Topic: Financial Statements Preparation

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FA – May 2012 – L1 – SB – Q6 – Financial Statements Preparation

Prepare Statements of Affairs for two years and calculate opening capital, net worth, and profit.

Question

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)

Answer

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Tags: Profit Calculation, Single entry system, Statements of Affairs
Level: Level 1

Topic: Financial Statements Preparation
Series: MAY 2012

FA – Nov 2020 – L1 – SB – Q1 – Financial Statements Preparation

Prepare the manufacturing account and the statement of profit or loss for a family business.

Question

Sweetberry Manufacturing Company is a family business that produces and sells pure water in Lagos. In the year ended October 31, 2019, the following balances were extracted from the company’s ledger accounts:

Item	N’000
Revenue	900,000
Raw materials purchased	180,000
Raw materials carriage expenses	8,000
Carriage outwards	4,000
Wages: Machine operators	184,800
Wages: Factory supervisors	45,000
Salary: Administrative staff	124,000
Salary: Sales and marketing staff	104,000
Distribution cost	4,000
Administration expenses	15,500
Rent and rates	58,000
Utility	6,000
Insurance	9,500
Sales promotion expenses	20,000
Discount received	6,000
Factory plant and machinery	72,000
Office equipment	20,000
Delivery van	36,000
Inventories as at Nov 01, 2018:
– Raw materials	34,000
– Work-in-progress	21,000
– Finished goods	40,000
Inventories as at Oct 31, 2019:
– Raw materials	29,000
– Work-in-progress	32,000
– Finished goods	50,000

The following information is also relevant for the preparation of the financial statements:

(i) Straight line depreciation policy at the following rates:

Factory plant and machinery: 10%
Office equipment: 10%
Delivery van: 20%

(ii) General expenses are to be apportioned as follows:

Expense Item	Factory (%)	Administration (%)
Rent and rates	80	20
Insurance and utility	75	25

(iii) Insurance prepaid amounted to N1.5 million

(iv) Accrued administration expenses amounted to N500,000

Required:

Using the vertical format, prepare the manufacturing account and the statement of profit or loss for the year ended October 31, 2019. (20 Marks)

Answer

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Tags: Depreciation, Factory Overhead, Financial Statements, Inventories, Manufacturing Accounts, Profit and Loss
Level: Level 1

Topic: Financial Statements Preparation
Series: NOV 2020

FA – Nov 2020 – L1 – SA – Q2 – Financial Statements Preparation

Difference between an income statement and an income and expenditure account.

Question

The difference between an income statement and an income and expenditure account is that:
A. An income and expenditure account is another name for an income statement.
B. An income statement is prepared for a business while an income and expenditure account is prepared for a not-for-profit organization.
C. An income statement is prepared for a business while an income and expenditure account is prepared on a cash flow basis.
D. An income statement is prepared on an accrual basis while an income and expenditure account is prepared on a cash basis.
E. An income statement is prepared for a manufacturing business while an income and expenditure account is prepared for a non-manufacturing business.

Answer

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Tags: Income Statement, Not-for-profit organizations
Level: Level 1

Topic: Financial Statements Preparation
Series: NOV 2020

FA – Nov 2012 – L1 – SB – Q4 – Financial Statements Preparation

Prepare a bank cash book, retained earnings, and statement of financial position for Fehintola Enterprises.

Question

On 1 January 2011, Mrs. Fehintola decided to invest her retirement benefit of N1,000,000 in the wholesale business of Fehintola Enterprises. She lodged the amount into the business bank account and paid for the following by cheque:

Motor Van: N600,000
Warehouse fittings: N340,000
Rent: N12,500

Proper accounting records were not kept, but the financial position as at 31 December 2011 revealed the following:

Inventories of goods in the warehouse: N150,000
Trade receivables: N125,000
Cash at Bank: N751,750
Trade payables for supplies: N100,000
Accrued rent: N15,000

The following were paid for by cheque:

Electricity bill at N2,500 per quarter up to 31 March 2012
Suppliers: N1,500,000
Personal expenses: N150,000

On 31 December 2011, it was agreed that the Motor Van and Warehouse fittings should be valued at N560,000 and N320,000, respectively.

Required:

a. Prepare the Bank Cash Book (5 Marks)
b. Prepare a statement showing the retained earnings for the year ended 31 December 2011 (5 Marks)
c. Prepare the Statement of Financial Position as at 31 December 2011 (5 Marks)

Answer

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Tags: Bank Accounts, Cash Book, Financial Statements, Retained Earnings
Level: Level 1

Topic: Financial Statements Preparation
Series: NOV 2012

FA – Nov 2012 – L1 – SB – Q1 – Financial Statements Preparation

Explain the principles and prepare financial statements based on a construction contract.

Question

Real Construction Company Plc. is a major construction company in Nigeria. It recognizes revenue on construction contracts by reference to the stage of completion of the contract. However, in certain circumstances, revenue is only recognized to the extent that it does not exceed recoverable contract costs.

The company is halfway through a contract to build a new overhead bridge at a contract price of N300 million.

Progress report on this contract as at 1 April 2011 is as follows:

Cumulative sales revenue recognized: N150 million
Cumulative cost of sales to date: N112 million
Profit to date: N38 million

The following information has been extracted from the accounting records as at 31 March 2012:

Total progress payment received for work certified as at 29 February 2012: N180 million
Total costs incurred to date (excluding rectification costs below): N195 million
Rectification costs: N17 million

Real Construction Company Plc. had received progress payments of 90% of the work certified as at 29 February 2012. The company surveyor estimated that the value of the further work to be completed during March 2012 would be N20 million.

At 31 March 2012, the estimated costs of uncompleted contract were put at N45 million.

The rectification costs were the costs incurred in widening the pedestrian access roads to the bridge, due to an error by the company’s architect when making the initial drawings.

The company calculates the percentage of completion of its contracts as the proportion of value earned to date compared to the contract price.

All estimates can be taken as reliable.

Required:

a. Briefly explain the principles underlying each of the two methods of recognizing revenue and describe the circumstances in which their uses are appropriate. (5 Marks)

b. Prepare extracts of the financial statements for the contract for the year ended 31 March 2012. (10 Marks)

Answer

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Tags: Construction Contracts, Contract Costs, IAS 11, Revenue Recognition
Level: Level 1

Topic: Financial Statements Preparation
Series: NOV 2012

FA – Nov 2012 – L1 – SB – Q32 – Financial Statements Preparation

Calculate turnover based on the cost of goods sold and profit margin.

Question

If the cost of goods sold is N315,060 and the profit margin is 25%, what is the turnover?

Answer

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Tags: Cost of Goods Sold, Profit margin, Revenue, Turnover
Level: Level 1

Topic: Financial Statements Preparation
Series: NOV 2012

FA – Nov 2012 – L1 – SA – Q27 – Financial Statements Preparation

Identifying an application package with integrated accounting modules.

Question

An application package in which the accounting modules are integrated when data are entered in one module, and all the other modules affected would be updated either automatically or by the user’s command is called:

Answer

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Tags: Accounting Systems, ERP, Integrated Modules
Level: Level 1

Topic: Financial Statements Preparation
Series: NOV 2012

FA – Nov 2012 – L1 – SA – Q21 – Financial Statements Preparation

Identifying the difference between purchase consideration and the value of total tangible assets.

Question

The difference between the purchase consideration and the value of total tangible assets taken over is:

Answer

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Tags: Goodwill, Purchase Consideration, Tangible Assets
Level: Level 1

Topic: Financial Statements Preparation
Series: NOV 2012

FA – Nov 2012 – L1 – SA – Q18 – Financial Statements Preparation

Identifying the effect of transferring manufactured goods at market value.

Question

The effect of transferring manufactured goods at market value is that:

A. Profit is made on goods manufactured
B. Unsold stock of finished goods is carried at a value above cost
C. It encourages manufacturing of goods rather than being purchased
D. It encourages manufacturers to have good planning
E. Cost of goods produced can be reduced in order to increase sales

Answer

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Tags: Manufactured Goods, Profit, Stock
Level: Level 1

Topic: Financial Statements Preparation
Series: NOV 2012

FA – Nov 2012 – L1 – SA – Q17 – Financial Statements Preparation

Determining the formula for calculating the cost of raw materials available for use.

Question

The following is given in relation to raw materials:

O = Opening Inventory
P = Purchases
R = Purchases returns
C = Carriage
E = Excise duties
I = Import duties
Z = Closing Inventory

The cost of raw materials available for use is:

A. O + P + C
B. O + P + E + C – Z
C. O + P + C + I – R
D. O + P + C + R – Z
E. O + P + C – R

Answer

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Tags: Cost Calculation, Inventory, Raw Materials
Level: Level 1

Topic: Financial Statements Preparation
Series: NOV 2012

FA – Nov 2012 – L1 – SA – Q15 – Financial Statements Preparation

Determining the outcome when opening capital is higher than closing capital.

Question

If the opening capital is higher than the closing capital, the business has made:

A. Profit during the year
B. Profit during the year before changes in equity
C. Loss during the year after adjustment for non-current assets
D. Loss during the year before adjustment for drawings
E. Profit during the year without adjustment for drawings

Answer

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Tags: Capital, Financial Statements, Loss, Profit
Level: Level 1

Topic: Financial Statements Preparation
Series: NOV 2012

FA – Nov 2012 – L1 – SA – Q13 – Financial Statements Preparation

Determining the correct statement about limited liability company accounts.

Question

Which of the following statements is correct about the accounts of limited liability companies?

A. Revaluation surplus on a non-current asset arising from disposal of the asset at a profit
B. Events after the reporting period require that non-adjusting events should be disclosed in the notes to the financial statements
C. The authorised share capital consists of a company’s nominal capital value of shares and loan notes raised by the company
D. Revaluation surplus on investment properties is debited to Income Statement
E. Income is not an element of financial statements

Answer

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Tags: Accounts, Company, Revaluation, Share Capital
Level: Level 1

Topic: Financial Statements Preparation
Series: NOV 2012

FA – Nov 2012 – L1 – SA – Q12 – Financial Statements Preparation

Identifying what is not found in the statement of changes in equity.

Question

Which of the following is NOT found in the Statement of Changes in Equity of a company?

A. Dividend paid to equity shareholders
B. Proceeds from an issue of ordinary shares
C. Proposed dividend
D. Profit for the year
E. Share premium on fresh issue of shares

Answer

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Tags: Dividend, Equity, Shares
Level: Level 1

Topic: Financial Statements Preparation
Series: NOV 2012

FA – Nov 2012 – L1 – SA – Q10 – Financial Statements Preparation

Calculating the total asset value from opening balances.

Question

The following are opening balances in the ledger accounts of Doodle Limited:

Plant and equipment N80,000
Inventories N10,000
Trade receivables N18,000
Loan N20,000
Bank balance (credit) N15,000

What is the total asset value of the company?

A. N90,000
B. N108,000
C. N123,000
D. N128,000
E. N143,000

Answer

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Tags: Assets, Financial Position, Total Value
Level: Level 1

Topic: Financial Statements Preparation
Series: NOV 2012

FA – Nov 2012 – L1 – SA – Q6 – Financial Statements Preparation

Identifying the price for returnable containers after allowing for wear and tear.

Question

Returnable containers are charged out to the customers’ accounts when containers are sent to them. The amount placed on each container for financial statement purposes after allowing for wear and tear is …… price.

A. Charge-out
B. Return
C. Cost
D. Valuation
E. Replacement

Answer

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Tags: Containers, Valuation, Wear and Tear
Level: Level 1

Topic: Financial Statements Preparation
Series: NOV 2012

FA – Nov 2012 – L1 – SA – Q3 – Financial Statements Preparation

Determining which item is not part of the statement of financial position.

Question

Which of the following will NOT be a content of the Statement of Financial Position of a company?

A. Non-current assets
B. Finance charge
C. Inventory
D. Payables
E. Loan notes

Answer

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Tags: Assets, Finance Charge, Financial Position, Liabilities
Level: Level 1

Topic: Financial Statements Preparation
Series: NOV 2012

FA – May 2013 – L1 – SB – Q3 – Financial Statements Preparation

This question asks for the preparation of Mr. Pamona’s Statement of Profit or Loss and Statement of Financial Position following a theft in his shop.

Question

Mr. Pamona owns a corner shop in Lagos. On 30 December 2012, vandals looted his shop, stole all his inventories and cash of ₦75,000. Mr. Pamona was fully insured against theft and he has asked you to prepare his accounts to enable him estimate his insurance claim. Your investigation revealed the following:

i. Net assets on 1 January 2012:

Furniture and fittings:
Cost: ₦900,000
Accumulated depreciation: ₦(400,000)
Carrying value: ₦500,000
Inventories: ₦2,700,000
Trade receivables: ₦430,000
Prepayments (rates): ₦30,000
Cash in bank: ₦2,140,000
Cash float in till: ₦30,000
Trade payables: ₦1,650,000
Accrued electricity: ₦40,000

ii. Bank statements for nine months from 1 January 2012 show the following:
Receipts:

Cash and cheques lodged: ₦20,060,000
Investment income: ₦182,000
Total: ₦20,242,000

Payments:

Trade payables: ₦17,850,000
Rent (1 January – 31 December): ₦1,200,000
Electricity: ₦155,000
Insurance – theft: ₦45,000
Insurance – life: ₦107,000
Telephone: ₦83,000
Total: ₦19,440,000

iii. The following were paid in cash from the till:

Trade payables: ₦2,400,000
Drawings (per month): ₦295,000

iv. Mr. Pamona’s gross profit margin on sales has averaged 20% in recent years.

v. The furniture and fittings are now estimated to be worth only ₦200,000.

vi. A cheque for ₦52,000 in respect of the telephone bill for the quarter ended 30 September 2012 was not shown in the bank statements until 3 October 2012.

vii. Rates for the period 1 April to 1 October, 2012, amounting to ₦75,000 were still outstanding.

viii. Trade receivables and payables were ₦270,000 and ₦1,900,000 respectively on 30 September 2012.

You are required to prepare Mr. Pamona’s:
a. Statement of Profit or Loss for the nine-month period ended 30 September 2012. (10 Marks)
b. Statement of Financial Position as at that date. (5 Marks)

Answer

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Tags: Depreciation, Insurance Claims, Statement of Financial Position, Statement of Profit or Loss, Theft
Level: Level 1

Topic: Financial Statements Preparation
Series: MAY 2013

FA – May 2013 – L1 – SA – Q29 – Financial Statements Preparation

This question involves identifying the starting point for preparing final accounts from incomplete records.

Question

The starting point for the preparation of final accounts from incomplete records is:

Answer

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Tags: Incomplete Records, Statement of Affairs
Level: Level 1

Topic: Financial Statements Preparation
Series: MAY 2013

FA – May 2013 – L1 – SA – Q10 – Financial Statements Preparation

This question tests the calculation of a sole trader’s net profit.

Question

Which of the following is used to derive a sole trader’s net profit for a period?

A. Closing net assets + drawings – capital introduced – opening net assets
B. Closing net assets – drawings + capital introduced – opening net assets
C. Closing net assets – drawings – capital introduced – opening net assets
D. Closing net assets + drawings + capital introduced – opening net assets
E. Closing net assets + drawings + capital introduced + opening net assets

Answer

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Tags: Closing Net Assets, Net Profit, Sole Trader
Level: Level 1

Topic: Financial Statements Preparation
Series: MAY 2013

FA – May 2013 – L1 – SA – Q9 – Financial Statements Preparation

This question involves calculating the closing work-in-progress for a company.

Question

The following information relates to Ablaze Limited for the year ended 31 December 2012:

Prime cost: N122,000
Factory/production overheads: N185,000
Opening Work-in-progress: N40,000
Factory cost of goods completed: N300,000

What is the closing work-in-progress?

A. N47,000
B. N56,000
C. N66,000
D. N80,000
E. N100,000

Answer

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Tags: Accounting, Factory Cost, Work in Progress
Level: Level 1