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 – May 2012 – L1 – SA – Q15 – Control Accounts

Identifying items not credited to the Accounts Payable Control Account.

Which of the following items should NOT be on the credit side of Accounts Payable Control Account?

A. Total of purchases day book
B. Interest charged by suppliers
C. Transfer of debit balance to accounts receivable ledger
D. Transfer of credit balance from accounts receivable ledger
E. Set-offs

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  • 1 Marks

FA – May 2012 – L1 – SA – Q14 – Correction of Errors

Identifying the type of error when maintenance cost is debited to the wrong account.

The amount of N500,000 for the maintenance of the factory machine was debited to the Plant and Machinery account after crediting the bank account with the same amount. Which error has been committed?

A. Complete reversal of entries
B. Error of commission
C. Error of original entry
D. Error of omission
E. Error of principle

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  • 1 Marks

FA – May 2012 – L1 – SA – Q13 – Accounting for Inventories (IAS 2)

Identifying the best method for inventory valuation according to IAS 2.

According to International Accounting Standard No 2 on “Inventories”, which of the following methods can best be employed for the calculation and valuation of inventories?

A. Last purchase price
B. Last-In-First-Out
C. Base stock
D. Average cost
E. Replacement cost

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  • 1 Marks

FA – May 2012 – L1 – SA – Q12 – Accounting Concepts

Determining the correct presentation of share capital and share premium after a fresh issue of shares.

At 1 January 2011, the capital structure of Jumbo Plc was as follows:

Issued share capital, 10,000,000 ordinary shares of N1.00 each: N10,000,000
Share premium account: N500,000

On 1 September 2011, the company made a fresh issue of 500,000 shares at N1.30 each. Which of the following correctly presents the company’s share capital and share premium accounts as at 31 December 2011?

A. Share capital N10,000,000, Share premium N650,000
B. Share capital N10,500,000, Share premium N650,000
C. Share capital N10,650,000, Share premium N500,000
D. Share capital N10,150,000, Share premium N1,000,000
E. Share capital N10,000,000, Share premium N500,000

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  • 1 Marks

FA – May 2012 – L1 – SA – Q11 – Recording Financial Transactions

Identifying the correct accounting treatment for sales returns on a cash and carry basis.

Goods sold on cash and carry basis returned by a customer is treated in the account by:

A. Debiting Sales and Crediting Cash
B. Debiting Sales and Crediting Accounts Payable
C. Debiting Inventory and Crediting Cash
D. Debiting Inventory and Crediting Bank
E. Debiting Sales and Crediting Accounts Receivable.

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  • 1 Marks

FA – May 2012 – L1 – SA – Q10 – Elements of Financial Statements

Identifying which element is not affected when the proprietor consumes goods.

The value of goods taken by the proprietor of a firm for his consumption will affect all but ONE of the following:

A. Gross profit
B. Net profit
C. Inventory balance
D. Company’s capital
E. Inventory valuation.

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  • 1 Marks

FA – May 2012 – L1 – SA – Q9 – Accounting Concepts

Identifying transactions that do not affect cash and bank balances.

Which of the following will NOT affect cash and bank balances in the statement of financial position of a company?

A. Cash paid into the bank
B. Company’s cheque returned unpaid
C. Cheque received on account receivable paid to the bank but was returned unpaid
D. Bank charges in the statement of account
E. Cash discount on accounts receivable.

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  • 1 Marks

FA – May 2012 – L1 – SA – Q8 -Partnership Accounts

Identifying actions taken during the admission of a partner.

Which of the following is NOT an action for admission of a partner during the year?

A. Preparing the financial statements up to the date of admission
B. Determining goodwill, if any, at that date
C. Preparing a statement of account
D. Preparing a statement of financial position
E. Partners will decide if goodwill should be maintained in books or not.

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  • 1 Marks

FA – May 2012 – L1 – SA – Q7 – Accounting for Property, Plant, and Equipment (IAS 16)

Identifying the correct accounting entry for an increase in asset value due to revaluation.

Which accounting entries should be raised to record an increase in the value of assets on revaluation by the partners?

A. Debit revaluation account and credit partners’ capital account
B. Debit partners’ capital account and credit revaluation account
C. Debit revaluation account and credit partners’ current account
D. Debit revaluation account and credit assets account
E. Debit assets account and credit revaluation account.

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  • 1 Marks

FA – May 2012 – L1 – SA – Q6 – Partnership Accounts

Calculating the value of goodwill in a partnership.

The profits of ABC Partnership firm for 5 years ended 31 December 2011 were as follows:

Year      Profits
2007     N15,000,000
2008     N9,000,000
2009     N4,500,000
2010      N7,500,000
2011       N10,500,000

The firm intends to admit a new partner on 1 January 2012. What is the value of goodwill where the partners have decided to value goodwill at 4 years’ purchase of the average super profit over the last 5 years based on normal profits of N3,000,000 per annum?

A. N6,300,000
B. N9,300,000
C. N25,200,000
D. N25,300,000
E. N25,350,000.

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