Tag (SQ): Bad Debts

Search 500 + past questions and counting.

  • Filter by Professional Bodies

  • Filter by Subject

  • Filter by Topics

  • Filter by Levels

  • 15 Marks

FR – L2 – Q67 – Presentation of Financial Statements

Prepare Wenchi Exports' profit/loss statement and financial position for 20X4 using trial balance, with adjustments for inventory, patents, revaluation, bad debts, and tax.

The trial balance of Wenchi Exports Limited at 31 December 20X4 is as follows.

GH₵ in million
Dr Cr
Patent rights 60
Work-in-progress, 1 January 20X4 125
Buildings at cost 300
Ordinary share capital 600
Revenue 1,740
Staff costs 260
Accumulated depreciation on buildings, 1 January 20X4 60
Inventories of finished games, 1 January 20X4 155
Consultancy fees 44
Directors’ salaries 360
Computers at cost 50
Accumulated depreciation on computers, 1 January 20X4 20
Dividends paid 125
Cash 440
Receivables 420
Trade payables 294
Sundry expenses 94
Accumulated profits, 1 January 20X4 279
2,633 2,633

The following information is also relevant.
(1) Closing inventories of finished games are valued at GH₵180 million. Work in progress has increased to GH₵140 million.
(2) The patent rights relate to a computer program with a three-year lifespan.
(3) On 1 January 20X4 buildings were revalued to GH₵360 million. This has not yet been reflected in the accounts. Computers are depreciated over five years. Buildings are now to be depreciated over 30 years.
(4) An allowance for bad debts (irrecoverable debts) of 5% is to be created.
(5) There is an estimated bill for current tax of GH₵120 million which has not yet been recognised.

Required
Prepare a statement of profit or loss (analysing expenses by nature) for the year ended 31 December 20X4 and a statement of financial position as at that date.

Login or create a free account to see answers

Login | Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "FR – L2 – Q67 – Presentation of Financial Statements"

  • 10 Marks

FM – L2 – Q111 – Management of receivables and payables

Calculate the annual interest cost of offering a 2% settlement discount for payment within 7 days, given a 90-day credit period.

(A). A business entity offers its customers trade credit of 90 days. It is considering whether to offer a settlement discount of 2% for payment within seven days.

Required

Calculate the cost of offering the discount, as an annual interest cost.

(B). Entity K has monthly sales of GH₵100,000. A factor has offered to take over the administration of Entity K’s trade receivables, on a non-recourse basis (or without recourse basis). It would charge a fee of 4% of the value of invoices processed. If the factor takes over this work, Entity K would save monthly administration costs of GH₵2,000 and would avoid its bad debts, which are 0.75% of sales.

Entity K has been informed by the factor that the average collection period (the time between issuing an invoice and receiving payment from the customer) will be reduced from 2 months to 1 month.

The factor will also provide finance by lending 80% of the value of unpaid invoices, charging interest at an annual rate of 8% on the cash that it lends. At the moment, Entity K finances its trade receivables with bank overdraft finance at 9% per year interest.

Required

Calculate the net effect on annual profits of Entity K if the factor took over the administration of the trade receivables and provided finance on the terms described above.

Login or create a free account to see answers

Login | Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "FM – L2 – Q111 – Management of receivables and payables"

  • 15 Marks

L2 – Q110 – Trade Receivables Management

Calculate the effect of reducing credit period on Entity N's annual profit, considering sales reduction, bad debts, and overdraft costs.

Entity N is reviewing its credit policy. It is estimated that if the period of credit allowed to customers is reduced to 60 days, there will be a 25% reduction in annual sales, but bad debts would be reduced by GH¢30,000 each year. It would also be necessary to spend an extra GH¢20,000 each year on credit control. Entity N has cash flow difficulties and relies on overdraft finance, for which the interest rate is 9%.

Required
Calculate the effect of these changes on the annual profit. Base your answer on the level of sales in Year 3, and assume that purchases and inventory would be reduced in the same proportion as the reduction in sales.

Entity N – Extracts from annual accounts Year 3
Inventory GH¢
Raw materials 180,000
Work in progress 93,360
Finished goods 142,875
Purchases 720,000
Cost of goods sold 1,098,360
Sales 1,188,000
Trade receivables 297,000
Trade payables 126,000

Login or create a free account to see answers

Login | Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "L2 – Q110 – Trade Receivables Management"

  • 20 Marks

FA – L1 – Q94 – Preparation of accounts from incomplete records

Prepare statement of profit or loss and financial position for a sole trader using incomplete records for 20X9.

Kofi Mensah does not keep proper books of account due to his lack of knowledge of double entry system of accounting. He has supplied you the following information with respect to the year ended 31 December 20X9 from the records kept in his diary:
(i) Transactions during the year:

GH¢
Cash received from customers 80,000
Discount allowed to customers 1,400
Irrecoverable debts written off 1,800
Cash paid to suppliers 63,000
Discount allowed by suppliers 1,000
Sales returns 3,000
Purchases returns 2,000
Expenses paid 6,000
Drawings 5,000
Rent paid 2,500

(ii) Opening balances as on 1 January 20X9:

Assets and liabilities GH¢
Receivables 45,000
Payables 24,000
Cash 4,500
Furniture and fixtures 15,000
Inventory 25,000
Motor van 16,000

(iii) Receivables and payables as on 31 December 20X9 amounted to GH¢ 48,600 and GH¢ 27,000 respectively.
(iv) Outstanding expenses as on 31 December 20X9 amounted to GH¢ 1,200.
(v) Depreciation is charged on furniture and fixtures at the rate of 10% and on motor van at 20%.
(vi) Kofi Mensah sells goods at cost plus 40% and follows a policy of maintaining an allowance of 5% of the outstanding receivables.

Required:
Prepare the following:
(a) Statement of profit or loss for the year ended 31 December 20X9.
(b) Statement of financial position as at 31 December 20X9.

Login or create a free account to see answers

Login | Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "FA – L1 – Q94 – Preparation of accounts from incomplete records"

  • 20 Marks

FA – L1 – Q72 – Preparing financial statements of a sole trader

Prepare Zanko Ventures' statement of profit or loss for 20X9 using trial balance and adjustments.

(a) Distinguish between capital expenditure and revenue expenditure.
(b) (i) The following trial balance was extracted from the books of Zanko Ventures, a second-hand bags dealer as at 31st December, 20X9.

Description DR (GH₵) CR (GH₵)
Inventory 120,000
Vehicle (Cost) 150,000
Trade receivables 25,000
Accumulated depreciation: Vehicle 30,000
Accumulated depreciation: Furniture & fittings 10,120
Trade payables 100,000
Drawings 120,000
General expenses 65,000
Allowance for receivables 2,500
Rate & rent 14,000
Insurance 5,000
Irrecoverable debt 7,000
Discount received 25,150
Discount allowed 15,160
Bank balance 165,240
Wages & salaries 250,000
Sundry expenses 6,150
Vehicle running expenses 15,650
Furniture & fittings 50,600
Repairs to the shop 6,500
Purchases 650,120
Sales 1,079,130
Capital 473,520
Total 1,720,420 1,720,420

The following additional information is provided:
(i) Allowance for receivables is to be reduced by 10%.
(ii) Rate and rent has been paid in advance by two (2) months. Note that Zanko Ventures pays GH₵1,000 each month.
(iii) Inventory as at 31st December, 20X9 is GH₵80,150.
(iv) A bill of GH₵6,150 for vehicle running was outstanding as at 31st December, 20X9.
(v) The enterprise provides depreciation as follows:

  • Vehicle: 20% per annum on straight-line basis.
  • Furniture and fittings: 20% per annum on straight-line basis.

You are required to:
(i) Prepare the statement of profit or loss for the year ending 31st December 20X9.

(ii) Prepare the statement of financial position as at 31st December 20X9.

Login or create a free account to see answers

Login | Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "FA – L1 – Q72 – Preparing financial statements of a sole trader"

  • 20 Marks

FA – L1 – Q71 – Preparing financial statements of a sole trader

Prepare Harmony Ventures' statement of profit or loss for the year ended 30 September 20X9 using the trial balance and additional info.

Harmony Ventures is run by a sole trader. The following Trial Balance was prepared from the business accounts on 30th September 20X9.

Harmony Ventures: Trial Balance as at 30th September 20X9

DR GH₵ CR GH₵
Capital 185,280
Inventory 37,360
Sales 421,450
Purchases 193,150
Purchase returns 6,040
Electricity 3,410
Discounts allowed 2,230
Discounts received 2,420
Motor expenses 4,270
Drawings 32,000
Bank 24,511
Salaries 108,000
Insurance 15,400
Receivables 110,140
Irrecoverable debts 1,420
Allowance for receivables 3,153
Payables 76,283
General expenses 6,780
9% Loan (20Y16 – 20Y3) 150,000
Loan interest 12,000
Land and buildings 340,000
Accumulated depreciation for buildings 16,000
Equipment 22,000
Accumulated depreciation for equipment 10,300
Motor vehicles 26,000
Accumulated depreciation for motor vehicles 13,250
Total 896,031 896,031

The following information is also available:
(i) Only 10 months’ salaries are shown in the Trial Balance. An equal amount is paid for salaries for each month of the year.
(ii) As at 30th September 20X9, GH₵3,200 had been prepaid for insurance, whilst GH₵410 was owing for general expenses.
(iii) GH₵4,600 had been charged to general expenses for the owner’s private holiday.
(iv) As at 30th September 20X9, inventory was valued at GH₵22,500.
(v) A customer, owing GH₵5,040 has been declared bankrupt. This amount is to be written off in full.
(vi) An allowance for receivables is to be maintained at 3% of the remaining receivables.
(vii) As at 30th September 20X9, the business’s land was valued at GH₵100,000. Land is not depreciated.
(viii) Depreciation is to be provided as follows:

  • Buildings: 4% per annum using the straight line method.
  • Equipment: 25% per annum using the straight line method.
  • Motor vehicles: 40% per annum using the reducing balance method.
    (ix) There were no additions or disposals of non-current assets during the financial year.

Required:
(a) Prepare the statement of profit or loss for the year ended 30th September 20X9.

(b) Prepare the statement of financial position as at 30th September 20X9.

(c) (i) Identify the accounting concept involved in each of the footnotes/items (i), (iii) and (v).

Login or create a free account to see answers

Login | Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "FA – L1 – Q71 – Preparing financial statements of a sole trader"

  • 15 Marks

FA – L1 – Q69 – Preparing financial statements of a sole trader

Prepare Sarah's statement of profit or loss for 20X8 and financial position as at 31 Dec 20X8 using given balances and adjustments.

The following information relates to the business of Sarah for the year ended December 20X8.

GH$ GH$
Capital account, 1 January 20X8 13,640
Freehold properties at cost 7,500
Furniture and fittings at cost 2,000
Motor cars at cost 6,300
Accumulated depreciation to 1 January
Freehold properties 450
Furniture and fittings 800
Motor cars 2,370
Inventory 1 January 6,740
Purchases 54,520
Sales 79,060
Salaries 8,760
Rates 1,170
Office expenses 3,950
Motor expenses 3,790
Drawings 4,800
Allowance for receivables 1 January 600
Loan 4,000
Trade receivables 9,240
Trade payables 10,040
Bank balance 2,190
110,960 110,960

You are also supplied with the following information:
(1) Inventory at 31 December 20X8 was GH$7,330.
(2) Rates paid in advance at 31 December 20X8 amounted to GH$250.
(3) Allowance for receivables is to be made equal to 5% of accounts receivable at 31 December 20X8.
(4) Depreciation is to be provided for the year at the following annual rates calculated on cost at the year end:

  • Freehold properties: 1%
  • Furniture and fittings: 10%
  • Motor cars: 20%
    (5) Interest on the loan at 5% per annum is to be provided.

Required:
Prepare a statement of profit or loss for the year ended 31 December 20X8 and a statement of financial position at that date.

Login or create a free account to see answers

Login | Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "FA – L1 – Q69 – Preparing financial statements of a sole trader"

  • 15 Marks

FA – L1 – Q68 – Preparing financial statements of a sole trader

Prepare Michael Tan's statement of profit or loss for 20X9 and financial position as at 31 May 20X9 using trial balance and adjustments.

The following trial balance was extracted from the main ledger of Michael Tan, a sole trader, as at 31 May 20X9 – the end of his financial year.

Michael Tan: Trial balance as at 31 May 20X9

DR GH$(000) CR GH$(000)
Land and buildings at cost 120,000
Equipment at cost 80,000
Accumulated depreciation (as at 1 June 20X8)
On land and buildings 36,000
On equipment 38,000
Purchases 250,000
Sales 402,200
Inventory as at 1 June 20X8 50,000
Discounts received 4,800
Returns outwards 15,000
Wages and salaries 79,800
Irrecoverable debts 2,100
Loan interest 2,100
Other operating expenses 17,700
Trade payables 36,000
Trade receivables 38,000
Cash in hand 300
Bank 1,300
Drawings 24,000
Allowance for receivables 500
7% long-term loan 30,000
Capital as at 1 June 20X8 121,300
665,300 683,800

The following additional information as at 31 May 20X9 is available:
(a) Inventory as at 31 May 20X9 was valued at GH$42,000,000.
(b) Depreciation for the year ended 31 May 20X9 has yet to be provided as follows:

  • Land and buildings: 1.5% using the straight-line method;
  • Equipment: 25% on the carrying amount at the year-end (i.e., cost less accumulated depreciation at 1 June 20X8).
    (c) There are accrued wages and salaries of GH$800,000.
    (d) Other operating expenses include some prepaid expenses of GH$300,000.
    (e) The allowance for receivables should be adjusted to 2% of trade receivables as at 31 May 20X9.

Required:
Prepare Michael Tan’s statement of profit or loss for the year ended 31 May 20X9 and his statement of financial position as at that date.

Login or create a free account to see answers

Login | Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "FA – L1 – Q68 – Preparing financial statements of a sole trader"

  • 15 Marks

FA – L1 – Q67 – Preparing financial statements of a sole trader

Prepare DOVE's statement of profit or loss for 20X9 and statement of financial position as at 31 Dec 20X9 using given ledger balances and adjustments.

The following balances were extracted from the main ledger of DOVE on 31 December 20X9.

Description GH$(000)
Capital 10,059
Inventory at 1 January 20X9 2,720
Cash in hand 55
Bank overdraft 2,522
Sundry receivables 7,009
Sundry payables 6,735
Motor vans (Cost GH$2,000) 1,500
Drawings in cash 2,459
Fixtures and fittings (Cost GH$4,000) 3,800
Purchases 33,436
Allowance for receivables 162
Sales 50,261
Purchases returns 120
Carriage inwards 546
Rent 626
Salaries and wages 5,226
Motor vehicle expenses 920
Interest on bank overdraft and bank charges 56
Carriage outwards 785
Returns inwards 240
Freehold land 10,300
Irrecoverable debts 240

You are given the following information:
(1) The inventory at 31 December 20X9 was GH$4,270,000.
(2) Wages and salaries payable at 31 December 20X9 were GH$426,000.
(3) Rent paid in advance at 31 December 20X9 amounted to GH$100,000.
(4) The allowance for receivables is to be increased to GH$260,000.
(5) Depreciation is to be charged as follows: motor vans at 25% per year on cost, fixtures and fittings 5% per year on cost.
(6) During 20X9, the owner of DOVE withdrew goods valued at GH$180,000 for his own use. No entry has been made in the accounts for the withdrawal of these goods.
(7) One quarter of the motor vehicle expenses is the cost of the owner’s private motoring, as distinct from expenses for business purposes.

Required:
Prepare a statement of profit or loss for the year ending on 31 December 20X9 and a statement of financial position as at that date.

Login or create a free account to see answers

Login | Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "FA – L1 – Q67 – Preparing financial statements of a sole trader"

  • 25 Marks

FA – L1 – Q52 – Control accounts and account reconciliations

Adjust sales/purchase ledger control accounts and reconcile with individual ledger balances for Kofi Enterprises.

Kofi Enterprises maintains accounts on a fully integrated computerised accounting system which produces control accounts as an integral part of the DOUBLE ENTRY system. At the end of each month individual sales and PURCHASE ledger balances are reconciled automatically to the respective control accounts as a pre-programmed control check.

Unfortunately Kofi was taken ill in the middle of August and his assistant input a number of entries without the correct integration codes. Consequently the system has been unable to reconcile the control accounts at the end of that month. The assistant has manually extracted the individual ledger balances, and the net totals at 31 August are as follows.

Purchase ledger Sales ledger
GH¢3,556 GH¢8,946

The assistant has also manually produced draft accounts for the six months to 31 August and provides you with the following abridged trial balance.

GH¢ GH¢
Sales ledger control account 8,979
Purchase ledger control account 7,496
Net profit per draft accounts 4,322
Sundry balances (net) 2,839
11,818 11,818

You have checked through the accounting records and discovered the following discrepancies.
(1) The total for the PURCHASES day book input total for August has been incorrectly shown as GH¢6,241 following a manual override. The total should have been GH¢2,641.
(2) An old debit balance of GH¢28 in the PURCHASE ledger had been written off during August as bad. You discover that no ENTRY had been input other than in the individual supplier’s ledger account.
(3) A payment of GH¢260 on 14 August relating to the payment of a July PURCHASES invoice had been wrongly input in the cash account as wages.
(4) During the month of August there had been a mix-up over goods supplied to a CUSTOMER, Kwame. The goods were invoiced for GH¢62, despatched to Kwame and correctly entered in the system on 5 August. Several items turned out to be defective and were returned by Kwame on 28 August. These goods, originally costing GH¢14, were included in the original invoice of GH¢62 at an amount of GH¢17. No ENTRY was made in the books as a result of the return of the goods but they were manually input into the INVENTORY account at GH¢17. Owing to their damaged state their net realisable value is estimated to be GH¢5.
(5) Kofi has received discounts during the month amounting to GH¢280. However, these have only been manually input to the individual suppliers’ accounts.
(6) Certain discrepancies in the print-out of balances at 31 August have come to light, suggesting a software error might also have occurred. You discover that
(i) debit balances on the sales ledger of GH¢54 and GH¢69 respectively had been completely omitted from the listing
(ii) a CREDIT balance on the PURCHASE ledger of GH¢71 had been listed as a debit balance of GH¢17
(iii) the total of debit entries on Adwoa’s account in the sales ledger had been overcast by GH¢90.

Required
(a) Adjust the sales and PURCHASE ledger control accounts and show the reconciliation of the closing balances with the aggregate of the individual balances extracted from the PURCHASE and sales ledgers.

(b) Compute a revised net profit for the six month period to 31 August.

Login or create a free account to see answers

Login | Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "FA – L1 – Q52 – Control accounts and account reconciliations"

knowsia

Elevate your professional expertise across key business domains with our comprehensive training programs

Our offerings

Community

Contact Info

  • +233203701923
    +233543919232
  • info@knowsia.com

Customer

Get In Touch

Follow us on our social media and get daily updates.

Facebook-f Twitter Linkedin-in Envelope
Oops!

This feature is only available in selected plans.

Click here to view all plans

Click on the login button below to login if you’re already subscribed to a plan or click on the upgrade button below to upgrade your current plan.

Login
Upgrade Plan

If you’re not subscribed to a plan, click on the button below to choose a plan

Subscribe to a plan

Pick a Form

Professional Tutor Application Form
Academic Tutor Application Form
Student Tutor Application Form