Receivables – Page 2

FA – L1 – Q62 – Correction of Errors

Prepare journal entries to correct errors in Western Medical Supplies' trial balance as of June 30, 20X9.

Question

The trial balance of Western Medical Supplies showed a short credit of ZM₵6,264 as at June 30, 20X9. A suspense account was opened for the difference and the profit for the year was then calculated at ZM₵956,180.
The following errors and adjustments were discovered subsequently:
(i) An invoice of ZM₵3,700 was debited to purchases but the goods were received after year-end and were not included in the closing inventory.
(ii) Store equipment costing ZM₵8,100 and having a book value of ZM₵3,600 was sold for ZM₵2,500. Cash was debited and store equipment was credited. No other entries were made.
(iii) A cheque of ZM₵1,850 received from a customer was dishonoured on June 25, 20X9 but no entry was made in the books. Cash there against was received after year-end.
(iv) Purchase of office equipment costing ZM₵15,200 was entered in the purchases account. Depreciation on office equipment is provided at the rate of 10%.
(v) A purchase invoice of ZM₵197 was debited to the supplier account as ZM₵917.
(vi) Purchase returns book was under-casted by ZM₵650.
(vii) The opening balance of furniture account was brought forward as ZM₵18,300 instead of ZM₵13,800. Depreciation on furniture is provided at the rate of 10%.
(viii) A balance of ZM₵730 in the sales ledger is to be offset against a balance of ZM₵880 in the purchase ledger.

Required:
(a) Prepare journal entries to adjust the above items.

(b) Recalculate the net profit for the year.

Answer

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Tags: Depreciation, Error Correction, Inventory, Net profit, Non-current Assets, Payables, Profit Adjustment, Receivables, suspense account, Trial Balance
Level: Level 1

Topic: Correction of Errors

FA – L1 – Q53 – Control accounts and account reconciliations

Prepare a revised sales ledger control account for Biomed Supplies Ltd for 20X8, correcting identified errors.

Question

The sales ledger control account of BioHealth Solutions Ltd for the year ended 31st December 20X8 has been prepared from the following information:

	GH¢
Debit balance b/d 1st January 20X8	128,540
Credit balance b/d 1st January 20X8	2,800
Total for the year 1st January 20X8 to 31st December 20X8
Credit Sales	1,144,200
Cheques received from customers	1,046,200
Cash received from customers	7,100
Sales returns from customers	12,000
Discounts allowed	2,480
Dishonoured cheques	5,000
Contras purchases ledger	10,640
Irrecoverable debts	6,500

The sales ledger control account balance, which is part of the double entry system, failed to agree with the total receivables of GH¢189,380 as shown by the schedule of receivables. The following errors were subsequently discovered:

(i) A customer had returned goods to BioHealth Solutions Ltd at the selling price of GH¢2,400. The goods had been bought on credit. No entries had been made to record the return of the goods in the accounts of BioHealth Solutions Ltd.
(ii) The discounts allowed column in the cash book had been overcast by GH¢1,080.
(iii) No contra entry had been made in the receivables account in the sales ledger in respect of purchases by BioHealth Solutions Ltd of goods at a list price of GH¢2,000. PC Ltd received a trade discount of 10% on these goods. This transaction had been correctly dealt with in the Sales Ledger Control Account.
(iv) A credit sale of GH¢3,520 to JT Private Health Ltd was correctly recorded in the sales ledger control account, but no other entry had been made.
(v) A cheque received from a customer for GH¢6,900, correctly processed through the books, had subsequently been dishonoured. No entries have yet been made to record this dishonoured cheque.
(vi) DT Medical Ltd, a customer, has recently been declared bankrupt and the debt of GH¢3,500 is to be written off, but no entries have yet been made.

Required:
(a) Prepare a revised sales ledger control account for the year ended 31 December 20X8.

(b) Prepare a statement showing the correct total of the Schedule of Receivables for the year ended 31 December, 20X8.

Answer

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Tags: Advantages, Control Accounts, Errors, Financial accounting, Fraud Prevention, Payables, Receivables
Level: Level 1

Topic: Control accounts and account reconciliations

FA – L1 – Q14 – Sales and Purchases

Prepare sales and purchase day book extracts for Green Haven Garden Traders' May 20X9 transactions.

Question

The following transactions in May 20X9 are those of a new business entity, Green Haven Garden Traders.

May 20X9

Date	Transaction
1	Set up the entity with capital in cash: GH₵2,500,000.
2	Bought goods on credit from the following suppliers: Bushwood Suppliers GH₵540,000, Blossom Town GH₵870,000, D. Grayson GH₵250,000, Weedstop GH₵760,000, T. Verdant GH₵640,000. (Total: GH₵3,060,000).
4	Sold goods on credit to: Office Works GH₵430,000, V. Carson GH₵640,000, Southern Retail GH₵1,760,000. (Total: GH₵2,830,000).
6	Paid rent GH₵120,000.
9	Office Works paid the GH₵430,000 that it owed.
10	Southern Retail paid GH₵1,500,000.
12	The following payments were made: to D. Grayson GH₵250,000 and to Bushwood Suppliers GH₵540,000. (Total: GH₵790,000).
15	Advertising costs of GH₵230,000 were paid to the local newspaper publisher.
18	Bought goods on credit from the following suppliers: Bushwood Suppliers GH₵430,000, Landview GH₵1,100,000. (Total: GH₵1,530,000).
21	Sold goods on credit to Community Greens GH₵670,000.
31	Paid rent GH₵180,000.

Required
(a) Prepare extracts of the sales day book and purchase day book for the relevant transactions above.

(b) Use T accounts to show how these transactions should be recorded in the main ledger accounts of the entity. The accounting system contains a receivables ledger and a payables ledger for individual accounts, and there are control accounts (Total: accounts) for receivables and payables in the main ledger.

(c) Post the transactions to individuals’ accounts in the receivables ledger and the payables ledger and extract a list of balances from these. (The total of each list should agree with the balance on the receivables control account and payables control account respectively).

(d) Prepare a trial balance as at 31 May 20X9.

Answer

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Tags: Capital, Double Entry, Ledger accounts, Payables, Purchases, Receivables, Sales, Trial Balance
Level: Level 1

Topic: Double entry bookkeeping

FA – L1 – Q12 – Double entry bookkeeping

Record Leah's March 20X9 transactions in main ledger T accounts and prepare a trial balance as at 31 March 20X9.

Question

Enter the following transactions in the main ledger accounts of Leah, and extract a trial balance as at 31 March 20X9.
Assume that all receipts and payments are by cheque unless told otherwise.

March 20X9

Date	Transaction
1	Started business with GH₵80,000 in the bank
2	Bought goods on credit from: K&H Supplies GH₵7,600; Hatton Traders GH₵2,700; Tobias Traders GH₵5,600
5	Cash sales GH₵8,700. The cash was kept in a safe in Leah’s office.
6	Paid wages GH₵1,400 by cheque.
7	Sold goods on credit to: Elliott Enterprises GH₵3,500; L. Lang GH₵4,200; Carter Leisure GH₵7,200
9	Bought goods for cash GH₵4,600 using cash from Leah’s safe.
10	Bought goods on credit from: K&H Supplies GH₵5,700; Tobias Traders GH₵9,800
12	Paid wages GH₵1,400 by cheque.
13	Sold goods on credit to: L. Lang GH₵3,200; Carter Leisure GH₵2,300
15	Bought shop fixtures on credit from Betta Fittings GH₵5,000
17	Paid K&H Supplies GH₵8,400
18	Goods returned to Tobias Traders GH₵2,000
21	Paid Betta Fittings GH₵5,000
24	Payment received from Carter Leisure GH₵9,500
27	Goods returned to K&H Supplies GH₵2,400
30	Royal Bank provides a loan of GH₵6,000
31	Bought a motor van, paying by cheque GH₵40,000

Answer

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Tags: Capital, Double Entry, Inventory, Ledger accounts, Non-current Assets, Payables, Purchases, Receivables, Sales, T accounts, Trial Balance
Level: Level 1

Topic: Double entry bookkeeping

FA – L1 – Q11 – Preparing financial statements of a sole trader

Prepare statement of profit or loss and financial position for Blake's business for 20X9 using trial balance and inventory data.

Question

Using the following information, prepare the statement of profit or loss for Blake for the year ended 31 December 20X9 and a statement of financial position as at that date.

Blake – Trial balance as at 31 December 20X9

	Debit GH₵	Credit GH₵
Purchases	54,261
Sales		135,650
Sales returns	50
Purchase returns		61
Carriage inwards (delivery cost of purchases)	100
Carriage outwards (cost of deliveries to customers)	150
Inventory – 1 January 20X9	7,500
Wages and salaries	8,900
Rent	4,500
Telephone	560
Heat and lighting	890
Motor van running expenses	1,250
Bank interest	534
Land and buildings	60,000
Motor van	5,000
Payables		5,900
Bank overdraft		6,500
Receivables	8,700
Cash in hand	150
Drawings	15,000
Capital		19,434
Total	167,545	167,545

Inventory at 31 December 20X9 was GH₵9,500.

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

Answer

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Tags: Capital, Drawings, Expenses, Inventory, Payables, Receivables, Revenue, Statement of Financial Position, Statement of profit or loss, Trial Balance
Level: Level 1

Topic: Preparing financial statements of a sole trader

FA – L1 – Q10 – Double entry bookkeeping

Record May 20X9 transactions in T accounts and prepare a trial balance for Pine Grove Garden Traders.

Question

The following transactions in May 20X9 are those of a new business entity, Pine Grove Garden Traders.

May 20X9
Date
1 Set up the entity with capital in cash: GH₵2,500,000.
2 Bought goods on credit from the following suppliers: Green Leaf Company GH₵540,000, Blossom Town GH₵870,000, D Smith GH₵250,000, HerbSafe GH₵760,000, Forest Green GH₵640,000.
4 Sold goods on credit to: City Office Supplies GH₵430,000, V Pine GH₵640,000, Coastal Chain Stores GH₵1,760,000.
6 Paid rent GH₵120,000.
9 City Office Supplies paid the GH₵430,000 that it owed.
10 Coastal Chain Stores paid GH₵1,500,000.
12 The following payments were made: to D Smith GH₵250,000 and to Green Leaf Company GH₵540,000.
15 Advertising costs of GH₵230,000 were paid to the local newspaper publisher.
18 Bought goods on credit from the following suppliers: Green Leaf Company GH₵430,000, Horizon Plants GH₵1,100,000.
21 Sold goods on credit to Community Gardens GH₵670,000.
31 Paid rent GH₵180,000.

Required
(a) Use T accounts to show how these transactions should be recorded in the main ledger accounts of the entity. The accounting system maintains separate accounts for each individual payable and receivable in the main ledger.
(b) Prepare a trial balance as at 31 May 20X9.

Answer

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Tags: Accounting records, Capital, Cash Transactions, Ledger accounts, Payables, Purchases, Receivables, Sales, T accounts, Trial Balance
Level: Level 1

Topic: Double entry bookkeeping

AAA – L3 – Q64 – Subsequent events

Identify four financial statement areas relevant to subsequent events review, with relevant post-year-end information and reasons.

Question

Identify four areas of the financial statements to which a review of subsequent events might be relevant. For each area state what kind of information available after the reporting period might be relevant, and why.

Answer

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Tags: Audit Procedures, Financial Statements, Going Concern, Inventory, Payables, Receivables, Subsequent events
Level: Level 3

Topic: Subsequent events

AAA – L3 – Q58- Reporting

Evaluate the audit opinion for Yams Co’s change in depreciation method, assessing materiality and compliance with IAS 16.

Question

Yams Co
The directors of Yams Co have decided that this year, motor vehicles should be depreciated on a reducing balance basis. Previously this has been done on a straight line basis. Profits have fallen by GH₵18,000 as a result.

Required:
Discuss the impact on the auditor’s report, considering materiality and compliance with relevant accounting standards.

Answer:
The relevant figure in terms of materiality is GH₵18,000. This represents 12% of profit before tax, which is above 5%, so the amount is material.

Depreciation of non-current assets is described in IAS 16. A change from one method of depreciation to another is permissible only on the grounds that the new method will give a fairer presentation of the results and of the financial position. Such a change does not, however, constitute a change of accounting policy (IAS 8); it is a change in accounting estimate.

In Yams Co there is nothing to suggest that such a change in accounting estimate is warranted. Furthermore, motor vehicles are a normal class of non-current asset, so it would be highly unusual to change the method of depreciation.

If the directors are unable to give a satisfactory explanation for the change, a modified audit opinion on the grounds of material misstatement would be appropriate. The qualification is only material (and not pervasive) and an ‘except for’ opinion is correct

(b) Plantain Co
A competitor of Plantain Co wrote a damaging article about one of its products. Having consulted its lawyers, Plantain Co has decided to take legal action and is suing the competitor for GH₵500,000. The court case will be heard in September of this year and Plantain Co’s lawyers have informed them that there is an 80% chance of success. As a result, Plantain Co has adjusted its profits upwards by GH₵100,000.

Required:
Discuss the impact on the auditor’s report, considering materiality and compliance with relevant accounting standards.

(c) Papaya Co
On 10 February 20X5, Papaya Co were informed that one of their leading customers had gone into liquidation. At 31 December 20X8, the balance owed was GH₵45,000. The directors thought they had better reflect this in the financial statements so they disclosed this in the notes to the financial statements.

Required:
Discuss the impact on the auditor’s report, considering materiality and compliance with relevant accounting standards.

(d) Melon Co
During the valuation of inventory it was discovered that a line of inventory had been valued under LIFO. This had resulted in a misstatement of GH₵8,000. A further line of inventory was clearly obsolete and should not have been included at all. In the financial statements, this had been included at a valuation of GH₵4,000.

Required:
Discuss the impact on the auditor’s report, considering materiality and compliance with relevant accounting standards.

Answer

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Tags: Adjusting Events, Auditor’s Report, IAS 10, Liquidation, Material Misstatement, Receivables
Level: Level 3

Topic: Reporting

AAA – L3 – Q37 – Evaluation and review

Review subsequent events at Benson Manufacturing for 30 June 20X8, including redundancy, receivables, legal claims, and inventory loss.

Question

You are the manager in charge of the audit of Benson Manufacturing. Your subsequent events review for the year ended 30 June 20X8 has identified the following events, all of which took place after the date of the financial statements:
(1) A third of the sales force was made redundant. Provision has been made in the financial statements for the year ended 30 June 20X8 for redundancy payments of C500,000.
(2) One of Benson Manufacturing’s largest customers, Venture Retail, notified its intention to go into liquidation with an outstanding receivable of C250,000. The directors consider that the current general provision for irrecoverable receivables will cover any potential loss.
(3) A writ has been issued against the company by a former sales director who is claiming C120,000 for breach of his service agreement following his dismissal during the year ended 30 June 20X8. No provision has been made in the financial statements for the year ended 30 June 20X8 in respect of this claim.
(4) A fire at the company’s warehouse destroyed its entire inventory. The inventories had a book value of C2 million. This loss has not been included in the financial statements for the year ended 30 June 20X8.

Required
State the enquiries you would make and the evidence you would seek in order to reach a conclusion on the accounting treatment of the above in the financial statements for the year ended 30 June 20X8.

Answer

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Tags: Audit Evidence, Contingencies, Financial Statements, Inventory, Provisions, Receivables, Subsequent events
Level: Level 3

Topic: Evaluation and review

Tag (SQ): Receivables

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FA – L1 – Q62 – Correction of Errors

Prepare journal entries to correct errors in Western Medical Supplies' trial balance as of June 30, 20X9.

FA – L1 – Q53 – Control accounts and account reconciliations

Prepare a revised sales ledger control account for Biomed Supplies Ltd for 20X8, correcting identified errors.

FA – L1 – Q14 – Sales and Purchases

Prepare sales and purchase day book extracts for Green Haven Garden Traders' May 20X9 transactions.

FA – L1 – Q12 – Double entry bookkeeping

Record Leah's March 20X9 transactions in main ledger T accounts and prepare a trial balance as at 31 March 20X9.

FA – L1 – Q11 – Preparing financial statements of a sole trader

Prepare statement of profit or loss and financial position for Blake's business for 20X9 using trial balance and inventory data.

FA – L1 – Q10 – Double entry bookkeeping

Record May 20X9 transactions in T accounts and prepare a trial balance for Pine Grove Garden Traders.

AAA – L3 – Q64 – Subsequent events

Identify four financial statement areas relevant to subsequent events review, with relevant post-year-end information and reasons.

AAA – L3 – Q58- Reporting

Evaluate the audit opinion for Yams Co’s change in depreciation method, assessing materiality and compliance with IAS 16.

AAA – L3 – Q37 – Evaluation and review

Review subsequent events at Benson Manufacturing for 30 June 20X8, including redundancy, receivables, legal claims, and inventory loss.

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Prepare journal entries to correct errors in Western Medical Supplies' trial balance as of June 30, 20X9.

You're reporting an error for "FA – L1 – Q62 – Correction of Errors"

Prepare a revised sales ledger control account for Biomed Supplies Ltd for 20X8, correcting identified errors.

You're reporting an error for "FA – L1 – Q53 – Control accounts and account reconciliations"

Prepare sales and purchase day book extracts for Green Haven Garden Traders' May 20X9 transactions.

You're reporting an error for "FA – L1 – Q14 – Sales and Purchases"

Record Leah's March 20X9 transactions in main ledger T accounts and prepare a trial balance as at 31 March 20X9.

You're reporting an error for "FA – L1 – Q12 – Double entry bookkeeping"

Prepare statement of profit or loss and financial position for Blake's business for 20X9 using trial balance and inventory data.

You're reporting an error for "FA – L1 – Q11 – Preparing financial statements of a sole trader"

Record May 20X9 transactions in T accounts and prepare a trial balance for Pine Grove Garden Traders.

You're reporting an error for "FA – L1 – Q10 – Double entry bookkeeping"

Identify four financial statement areas relevant to subsequent events review, with relevant post-year-end information and reasons.

You're reporting an error for "AAA – L3 – Q64 – Subsequent events"

Evaluate the audit opinion for Yams Co’s change in depreciation method, assessing materiality and compliance with IAS 16.

You're reporting an error for "AAA – L3 – Q58- Reporting"

Review subsequent events at Benson Manufacturing for 30 June 20X8, including redundancy, receivables, legal claims, and inventory loss.

You're reporting an error for "AAA – L3 – Q37 – Evaluation and review"

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