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 – Q5 – Accounting for Property, Plant, and Equipment (IAS 16)

Identifying features of non-current assets under IAS 16.

According to IAS 16 – “Accounting for Property, Plant and Equipment” all of the following are features of non-current assets EXCEPT where they are:

A. Held by an enterprise for use in the production or supply of goods and services
B. Expected to be used on a continuing basis
C. Intended for sale in the ordinary course of business
D. Financed by leasehold rights
E. Held for rental to others, or for administration purpose.

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  • 1 Marks

FA – May 2012 – L1 – SA – Q4 – Regulatory Environment of Accounting

Identifying the function of the Financial Reporting Council of Nigeria.

Which of the following is NOT a function of the Financial Reporting Council of Nigeria?

A. Promoting and enforcing compliance with the accounting standards developed by the Board
B. Developing and publishing in the public interest accounting standards to be observed in the preparation of financial statements
C. Advising State Governments on matters relating to accounting standards
D. Receiving notices of non-compliance with its standards from the preparer
E. Advising the Minister on making of regulations under Section 356 of Companies and Allied Matters, Cap C20, LFN 2004

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  • 1 Marks

FA – May 2012 – L1 – SA – Q3 – Trial Balance

Identifying how a trial balance helps disclose errors.

In which of the following circumstances will the preparation of a Trial Balance assist in disclosing an error?

A. Failure to post an entry journal
B. Posting rent expenses to motor running account
C. Failure to post part of a journal entry
D. Posting the debit of a journal entry as a credit and vice versa
E. Failure to record an entry in the journal

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  • 1 Marks

FA – May 2012 – L1 – SA – Q2 – Double-Entry Accounting Principles

Identifying the shortcoming of single entry book-keeping.

Which of the following is NOT a shortcoming of single entry book-keeping?

A. A trial balance is not available
B. Profits are overstated
C. There are no subsidiary books
D. There are no control accounts
E. There are no ledger accounts.

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  • 1 Marks

FA – May 2012 – L1 – SA – Q1 – Elements of Financial Statements

Identifying the item that does not belong in the statement of financial position of a club.

The following items normally feature in the statement of financial position of a club EXCEPT:

A. Current year’s subscription
B. Salary in arrears
C. Rental income received in advance
D. Advance subscription in respect of a coming year
E. Subscription in arrears.

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  • 15 Marks

FA – Nov 2011 – L1 – SB – Q6 – Recording Financial Transactions

This question requires the journal entries to record consignment transactions.

The following transactions were recorded in the books of Fadep Enterprises:

(i) On 1 October 2010, Fadep Enterprises sent goods worth N160,000 on consignment to Associate Enterprises and incurred expenses on transportation and loading of N4,800 and N1,200 respectively.
(ii) On 7 October 2010, Associate Enterprises received the consignment and paid N80,000 into the bank account of Fadep Enterprises.
(iii) On 31 October 2010, Associate Enterprises prepared and sent an Account Sales to Fadep Enterprises having made sales of N180,000. The remaining goods on hand were valued at N16,000 at original cost.
(iv) Associate Enterprises deducted 2.5% as commission and off-loading expenses of N2,000.
(v) On 5 November 2010, Associate Enterprises sold the remaining goods for N20,000.

You are required to:
(a) Prepare the journal entries with narration to record the above transactions in the books of Fadep Enterprises. (13 marks)
(b) State TWO principal differences between goods on consignment and sale of goods. (2 marks)

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  • 15 Marks

FA – Nov 2011 – L1 – SB – Q5 – Accounting Treatment for Bad and Doubtful Debts

This question asks for the valuation and reporting of debentures on the balance sheet.

On 1 July 2010, Union Conglomerate Ltd issued 20,000 8% Debentures at N97.50. The security is redeemable in five years’ time. The interest on the Debentures is payable bi-annually on 30 June and 31 December. On 31 December 2010, the Company’s year-end date, the Debentures were quoted on the Nigerian Stock Exchange for N96.00.

The company accountant has suggested each of the following as possible valuation bases for reporting the Debentures liability on the Balance Sheet as at 31 December 2010:
(i) Face value of the Debentures.
(ii) Face value of the Debenture plus interest payment for five years.
(iii) Market value on the Balance Sheet as at the year end.

Required:
(a) Determine the face value of the Debentures and the proceeds accruing to the company. (2 marks)
(b) Determine the amount and explain the nature of the differences between the face value and the market value of the Debentures on 1 July 2010. (4 marks)
(c) Distinguish between nominal and effective rates of interest. (3 marks)
(d) Determine the nominal interest payable on the Debentures for the year ended 31 December 2010. (2 marks)
(e) State arguments for or against each of the suggested alternatives for reporting the Debentures liability on the Balance Sheet as at 31 December 2010. (4 marks)

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  • 15 Marks

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

This question addresses the partnership agreement terms and dispute resolution between partners.

Segun and Sola went into partnership on 1 January 2009. The partnership agreement specifies that both partners should maintain Capital Accounts without Current Accounts. Each partner will be entitled to salary of N240,000 per annum and interest of 10% on capital at the end of the year. Profits and losses are to be shared equally after salaries and interest on capital have been taken into account.
Sola introduced capital of N1,000,000 on 1 January 2009 and N200,000 on 1 January 2010. He withdrew N360,000 from the business in 2009 and N480,000 in 2010.
Segun introduced capital of N400,000 on 1 January 2009. He withdrew N105,000 from the business in 2009 and N161,200 in 2010. The partnership did not keep proper books of accounts in 2009 and 2010.

However, the assets and liabilities of the partnership for the two years ended 31
December 2010 are as follows:

You are required to
Prepare in vertical format, the comparative Balance Sheets and Capital Accounts of the partners at the end of 2009 and 2010 based on the above information.

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  • 15 Marks

FA – Nov 2011 – L1 – SB – Q3 – Accounts of Not-for-Profit Entities

This question requires the preparation of financial statements for a non-profit entity.

The Balance Sheet of Paramount Youth Centre as at 31 December 2009 is shown as follows:
Balance Sheet as at 31 December 2009:

The following transactions took place during the period 1 January 2010 to 31 December 2010:

  • Receipts:
    Subscriptions (10,000 members @ N1,600 each) N16,000
    Donations N1,600
    Sale of tickets for annual dinner N10,800
  • Payments:
    Electricity N4,000
    Expenses for annual dinner N6,200
    New games equipment N3,200
    Cleaners’ wages N2,080
    Repairs and renewals N1,660
    Motor van repairs N2,520

Notes:

  1. An electricity bill of N900,000 was owed at 31 December 2010.
  2. Depreciation should be calculated at 10% of cost of the assets.

You are required to prepare:
(a) The Receipts and Payments Account. (4 ½ Marks)
(b) The Income and Expenditure Account and Balance Sheet as at 31 December 2010. (10 ½ Marks)

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  • 12 Marks

FA – Nov 2011 – L1 – SB – Q2c – Regulatory Environment of Accounting

This question asks about the different types of construction contract pricing.

Write short notes on the different types of construction contract pricing

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