Financial accounting – Page 2

FA – L1 – Q50 – Control accounts and account reconciliations

Prepare a receivables control account for Wako Associates with adjustments for errors identified in the sales ledger as of 31 December 20X9.

Question

The net sales ledger balances of Wako Associates aggregated GH¢319,000 as on December 31, 20X9. However, the receivables control account showed balance of GH¢350,410. On checking the following errors were identified:
(i) A credit balance amounting to GH¢1,200 had been omitted from the list of balances.
(ii) The Sales Return Book had been undercast by GH¢12,000.
(iii) A balance owed by Murad amounting to GH¢2,100 had been written off by debiting irrecoverable debts and crediting allowance for receivables accounts.
(iv) A debit balance of GH¢2,600 in the sales ledger had been listed as a credit balance.
(v) No entry had been made in the control account to record transfer of GH¢3,600 standing to the credit of David’s account in the purchases ledger to his account in the sales ledger.
(vi) Goods returned by Kwame amounting to GH¢1,700 were credited to his account in the sales ledger but debited to purchase account in the general ledger.
(vii) Enoch had been expected to take a settlement discount of GH¢800 and this had been correctly accounted for. However, Enoch did not settle on time and thus did not qualify for the discount.
(viii) A dishonoured bill of exchange from AC & Company for GH¢1,800 was properly entered in sales ledger but was debited to miscellaneous expense account in general ledger.
(ix) GH¢450 received from Thompson & Co., a customer, were correctly posted in the control account but was debited in the customers ledger as GH¢540.
(x) The trial balance included a credit balance of GH¢18,000 in the suspense account. It was revealed that 60% of the amount represents posting errors in the receivables control account.

Required:
(a) The receivables control account showing the necessary adjustments.

(b) A statement reconciling the receivables ledger balance with the corrected balance of the receivables control account.

Answer

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Tags: Account Reconciliation, Adjustments, Double Entry, Error Correction, Financial accounting, Ledger balances, Receivables control account, Sales Ledger, suspense account, Trade Receivables
Level: Level 1

Topic: Control accounts and account reconciliations

FA – L1 – Q49 – Control accounts and account reconciliations

Prepare receivables and payables control accounts for Sahara Health Ltd for 20X9 using provided financial data.

Question

Sahara Health Ltd has an accounting system where all separate ledger accounts are maintained for each individual customer and supplier.
The management wishes to draft the related control accounts.
The following information is available:

Description	GH₵
Receivables as on December 31, 20X8	32,000,000
Payables as on December 31, 20X8	23,350,000
Cheques issued to suppliers in settlement	14,360,000
Cash sales memos issued	550,000
Goods returned to suppliers	180,000
Cheques received from receivables in settlement	31,650,000
Cheque received from suppliers against return of goods	120,000
Credit sales invoices issued	35,900,000
Returns by customers: from cash sales	320,000
Returns by customers: from credit sales	980,000
Goods purchased on credit	27,700,000
Cash refund to a debtor who had paid the amount due twice	200,000
Cheque issued by a debtor on Dec. 28, 20X8 was dishonoured on May 13, 20X9	500,000
Increase in allowance for receivables (from GH₵1,750,000 to GH₵2,250,000)	500,000
Irrecoverable debts written off	430,000
Contra settlement between payables and receivables accounts	1,660,000
Credit balances included in customers’ accounts as on December 31, 20X9	75,000
A supplier’s invoice received on December 30, 20X9 relating to goods supplied on December 28, 20X9 has not been entered in the books	350,000

Required
Prepare the receivables and payables control accounts from the above information for the year ended December 31, 20X9.

Answer

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Topic: Control accounts and account reconciliations

FA – L1 – Q48 – Control accounts and account reconciliations

Reconcile receivables control account with ledger balances, correcting errors to determine trade receivables for Adom Ventures.

Question

Adom Ventures uses a sales day book to record its sales. A receivables control account is maintained in the general ledger whereas a receivables ledger is maintained separately. On December 31, 20X9, the total of the list of receivables amounting to GH₵301,000 as per receivables ledger did not agree with the balance in the receivables control account which showed a balance of GH₵345,000. On checking, the following errors were discovered:
(i) The credit side of the subsidiary account of Kofi has been under cast by GH₵7,000.
(ii) Invoice number 23612 sent to Yaw amounting to GH₵11,000 has been recorded twice in the sales day book but has not been recorded at all in the receivables ledger.
(iii) A debit balance of GH₵9,300 and credit balances amounting to GH₵4,600 had been omitted from the list of balances.
(iv) An account of GH₵1,800 owed by Ama had been written off as irrecoverable on March 31, 20X9 and debited to irrecoverable debts, but no entry had been made in the control account.
(v) A debit balance of GH₵2,000 in the receivables ledger had been listed as a credit balance.
(vi) No entry had been made in the control account in respect of a transfer of GH₵4,100 standing to the credit of Kwame’s account in the purchases ledger to his account in the sales ledger.
(vii) The total of sales returns book had been under cast by GH₵12,000.
(viii) The list of balances had been overcast by GH₵1,000.
(ix) B’s account had been credited with GH₵3,400 for goods returned by him but no other entry had been made in the books.

Required
Prepare a statement reconciling the balance as per the list with the receivables control account clearly identifying the amount which shall be reported in the statement of financial position as ‘trade receivables’.

Answer

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Tags: accounting adjustments, Double Entry, Error Correction, Financial accounting, Irrecoverable debts, ledger reconciliation, Receivables control account, sales day book, suspense account, Trial Balance
Level: Level 1

Topic: Control accounts and account reconciliations

FA – L1 – Q37 – Accruals and prepayments

Write up the insurance account for Vulcan's removal business for 20X9, including prepayments and multiple insurance payments.

Question

Vulcan owns a removal business and runs a small fleet of vans. He prepares his accounts to 31 December each year.
The following transactions occur in relation to insurance for the year 20X9.
1 January: The amount prepaid for insurance was GH¢1,140,000.
1 April: He paid GH¢840,000 insurance for the year ended 31 March 20Y0 on six of the vans.
1 May: He paid GH¢3,540,000 insurance for twenty vans for the year ended 30 April 20Y0.
1 July: He paid GH¢560,000 insurance for the remaining vans for the year ended 30 June 20Y0.

Required:
Write up the insurance account for the year ended 31 December 20X9.

Answer

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Tags: Accruals, Bookkeeping, Financial accounting, Insurance, Ledger accounts, Non-current Assets, Prepayments, Statement of Financial Position, Trial Balance, Year-end adjustments
Level: Level 1

Topic: Accruals and prepayments

FA – L1 – Q31 – Bad and doubtful debt

Prepare journal entries and ledger accounts for irrecoverable debts and allowance for receivables for Kwame Boateng over two years.

Question

The following information is available for Kwame Boateng:
Year 1
(1) 1 January: Allowance for receivables of GH¢860,000 standing on the books.
(2) 31 December: Trade receivables amount to GH¢15,000,000.
(3) Irrecoverable debts written off during the year amounted to GH¢1,000,000.
(4) An allowance for 7.5% of trade receivables is required.
Year 2
(1) 31 December: Trade receivables, before adjustments are GH¢13,700,000.
(2) Irrecoverable debts to be written off are GH¢1,100,000.
(3) Allowance for 7.5% of receivables is still considered necessary.

Required:
Show the journal entries to record the above and the relevant irrecoverable debt expense and allowance for receivables ledger accounts.

Answer

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Tags: Allowance for receivables, Bad Debts, Doubtful debts, Financial accounting, Journal entries, Ledger accounts
Level: Level 1

Topic: Bad and doubtful debt

FA – L1 – Q30 – Bad and doubtful debt

Prepare irrecoverable debts expense and allowance for receivables accounts for Kojo Mensah.

Question

The financial records of Kojo Mensah include an allowance for receivables of GH¢206,000 brought forward on 1 January. Trade receivables at 31 December amount to GH¢2,440,000 and irrecoverable debts to be written off total GH¢55,000. An allowance for receivables of 5% of receivables is to be carried forward.

Required:
Write up the irrecoverable debts expense account and the allowance for receivables account.

Answer

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Tags: Allowance for receivables, Bad Debts, Doubtful debts, Financial accounting, Ledger accounts
Level: Level 1

Topic: Bad and doubtful debt

FA – L1 – Q29 – Bad and doubtful debt

Prepare irrecoverable debts expense and allowance for receivables accounts for Kwame Asare.

Question

The allowance for receivables brought forward on 1 January in the books of Kwame Asare was GH¢86,000. Trade receivables at 31 December amounted to GH¢2,840,000 and irrecoverable debts to be written off totalled GH¢115,000. Kwame Asare has estimated that the closing balance on the allowance for receivables account should be 5% of accounts receivable.

Required:
Write up the irrecoverable debts expense account and the allowance for receivables account.

Answer

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Tags: Allowance for receivables, Bad Debts, Doubtful debts, Financial accounting, Ledger accounts
Level: Level 1

Topic: Bad and doubtful debt

FA – L1 – Q28 – Bad and doubtful debt

Prepare ledger accounts and financial statement extracts for Ama Kusi's receivables adjustments for Year 7.

Question

Ama Kusi is a sole trader making up accounts to 31 July each year.
At 31 July Year 6 the balance on the allowance for receivables account was GH¢1,420,000. During the following financial period ending 31 July Year 7, Ama Kusi suffered a number of irrecoverable debts amounting to GH¢723,000, which she wrote off to the irrecoverable debts account.
At 31 July Year 7 Ama Kusi listed out all receivables balances, which totalled GH¢32,456,000. After reviewing the list Ama Kusi decided that three balances – namely Kwame Boateng GH¢230,000, Adwoa Mensah GH¢562,000, and Kofi Owusu GH¢56,000 – were all doubtful and had to be allowed for as doubtful debts. In addition, Ama Kusi considered that 2% of all the remaining balances were doubtful and an allowance for receivables should be recognised.

Required:
Show the ledger accounts reflecting the necessary adjustments, and the relevant extracts from the financial statements.

Answer

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Tags: Allowance for receivables, Bad Debts, Doubtful debts, Financial accounting, Financial Statements, Ledger accounts
Level: Level 1

Topic: Bad and doubtful debt

FA – L1 – Q27 – Non-current assets and depreciation

Explain the terms depreciation and useful life of a non-current asset for Kofi Ansah. List four factors/causes contributing to depreciation of a non-current asset.

Question

(A) Explain the following Terms:

(i) Depreciation.

(ii) Useful life of a non-current asset.

(B) There are four (4) factors/causes that contribute to depreciation of a Non-current asset. List these factors or causes.

(C).

Kofi Ansah is a trader who prepares accounts to 31st December each year. The following transactions with regard to assets have taken place:
(i) 3rd January, 20X7 purchased one office equipment (laptop) for GH¢2,000.
(ii) 5th July, 20X8 purchased plant and machinery costing GH¢50,000.
(iii) 1st December, 20X8 purchased plant and machinery for GH¢20,000.
(iv) 15th December, 20X9 bought office equipment (printer) for GH¢1,000.
Mr. Kofi maintains its non-current assets at cost and depreciates its assets at a constant rate of 20% using the straight-line method of providing for depreciation for all assets. Assets purchased attract full depreciation charge in the year of purchase, whilst any asset disposed of attracts no depreciation charge.

Required:
Prepare the following:
(i) Plant and machinery account.
(ii) Office equipment account.
(iii) Accumulated depreciation account.

Answer

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Tags: Depreciation, Financial accounting, Ledger accounts, Non-current Assets, Office equipment, Plant and Machinery, Straight-line Method
Level: Level 1

Topic: Non-current assets and depreciation

FA – L1 – Q26 – Non-current assets and depreciation

Calculate the cost of machinery including delivery and modification costs, excluding warranty, for ledger entry.

Question

(1) A company purchased some heavy machinery. The invoice for the machinery showed the following items:

Description	GH¢000
Cost of machinery	46,000
Cost of delivery	900
Cost of 12-month warranty on the machinery	1,600
Total amount payable	48,500

In addition, the company incurred GH¢3.4 million in making modifications to its factory so that the heavy machinery could be installed.
What should be the cost of the machinery in the company’s machinery account in the ledger?

(2)

A business acquired new premises at a cost of GH¢400 million on 1 January 20X9. In the period to the year end of 31 March 20X9 the following further costs were incurred:

Description	GH¢000
Costs of initial adaptation of the building	12,000
Legal costs relating to the purchase	2,500
Monthly cleaning contract	3,400
Cost of air conditioning unit necessary for machinery to be used	2,800
Cost of machinery	12,300

What amount should appear as the cost of premises in the company’s statement of financial position at 31 March 20X9?

(3)

The plant and machinery account for a company for the year ended 30 June 20X9 is as follows:

20X8		GH¢	20X9		GH¢
1 July	Balance	960,000	31 March	Transfer to disposal account	80,000
31 Dec	Cash: purchase of machines	200,000	30 June	Balance	1,080,000
		1,160,000			1,160,000

The company’s policy is to charge depreciation on plant and machinery at 25% each year on the straight-line basis, with proportionate charges in the year of acquisition and the year of disposal. None of the assets held at 1 July 20X8 was more than three years old.
What is the charge for depreciation of plant and machinery for the year ended 30 June 20X9?

(4)

A motor car was purchased in May 20X6 for GH¢7.8 million. The accounting policy is depreciation at 20% straight line on the cost of the assets in use at the year end. The car was traded in for a replacement vehicle purchased in July 20X9 with the agreed part exchange value being GH¢2.4 million. The company’s year-end is 31 December.

What was the profit or loss on disposal?

Answer

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Tags: Depreciation, Disposal, Financial accounting, Motor car, Non-current Assets, Profit or Loss, Straight-line Method
Level: Level 1

Topic: Non-current assets and depreciation

Tag (SQ): Financial accounting

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FA – L1 – Q50 – Control accounts and account reconciliations

Prepare a receivables control account for Wako Associates with adjustments for errors identified in the sales ledger as of 31 December 20X9.

FA – L1 – Q49 – Control accounts and account reconciliations

Prepare receivables and payables control accounts for Sahara Health Ltd for 20X9 using provided financial data.

FA – L1 – Q48 – Control accounts and account reconciliations

Reconcile receivables control account with ledger balances, correcting errors to determine trade receivables for Adom Ventures.

FA – L1 – Q37 – Accruals and prepayments

Write up the insurance account for Vulcan's removal business for 20X9, including prepayments and multiple insurance payments.

FA – L1 – Q31 – Bad and doubtful debt

Prepare journal entries and ledger accounts for irrecoverable debts and allowance for receivables for Kwame Boateng over two years.

FA – L1 – Q30 – Bad and doubtful debt

Prepare irrecoverable debts expense and allowance for receivables accounts for Kojo Mensah.

FA – L1 – Q29 – Bad and doubtful debt

Prepare irrecoverable debts expense and allowance for receivables accounts for Kwame Asare.

FA – L1 – Q28 – Bad and doubtful debt

Prepare ledger accounts and financial statement extracts for Ama Kusi's receivables adjustments for Year 7.

FA – L1 – Q27 – Non-current assets and depreciation

Explain the terms depreciation and useful life of a non-current asset for Kofi Ansah. List four factors/causes contributing to depreciation of a non-current asset.

FA – L1 – Q26 – Non-current assets and depreciation

Calculate the cost of machinery including delivery and modification costs, excluding warranty, for ledger entry.

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Prepare a receivables control account for Wako Associates with adjustments for errors identified in the sales ledger as of 31 December 20X9.

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Prepare receivables and payables control accounts for Sahara Health Ltd for 20X9 using provided financial data.

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Reconcile receivables control account with ledger balances, correcting errors to determine trade receivables for Adom Ventures.

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Write up the insurance account for Vulcan's removal business for 20X9, including prepayments and multiple insurance payments.

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Prepare journal entries and ledger accounts for irrecoverable debts and allowance for receivables for Kwame Boateng over two years.

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Prepare irrecoverable debts expense and allowance for receivables accounts for Kojo Mensah.

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Prepare irrecoverable debts expense and allowance for receivables accounts for Kwame Asare.

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Prepare ledger accounts and financial statement extracts for Ama Kusi's receivables adjustments for Year 7.

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Explain the terms depreciation and useful life of a non-current asset for Kofi Ansah. List four factors/causes contributing to depreciation of a non-current asset.

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