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 – May 2013 – L1 – SA – Q6 – Financial Statements Preparation

This question is about calculating the closing balance of account receivables.

Question

Given opening account receivables of N2,300,000, revenue of N9,600,000, and receipts from customers of N9,000,000, the closing account receivables balance should be:

A. N1,700,000
B. N2,900,000
C. N3,700,000
D. N12,700,000
E. N16,300,000

Answer

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Tags: Closing Balance, Financial Reporting, Receivables
Level: Level 1

Topic: Financial Statements Preparation
Series: MAY 2013

FA – May 2014 – L1 – SA – Q11 – Financial Statements Preparation

Calculates the cost of sales from given gross profit and sales figures.

Question

Aye Limited has a gross profit of 11% and its sales are N150,000. What is the cost of sales?
A. N133,500
B. N142,500
C. N154,500
D. N160,000
E. N165,000

Answer

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Tags: Cost of Sales, Gross Profit, Income Statement
Level: Level 1

Topic: Financial Statements Preparation
Series: MAY 2014

FA – May 2014 – L1 – SA – Q6 – Financial Statements Preparation

Discusses the impact of an overvalued closing inventory on profit.

Question

The closing inventories of a firm were overvalued by ₦300,000 due to an error in the inventory valuation sheets. How would the correction of this affect the reported profit?
A. Increase reported profit by ₦300,000
B. Reduce reported profit by ₦300,000
C. No effect on the reported profit
D. Increase reported profit by ₦600,000
E. Reduce reported profit by ₦600,000

Answer

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Tags: Closing Inventory Error, Inventory Valuation, Profit Adjustment
Level: Level 1

Topic: Financial Statements Preparation
Series: MAY 2014

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

Preparation of a statement of profit or loss for Emeka's business.

Question

Emeka produces and distributes “Zobo” and has provided you with the following information for the year ended 31 December 2012:

Office rent and rates: N681,000
Inventories at 1 January 2012:
- Raw materials: N6,375,000
- Work-in-progress: N3,750,000
- Finished goods: N4,500,000
Manufacturing wages: N14,100,000
Revenue: N42,000,000
Carriage on raw materials: N210,000
General expenses: N3,375,000
Carriage on sales: N375,000
Discount allowed: N300,000
Discount received: N420,000
Depreciation of factory machinery: N675,000
Purchase of raw materials: N22,500,000
Factory overhead expenses: N6,000,000
Selling and distribution cost: N6,750,000
Office salaries: N3,975,000
Royalty: N1,500,000

Additional information:

Inventories at 31 December 2012:
- Raw materials: N4,875,000
- Work-in-progress: N5,235,000
- Finished goods: N6,000,000

You are required to:
Prepare the statement of profit or loss for the year ended 31 December 2012.

Answer

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Tags: Accounting Adjustments, Closing Inventories, Financial Statements, Manufacturing Accounts, Profit or Loss Statement
Level: Level 1

Topic: Financial Statements Preparation
Series: NOV 2013

FA – Nov 2013 – L1 – SA – Q4 – Financial Statements Preparation

Identifying a key difference between sole traders and limited liability companies.

Question

Which of the following is the difference between sole traders and limited liability companies?

A. A sole trader’s financial statements are private and never made available to third parties; a company’s financial statements are given to shareholders and may be publicly filed.
B. Both businesses have share capital.
C. Only drawings appear in a sole trader’s financial statements.
D. A sole trader is fully and personally liable for any losses that the business might make, while a company’s losses are borne by the government.
E. Both the sole trader and companies issue loan notes in order to raise funds.

Answer

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Tags: Business Entities, Financial Statements, Limited Liability, Sole Traders
Level: Level 1

Topic: Financial Statements Preparation
Series: NOV 2013

FA – Nov 2013 – L1 – SA – Q1 – Financial Statements Preparation

Determining the total cost for equipment recognition.

Question

Fred Manufacturing Enterprise purchased equipment for N150,000. The equipment was transported at a cost of N15,000 and installed at a cost of N7,500. The employees were trained in the use of the equipment at a cost of N50,000.

At what cost will the equipment be recognised in the books of account?

A. N150,000
B. N157,500
C. N165,000
D. N172,500
E. N222,500

Answer

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Tags: Accounting principles, Asset Valuation, Cost Accounting, Equipment
Level: Level 1

Topic: Financial Statements Preparation
Series: NOV 2013

FA – Nov 2015 – L1 – SB – Q4 – Financial Statements Preparation

Determine total acquisition cost and prepare journals for share issue transactions.

Question

a. The information below shows the analysis of costs of a newly purchased equipment by JONAK Nig. Ltd.

Description	N
Cost of equipment	3,000,000
2% cash discount for payment within 30 days (enjoyed)	60,000
Transport cost	100,000
Hospitality cost for factory workers during installation	25,000
Installation cost	150,000
Repair cost prior to use	65,000
Salaries of operators	125,000

Determine the total acquisition cost of the equipment. (5 Marks)

b. MEMORY Nigeria Limited decided to issue 100,000,000 N1 ordinary shares. The terms of issue are stated below:

(i) 30k on application
(ii) 45k (including premium) on allotment
(iii) 20k to be called one month after allotment
(iv) 25k final call made four months later after allotment.

On December 29, applications were received for 120,000,000 shares. On January 1, the shares were allotted so that every applicant received two-thirds of the number of shares applied for. Excess application monies were held against the amount due on allotment. On January 4, the cash due on allotment was received. On February 1, the first call was made and on February 3, cash was received. On May 1, the second call was made and cash was received on May 3.

Required: b. Raise the necessary Journals to record these transactions. (11 Marks) c. State the difference between authorised share capital and called-up share capital (4 Marks)

(Total 20 Marks)

Answer

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Tags: Acquisition, Equipment Cost, Journal Entries, Share Capital
Level: Level 1

Topic: Financial Statements Preparation
Series: NOV 2015

FA – Nov 2015 – L1 – SB – Q1 – Financial Statements Preparation

Prepare financial statements for a company, including income and balance sheet, with adjustments for accruals and depreciation.

Question

The following balances remained in the books of Lagbaja Plc at December 31, 2014 after determining the gross profit:

Item	N’000
Share capital, authorised and issued	200,000
Cash at bank and in hand	500
Inventory at December 31, 2014	61,200
Trade receivables	18,005
Trade payables	15,009
Gross profit at December 31, 2014	128,942
Retained earnings	25,000
Salaries & Wages	28,430
Prepayments	600
Bad debts	500
Accrued expenses	526
Director’s account (credit)	2,500
Finance cost on loan note	600
Sundry expenses	4,100
Rates & insurance	1,520
6% Loan notes	20,000
Lighting & cooling	1,310
Postage, telephone and telegrams	800
Motor vehicle (cost N25 million)	15,000
Office fittings and equipment	42,350
Profit at January 1, 2014	22,300
Land and buildings at cost	239,362

The following additional information is relevant:

Office fittings and equipment are to be depreciated at 15% of cost, and Motor vehicles at 20% of cost.
Provisions are to be made for:
- Directors’ Fees N6,000,000
- Audit Fees N2,500,000
The amount of insurance includes a premium of N600,000 paid in September 2014 to cover the company against fire for the period September 1, 2014, to August 31, 2015.
A bill for N548,000 in respect of electricity consumed up to December 31, 2014, has not been posted to the ledger.

Required: a. Prepare the Statement of profit or loss for the year ended December 31, 2014; (10 Marks)
b. Prepare the Statement of financial position as at December 31, 2014. (10 Marks)

Answer

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Tags: Accruals, Depreciation, Financial Adjustments, Statement of Financial Position, Statement of Profit or Loss
Level: Level 1

Topic: Financial Statements Preparation
Series: NOV 2015

FA – Nov 2015 – L1 – SA – Q15 – Financial Statements Preparation

This question identifies the method for determining equity when proper books of account are not maintained.

Question

Where there are no proper books of account, the equity at the commencement of a period is ascertained by preparing:
A. Statement of profit or loss
B. Statement of financial position
C. Statement of affairs
D. Bank reconciliation statement
E. Receivables and payables accounts

Answer

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Tags: Accounting principles, Equity, Financial Statements
Level: Level 1

Topic: Financial Statements Preparation
Series: NOV 2015

FA – Nov 2015 – L1 – SA – Q8 – Financial Statements Preparation

This question calculates the revised net profit after correcting an accounting error.

Question

Compute the revised net profit, given a net profit before the adjustment as N550,000.
A. N300,000
B. N400,000
C. N525,000
D. N700,000
E. N800,000

Answer

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Tags: Financial Adjustments, Income Statement, Net Profit
Level: Level 1