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BMIS – L1 – SA – Q1.5 – The business organisation and its stakeholders
Checks if a limited company is a legal person.
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(a) State the two types of winding up.
(b) Giving examples, indicate the role(s) of the registrar, if any, in winding up of a company.
(c) What are the rights of minority on acquisition of a subsidiary company?
(d) Explain the contents of ‘Statement of Affairs’ as required to be submitted to the liquidator.
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Kofi Amo set up a radio station, Amo FM, investing GH¢10,000 initial capital. After some years, the business is not successful. At the end of the fifth year, furniture and fixtures were worth GH¢5,000; the delivery van was valued at GH¢2,000, and Kofi lived in a small flat valued at GH¢50,000, which he owns. This house was mortgaged from Apex Finance, with an outstanding balance of GH¢40,000 to pay off the mortgage.
Now the business has hit hard times: rent for the office location has increased, and Kofi owes the landlord GH¢10,000; workers have not been paid for months, with salary arrears of GH¢7,000; the bank overdraft is GH¢15,000, and the bank has refused to extend it; Kofi has received a demand from the National Communication Authority to renew the license for GH¢8,000.
(a) If all of your assets were sold off, would you be able to meet all of your liabilities?
(b) What options do your creditors have? Is your home safe?
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“A statement of financial position is a snapshot of a business at a point in time. It shows the assets that an entity owns and the liabilities that it owes. This is all that is required to convey a business’s performance, position and adaptability.
As income generated and expenses incurred by a business are already reflected within the assets and liabilities shown in the statement of financial position, a statement of profit or loss is a superfluous statement.”
Required
Briefly appraise the validity of the above statement, defining the words underlined.
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The KNUST Social Club prepares its accounts annually on 31st December. The receipts and payments account for the year ended 31st December 20X8 was prepared by the treasurer as follows:
GH¢ | GH¢ | ||
---|---|---|---|
Balance b/d | 7,000 | Caretaker’s wages | 18,000 |
Subscriptions received | Heating and lighting | 4,000 | |
for the year: 20X7 | 600 | Insurance | 1,000 |
20X8 | 13,500 | Bar payables | 22,000 |
20X9 | 1,100 | Dinner dance expenses | 1,000 |
Dinner dance ticket sales | 1,800 | Equipment purchases | 12,000 |
Bar takings | 55,000 | Bar staff wages | 16,000 |
Donations | 2,500 | Savings account | 3,000 |
Sale of equipment | 450 | Balance c/d | 18,350 |
81,350 | 81,350 |
The following additional information is available:
(i) The equipment sold during the year was valued in the books at GH¢600 as at 1st January 20X8. The club’s policy is to provide a full year’s depreciation in the year of purchase but none in the year of sale.
(ii) The savings account (short term) pays a fixed rate of interest of 5% per annum. An additional amount of GH¢400 was paid into the account on 1st July 20X8. There were no withdrawals made during the year. Interest due on 31st December 20X8 has not been received.
(iii) The remaining assets and liabilities of the club at the beginning and end of the year were:
1st January 20X8 | 31st December 20X8 | |
---|---|---|
GH¢ | GH¢ | |
Clubhouse | 230,000 | 230,000 |
Equipment | 26,000 | 25,200 |
Bar inventory | 2,000 | 2,400 |
Savings account | 2,000 | 2,400 |
Insurance prepaid | 100 | 80 |
Subscriptions owing | 180 | 160 |
Subscriptions in advance | 800 | 300 |
Bar payables | 700 | 1,000 |
Bar staff wages owing | 2,400 | 1,400 |
Cash at bank | 7,500 | 8,700 |
(iv) All subscriptions due for the year 20X7, but unpaid on 31st December 20X7, are considered to be irrecoverable debts.
(v) Bar staff wages are the only expense to be charged to the bar trading account.
Required:
(a) Prepare the bar trading account for the year ended 31st December 20X8.
(b) Prepare the income and expenditure account for the year ended 31st December 20X8.
(c) Prepare the statement of financial position as at 31st December 20X8.
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