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 2016 – L1 – SA – Q5 – Financial Statements Preparation

A question about the effect of taking a loan on an entity's financial statements.

Question

Which of the following will be the effect of taking a loan from the bank by an entity?
A. Increase in both liabilities and equity
B. Decrease in assets and increase in liabilities
C. Decrease in both liabilities and equity
D. Increase in both assets and liabilities
E. Increase in assets and decrease in liabilities

Answer

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Tags: Assets, Liabilities, Loan
Level: Level 1

Topic: Financial Statements Preparation
Series: MAY 2016

FA – May 2016 – L1 – SA – Q4 – Financial Statements Preparation

A question regarding the net assets of a sole trader after considering profit, drawings, and additional capital.

Question

Ajonibode runs a business as a sole trader and the following information relates to the business:
On January 1, 2015, the net assets of the business were N1,675,000. During the year to December 31, 2015, the business made a profit of N625,000 and Ajonibode took out N550,000 in drawings. Due to a shortage of cash, he paid in additional capital of N100,000 in early December 2015.
What are the net assets of the business as of December 31, 2015?
A. N1,675,000
B. N1,850,000
C. N2,300,000
D. N2,400,000
E. N2,950,000

Answer

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

Topic: Financial Statements Preparation
Series: MAY 2016

FA – May 2015 – L1 – Q6 – Financial Statements Preparation

Prepare a statement of cash flows using the direct method for the year ended 31 December 2014 with given financial data.

Question

Financial data extracted from the books of Kandor Enterprises Limited for the year ended 31 December 2014 are shown below:

Details	N’000
Revenue	6,990
Decrease in receivables	177
Cost of sales	5,128
Increase in inventories	1,483
Increase in payables	613
Selling and distribution expenses	300
Administrative expenses	343
Loss on disposal of non-current assets	6
Depreciation charges for the year	62
Ordinary shares issued for cash	400
Purchase of property, plant, and equipment	113
Income tax paid	198
Proceeds from disposal of non-current assets	3
Repayment of loan notes	10
Dividend paid	86
Interest paid on loan notes	191
Cash and cash equivalent at the beginning of the year	(409)

Required:
Prepare the Statement of Cash Flows for the year ended 31 December 2014 using the direct method, showing:
a. Net cash flow from operating activities (5 Marks)
b. Net cash flow from investing activities (5 Marks)
c. Net cash flow from financing activities (5 Marks)
d. Cash and cash equivalents at the end of the year (5 Marks)

Show all workings.

Answer

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Tags: Financing Activities, Investing Activities, Operating Activities, Statement of Cash Flows
Level: Level 1

Topic: Financial Statements Preparation
Series: MAY 2015

FA – May 2024 – L1 – SA – Q19 – Financial Statements Preparation

Identifies the role of the statement of changes in equity in financial reporting.

Question

What role does the statement of changes in equity play in a company’s financial reporting and decision-making?

A. It helps in assessing a company’s non-current assets and depreciation methods
B. It provides a detailed breakdown of a company’s cash flows from operating, investing, and financing activities
C. It presents a summary of a company’s equity transactions, aiding stakeholders in understanding financial performance and ownership changes over time
D. It shows the company’s income and expenses, enabling stakeholders to evaluate profitability and cash generation
E. It outlines a company’s long-term debt obligations and interest expense, assisting stakeholders in assessing capital structure and financial stability

Answer

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Tags: Financial Reporting, Statement of Changes in Equity
Level: Level 1

Topic: Financial Statements Preparation
Series: MAY 2024

FA – MAY 2015 – L1 – SA – Q20 – Financial Statements Preparation

Identify the asset that is classified as non-current in financial statements.

Question

Which of the following assets can be classified as non-current in the financial statements of an entity?
A. A tax refund due next year
B. A motor vehicle held for resale
C. A computer acquired for office use
D. Cleaning products used to clean the office
E. Closing inventories

Answer

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Tags: Financial Statements, Non-current Assets
Level: Level 1

Topic: Financial Statements Preparation, Preparation of Financial Statements
Series: MAY 2015

FA – May 2024 – L1 – SA – Q13 – Financial Statements Preparation

Identifies an item classified differently from others on the statement of financial position.

Question

Which of the following items is classified differently from others on the statement of financial position?

A. Inventories
B. Intangible assets
C. Prepayments
D. Cash and cash equivalents
E. Trade receivables

Answer

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Tags: Asset Classification, Statement of Financial Position
Level: Level 1

Topic: Financial Statements Preparation
Series: MAY 2024

FA – May 2024 – L1 – SA – Q12 – Financial Statements Preparation

Calculates profit based on changes in assets, liabilities, and additional capital.

Question

Given the following information:

Total assets at December 31, Year 2: ₦150,400
Total assets at December 31, Year 1: ₦125,000
Total liabilities at December 31, Year 2: ₦43,200
Total liabilities at December 31, Year 1: ₦34,800
Additional capital input on December 31, Year 2: ₦10,000

What was the profit of the business for the year ended December 31, Year 2?

A. ₦7,000
B. ₦17,000
C. ₦27,000
D. ₦90,200
E. ₦107,200

Answer

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Tags: Assets and liabilities, Equity Calculation, Profit Calculation
Level: Level 1

Topic: Financial Statements Preparation
Series: MAY 2024

FA – May 2024 – L1 – SA – Q10 – Financial Statements Preparation

Describes the link between the statement of financial position and the statement of profit or loss.

Question

Which of the following correctly explains the links between the statement of financial position and the statement of profit or loss?

A. The statement of profit or loss shows the financial position of a business at a given point in time, while the statement of financial position shows the profit or loss for a period of time.
B. The statement of financial position affects the statement of profit or loss, by adding to the owner’s capital.
C. The statement of profit or loss affects the statement of financial position, by either adding to or reducing the owner’s capital.
D. The statement of profit or loss affects the statement of financial position, by adding to and reducing the owner’s capital.
E. The statement of financial position affects the statement of profit or loss, by reducing the owner’s capital.

Answer

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Tags: Accounting Linkages, Statement of Financial Position, Statement of Profit or Loss
Level: Level 1