the debit column of a trial balance?
A. Capital
B. Motor vehicle
C. Rent and rates
D. Salaries and wages
E. Postage and stationery

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  • 15 Marks

FA – Nov 2012 – L1 – SB – Q6 – Correction of errors

Prepare the Royalty Account, Donald’s Account, and the Short Working Recoverable Account.

Maxwell acquired the rights to run a quarry from a parcel of land owned by Donald. The agreement provided for:
i. Payment of royalty of N40 per tonne of granite quarried;
ii. A minimum payment of N2,000,000 per annum; and
iii. The right to recoup (for short workings) is to be extinguished at the end of the third year.

During the first four years of the contract, the following quantities of granite were produced:

Year Tonnes Produced
2008 40,000
2009 48,000
2010 54,000
2011 56,000

Maxwell’s accounting year ends on 31 December, and payment to Donald is made on 1 January following the year-end.

Required:
a. Prepare the Royalty Account (3 Marks)
b. Prepare Donald’s Account (7 Marks)
c. Prepare the Short Working Recoverable Account (5 Marks)

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  • 15 Marks

FA – Nov 2012 – L1 – SB – Q5 – Accounting Concepts

Prepare joint venture accounts between Taiwo and Kehinde and the memorandum joint venture account.

Taiwo and Kehinde entered into a joint venture to acquire packaging materials for table water production and to sell them to table water producers. They agreed to share joint venture profits or losses in the ratio 3:2, respectively.

At the outset, Taiwo sent Kehinde a cheque of N200,000 for his participation in the venture. They sold all the goods and recorded the following cash transactions:

Taiwo (N) Kehinde (N)
Revenue 320,000 210,000
Traveling expenses 32,700 46,300
Advertising 10,300 9,100
Stall rent 8,500 7,000
Wages of casual helper 4,800 –
Sundry expenses 5,900 2,900
Purchases 160,000 110,000

Settlement between the co-venturers took place by cheque.

Required:

a. Prepare the Joint Venture with Kehinde Account in the ledger of Taiwo. (5 Marks)
b. Prepare the Joint Venture with Taiwo Account in the ledger of Kehinde. (5 Marks)
c. Prepare the Memorandum Joint Venture Accounts. (5 Marks)

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  • 15 Marks

FA – Nov 2012 – L1 – SB – Q4 – Financial Statements Preparation

Prepare a bank cash book, retained earnings, and statement of financial position for Fehintola Enterprises.

On 1 January 2011, Mrs. Fehintola decided to invest her retirement benefit of N1,000,000 in the wholesale business of Fehintola Enterprises. She lodged the amount into the business bank account and paid for the following by cheque:

  • Motor Van: N600,000
  • Warehouse fittings: N340,000
  • Rent: N12,500

Proper accounting records were not kept, but the financial position as at 31 December 2011 revealed the following:

  • Inventories of goods in the warehouse: N150,000
  • Trade receivables: N125,000
  • Cash at Bank: N751,750
  • Trade payables for supplies: N100,000
  • Accrued rent: N15,000

The following were paid for by cheque:

  • Electricity bill at N2,500 per quarter up to 31 March 2012
  • Suppliers: N1,500,000
  • Personal expenses: N150,000

On 31 December 2011, it was agreed that the Motor Van and Warehouse fittings should be valued at N560,000 and N320,000, respectively.

Required:

a. Prepare the Bank Cash Book (5 Marks)
b. Prepare a statement showing the retained earnings for the year ended 31 December 2011 (5 Marks)
c. Prepare the Statement of Financial Position as at 31 December 2011 (5 Marks)

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  • 15 Marks

FA – Nov 2012 – L1 – SB – Q3 – Accounting Concepts

Prepare journal entries, ledger accounts, and a revised statement of financial position after the redemption of preference shares.

Josephine Limited has an Authorized share capital of 15,000,000 Ordinary Shares of N1 each and 2,000,000 5% Redeemable Preference Shares of N1 each. The Statement of Financial Position of the company as at 31 December 2010 is as follows:

The preference shares are redeemable at N1.10 per share, and it was decided that they should be redeemed on 2 January 2011. In order to provide the necessary funds for the redemption, the short-term investments were sold for N1,600,000.

Required:
Prepare journal entries, necessary ledger accounts, and the Statement of Financial Position after the transaction has been completed.

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  • 15 Marks

FA – Nov 2012 – L1 – SB – Q2 – Regulatory Environment of Accounting

Explain the conceptual framework under IFRS and discuss accounting concepts and definitions of assets and liabilities.

a. Explain the term “Conceptual Framework” in relation to International Financial Reporting Standards (IFRS). (4 Marks)

b. Define Assets and Liabilities. (2 Marks)

c. The International Accounting Standards Board’s framework for the preparation of financial statements requires that entities should comply with certain accounting concepts and underlying assumptions which include:

i. Substance over form;
ii. Materiality;
iii. Comparability; and
iv. Going concern.

Explain briefly the meaning of these concepts. (4 Marks)

d. Discuss the information needs of the following users of a company’s financial statements:
i. Lenders;
ii. Suppliers;
iii. Customers;
iv. Employees;
v. Government and its agencies. (5 Marks)

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  • 15 Marks

FA – Nov 2012 – L1 – SB – Q1 – Financial Statements Preparation

Explain the principles and prepare financial statements based on a construction contract.

Real Construction Company Plc. is a major construction company in Nigeria. It recognizes revenue on construction contracts by reference to the stage of completion of the contract. However, in certain circumstances, revenue is only recognized to the extent that it does not exceed recoverable contract costs.

The company is halfway through a contract to build a new overhead bridge at a contract price of N300 million.

Progress report on this contract as at 1 April 2011 is as follows:

  • Cumulative sales revenue recognized: N150 million
  • Cumulative cost of sales to date: N112 million
  • Profit to date: N38 million

The following information has been extracted from the accounting records as at 31 March 2012:

  • Total progress payment received for work certified as at 29 February 2012: N180 million
  • Total costs incurred to date (excluding rectification costs below): N195 million
  • Rectification costs: N17 million

Real Construction Company Plc. had received progress payments of 90% of the work certified as at 29 February 2012. The company surveyor estimated that the value of the further work to be completed during March 2012 would be N20 million.

At 31 March 2012, the estimated costs of uncompleted contract were put at N45 million.

The rectification costs were the costs incurred in widening the pedestrian access roads to the bridge, due to an error by the company’s architect when making the initial drawings.

The company calculates the percentage of completion of its contracts as the proportion of value earned to date compared to the contract price.

All estimates can be taken as reliable.

Required:

a. Briefly explain the principles underlying each of the two methods of recognizing revenue and describe the circumstances in which their uses are appropriate. (5 Marks)

b. Prepare extracts of the financial statements for the contract for the year ended 31 March 2012. (10 Marks)

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  • 1 Marks

FA – Nov 2012 – L1 – SB – Q40 – Elements of Financial Statements

Calculate the dividend payable to ordinary shareholders.

If a 10% dividend is approved, what is the dividend payable to ordinary shareholders?

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