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 2018 – L1 – SA – Q15 – Financial Statements Preparation

Identifies the type of activity that is not classified as an operating activity in the cash flow statement.

Question

Which of the following is NOT an operating activity?
A. Cash receipt and cash payment of an insurance entity for premiums on claims, annuities, and other policy benefits
B. Cash advances and loans made to other parties
C. Cash payments or payments from contracts held for dealing or trading purposes
D. Cash receipts from the sale of goods and rendering of services
E. Cash receipts from royalties, fees, commissions, and other revenue

Answer

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Tags: Cash Flow, Operating Activities, Statement of Cash Flows
Level: Level 1

Topic: Financial Statements Preparation
Series: MAY 2018

FA – May 2022 – L1 – SB – Q1b – Financial Statements Preparation

Prepare the statement of profit or loss and financial position for Wazobia PLC using the provided trial balance and adjustments.

Question

The following trial balance has been extracted from the books of Wazobia PLC as at December 31, 2020:

Description	Dr (₦’000)	Cr (₦’000)
Accruals		4,002
Administrative expenses	65,990
24% bank loan repayable 2023		50,000
Cash at bank	4,207
Distribution costs	84,235
Interest	6,000
Inventories at January 1, 2020	73,735
Property, plant and equipment (PPE) at cost	603,950
Accumulated depreciation on PPE		238,932
Purchases	279,168
Retained earnings		207,410
Revenue		531,611
Share capital		100,000
Share premium		46,875
Trade payables		23,253
Trade receivables	84,798
Total	1,202,083	1,202,083

Additional information:
(i) The share capital of the company consists of ordinary shares with a nominal value of ₦1 each.
(ii) The revenue figure in the trial balance includes sales of ₦29,502,000 made on credit on January 1, 2021.
(iii) The inventories at the close of business on December 31, 2020, cost ₦78,815,000. Included in the figure were inventories that cost ₦4,500,000 but could only be sold for ₦1,688,000.
(iv) Electricity bills of ₦1,472,000 relating to December 2020 were not included in the trial balance as the invoice was received after the year-end.
(v) Interest on the bank loan for the last six months of the year was not included in the trial balance.
(vi) The company income tax charge for the year was calculated as ₦12,702,000.

Required:
(i) Prepare the statement of profit or loss and other comprehensive income of Wazobia PLC for the year ended December 31, 2020. (6 Marks)
(ii) Prepare the statement of financial position at December 31, 2020. (8 Marks)

Answer

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Tags: Comprehensive Income, Financial Statements, Profit or Loss, Statement of Financial Position
Level: Level 1

Topic: Financial Statements Preparation
Series: MAY 2022

FA – May 2022 – L1 – SB – Q1a – Financial Statements Preparation

Identify and list the components of financial statements according to IAS 1.

Question

In accordance with IAS 1 – Presentation of Financial Statements, state the components of financial statements.

Answer

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Tags: Comprehensive Income, Financial Position, Financial Statements, IAS 1
Level: Level 1

Topic: Financial Statements Preparation
Series: MAY 2022

FA – May 2022 – L1 – SA – Q16 – Financial Statements Preparation

Calculate the gross profit for the period using provided sales and cost of goods sold data.

Question

Calculate the gross profit for the period.

A. ₦535,650,000
B. ₦543,450,000
C. ₦637,950,000
D. ₦647,600,000
E. ₦699,000,000

Answer

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Tags: Financial Reporting, Gross Profit, Inventory
Level: Level 1

Topic: Financial Statements Preparation
Series: MAY 2022

FA – Nov 2022 – L1 – SB – Q3 – Financial Statements Preparation

This question requires preparing a trial balance, profit and loss statement, and statement of financial position for Chukwu Limited.

Question

The following balances remained in the books of Chukwu Limited as at December 31, 2020.

Debit	Credit
Cash at bank and in hand	₦500
Inventory at December 31, 2020	₦61,200
Receivables	₦18,005
Payables	₦15,009
Gross profit for the period ending	₦120,942
Salaries and wages	₦28,430
Prepayments	₦600
Bad debt written off	₦500
Accrued expenses	₦526
General reserves	₦25,000
6% Loan Notes	₦20,000
Land and buildings	₦223,362
Motor vehicles (cost)	₦15,000
Office fittings and equipment (cost)	₦42,350
Director’s account (credit)	₦2,500
Interest on loan notes (for half year)	₦600
Sundry expenses	₦4,100
Rates and insurance	₦1,520
Lighting and cooling	₦1,310
Postage and telephones	₦8,800
Profit or loss at January 1, 2020	₦22,300
200,000,000 ordinary shares of ₦1 each	₦200,000

Additional Information:
(i) Office fittings and equipment are to be depreciated at 15% on cost, and motor vehicles at 20% on cost.
(ii) Provisions are to be made for directors’ fees of ₦6,000,000 and audit fees of ₦2,500,000.
(iii) The amount for insurance includes a premium of ₦600,000 paid on September 1, 2020, to cover the company against fire loss for the period September 1, 2020, to August 31, 2021.
(iv) A bill for ₦548,000 in respect of electricity consumed up to December 31, 2020, has not been accounted for.
(v) The directors have recommended that ₦15,000,000 be transferred to general reserves and a 5% dividend be paid on ordinary share capital.

You are required to prepare:
a. Trial balance of Chukwu Limited at December 31, 2020. (6 Marks)
b. Statement of profit or loss for the year ended December 31, 2020. (8 Marks)
c. Statement of financial position as at December 31, 2020. (6 Marks)

Answer

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Tags: Depreciation, Financial Statements, Profit and Loss, Statement of Financial Position, Trial Balance
Level: Level 1

Topic: Financial Statements Preparation
Series: NOV 2022

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

Identifying the correct order of major activity groups in a cash flow statement.

Question

The three major activity groups in the preparation of the statement of cash flows in order of presentation are:

A. Operating activities, Financing activities, and Investing activities
B. Investing activities, Operating activities, and Financing activities
C. Operating activities, Investing activities, and Financing activities
D. Financing activities, Operating activities, and Investing activities
E. Operating activities, Direct activities, and Financing activities

Answer

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Tags: Activity Groups, Cash Flow, Financial Statements
Level: Level 1

Topic: Financial Statements Preparation
Series: NOV 2014

FA – May 2021 – L1 – SA – Q19 – Financial Statements Preparation

Determine items deducted from goods available for sale to arrive at cost of sales.

Question

In preparing the profit or loss account of a sole trader, which of the following is deducted from goods available for sale to arrive at cost of sales?

i. Inventory sold
ii. Closing inventory
iii. Lost inventory
iv. Inventory withdrawn by owner

A. I and II
B. II and III
C. II and IV
D. I, II, and III
E. II, III, and IV

Answer

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Tags: Cost of Sales, Financial Statements, Inventory
Level: Level 1

Topic: Financial Statements Preparation
Series: MAY 2021

FA – May 2021 – L1 – SA – Q18 – Financial Statements Preparation

Calculate total dividends paid based on shares and declared dividend per share.

Question

The following information relates to a limited liability company:

Item	N
Authorised share capital of 650,000 of 0.50 each
Issued and paid up capital of N376,000
Share premium of N234,000
The company paid dividends of 16 kobo per share

Calculate the total dividends paid:
A. N30,000
B. N52,000
C. N104,000
D. N120,320
E. N208,000

Answer

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Tags: Dividends, Financial Statements, Share Capital
Level: Level 1

Topic: Financial Statements Preparation
Series: MAY 2021

FA – May 2021 – L1 – SA – Q17 – Financial Statements Preparation

Identify an item not disclosed in the statement of comprehensive income using nature of expenses method.

Question

When the statement of comprehensive income is prepared using nature of expenses method, the following information is disclosed, EXCEPT:

A. Gross profit
B. Changes in inventories of finished goods
C. Employee benefit expenses
D. Depreciation and amortisation expenses
E. Raw materials and consumables used

Answer

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Tags: Comprehensive Income, Nature of Expenses
Level: Level 1

Topic: Financial Statements Preparation
Series: MAY 2021

FA – May 2021 – L1 – SA – Q14 – Financial Statements Preparation

Calculate gross profit using opening and closing inventory and purchases.

Question

The following information relates to Owuro Enterprises:

Item	N
Opening inventory	124,000
Closing inventory	96,000
Purchases	2,972,100
Profit margin is	5%

What is the gross profit for the period?
A. ₦119,555
B. ₦127,400
C. ₦150,005
D. ₦154,847
E. ₦157,900

Answer

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Tags: Gross Profit, Inventory, Purchases
Level: Level 1