Topic: Non-current assets and depreciation

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FA – Mar 2024 – L1 – Q4 – Non-current assets and depreciation | Preparation of financial statements of a sole trader

Prepare the Statement of Profit or Loss and Statement of Financial Position for Kontiba Enterprise, including necessary adjustments.

Question

Kontiba Enterprise

Statement of Profit or Loss for the year ended 30 September 2023

The following information is also available:
1) Only 10 months’ salaries are shown in the Trial Balance. An equal amount is paid for
salaries for each month of the year.
2) As at 30 September 2023, GH¢2,560 had been prepaid for insurance, whilst GH¢328 was
owing for general expenses.
3) GH¢3,680 had been charged to general expenses for the owner’s private holiday.
4) As at 30 September 2023, inventory was valued at GH¢18,000.
5) A customer, owing GH¢4,032 has been declared bankrupt. This amount is to be written
off in full.
6) An allowance for receivables is to be maintained at 3% of the receivables balance.
7) As at 30 September 2023, the business’s land was valued at GH¢80,000. Land is not
depreciated.
8) Depreciation is to be provided as follows:
Buildings: 4% per annum using the straight line method.
Equipment: 25% per annum using the straight line method.
Page 7 of 20

Motor vehicles: 40% per annum using the reducing balance method.
9) There were no additions or disposals of non-current assets during the financial year.

Required:
i) Prepare the statement of profit or loss for the year ended 30 September 2023. (10 marks)
ii) Prepare the statement of financial position as at 30 September 2023. (10 marks)

Answer

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Tags: Adjustments, Balance Sheet, Depreciation, Financial Position, Income Statement, Net Profit
Level: Level 1

Topic: Non-current assets and depreciation, Preparation of financial statements of a sole trader
Series: MAR 2024

FA – Mar 2024 – L1 – Q1b – Non-current assets and depreciation

Prepare journal entries for the depreciation, revaluation, and disposal of non-current assets.

Question

The draft statement of financial position of Tinkong Ltd as at December 31, 2023, depicts the following:

Description	GH¢
Plant and Machinery – Cost	4,954,824
Less: Accumulated Depreciation	1,917,016
Net Book Value	3,037,808

On reviewing the accounts of the business, its auditor found that the records have been correctly recorded except for the following events:

On January 17, 2023, a contract was signed for the purchase of a machine for GH¢450,000 which is to be delivered on July 17, 2024. The company made an advance payment of GH¢180,000 on signing of the contract and the balance was to be paid on delivery of the machine. The advance payment was debited to the plant and machinery account.
The cost of a new plant amounting to GH¢1,080,000 was acquired on January 21, 2023, and debited to the plant and machinery account. However, the cost of installation amounting to GH¢120,000 was debited to the repairs account.

Depreciation is charged on a reducing balance method at 10% per annum. Depreciation on new assets commences in the month in which the asset is acquired.

Required:

Prepare the following accounts indicating the closing balances as at December 31, 2023: i) Plant and Machinery
ii) Accumulated Depreciation – Plant and Machinery

Answer

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Tags: Accumulated Depreciation, Depreciation, Disposal of assets, Non-current Assets, Revaluation
Level: Level 1

Topic: Non-current assets and depreciation
Series: MAR 2024

FA – Nov 2023 – L1 – Q1b – Non-current assets and depreciation

Prepare the non-current assets and accumulated depreciation accounts for Pramso Ltd, including depreciation, revaluation, and disposal adjustments.

Question

The following details were taken from the records of Pramso Ltd for the year ended 31 December 2022:

i) Tangible non-current assets (at cost) as at 1 January 2022 were:

Description	Amount (GHȼ)
Land and buildings (Land GHȼ400,000)	700,000
Motor vehicles	450,000
Machinery	310,000

ii) Accumulated depreciation as at 1 January 2022:

Description	Amount (GHȼ)
Land and buildings	85,000
Motor vehicles	210,000
Machinery	80,000

Pramso Ltd depreciates non-current assets as follows:

Buildings – 4% per annum on cost.
Motor Vehicles – 20% per annum using reducing balance method.
Machinery – 15% per annum on cost. Depreciation is charged for each month of ownership for all the assets.

iii) On 1 July 2022, land was revalued by an expert to GHȼ520,000.

iv) A Motor Vehicle purchased on 1 January 2020 for GHȼ22,000 was sold for GHȼ6,000 on 1 April 2022.

v) Machinery purchased on 1 July 2020 for GHȼ70,000 was sold on 1 January 2022 for GHȼ24,000.

vi) During the year the following assets were bought:

Machinery GHȼ24,000 on 1 July 2022.
Motor vehicles GHȼ40,000 on 1 October 2022.

Required:

Prepare the Non-Current Assets account and Accumulated Depreciation account showing the depreciation charge for the year. (10 marks)

Answer

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Tags: Accumulated Depreciation, Depreciation, Disposal of assets, Non-current Assets, Revaluation
Level: Level 1

Topic: Non-current assets and depreciation
Series: NOV 2023

FA – July 2023 – L1 – Q1 – Non-current assets and depreciation | The IASB’s Conceptual Framework

Describe the elements of financial statements per the IASB framework and compute depreciation using different methods, adjusting net profit accordingly.

Question

a) Describe the FIVE (5) main elements of financial statements in accordance with the IASB’s Conceptual Framework. (10 marks)

b) Bimbila Ltd commenced business on 1 June 2020 and reported the following net profits during its first two years in business:

	GHȼ
1 June 2020 to 31 May 2021	135,000
1 June 2021 to 31 May 2022	140,000

During this period the following non-current assets were purchased on the dates shown:

Bimbila Ltd has a policy to depreciate machinery at 25% per annum on cost (straight line method) and equipment at 20% per annum on cost (straight line method), rates being charged for each month of ownership. Bimbila Ltd is now considering using the reducing balance method, with the following rates applying to the balance at the end of each year:

Machinery: 20%
Equipment: 15%

A full year’s depreciation is charged irrespective of the date of purchase.

Required:

i) Calculate the total depreciation for the years ended 31 May 2021 and 31 May 2022 using the original method (straight line) and rates for:

Machinery (2 marks)
Equipment (1 mark)

ii) Calculate the total depreciation for the years ended 31 May 2021 and 31 May 2022 using the alternative method (reducing balance) and rates for:

Machinery (2 marks)
Equipment (1 mark)

iii) Prepare a statement to show the net profit which would have been reported for each of the years ended 31 May 2021 and 31 May 2022 if the reducing balance method had been used. (4 marks)

Answer

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Topic: Non-current assets and depreciation, The IASB’s Conceptual Framework
Series: JULY 2023

FA – Dec 2023 – L1 – Q2 – Non-current assets and depreciation | Preparation of Partnership accounts

Calculates the cost of an asset under IAS 16 and prepares the Profit and Loss account, current accounts, and Statement of Financial Position for a partnership.

Question

a) Emma Ltd purchased an item of Property, Plant, and Equipment to be used in its new factory site. The following costs were incurred:

Item	GH¢’000
Machine cost	12,800
Delivery cost	1,280
Installation cost	1,600
Trade discount granted	640
Cost of site preparation	2,560
Architect’s fees	192
Administration expenses	1,920
Test run cost	960

Additional information:

i) The test run was to ensure that the asset was installed and working correctly without causing any air pollution. Items of inventories valued at GH¢128,000 were produced during the test run.
ii) The appropriate government agency has granted the company a license to operate the asset on the condition that the company will remove the asset at the end of the project and return the site to its former condition. This will cost the company GH¢3,200,000.

Required:
Calculate the cost of the asset in accordance with the provisions of IAS 16: Property, Plant, and Equipment. (5 marks)

b) Kojo and Owusu have been in partnership for some years as estate agents. The partnership agreement states that they share profits and losses in the ratio 3:2. Interest on capital is payable at the rate of 4% per annum; whilst interest on drawings is charged at the rate of 5% per annum. A salary of GHȼ15,000 is paid to Kojo and a salary of GHȼ10,000 is paid to Owusu.

The following Trial Balance has been extracted from the books at 31 July 2021:

Account	Dr (GH¢)	Cr (GH¢)
Sales commission received		139,100
Electricity	7,000
Wages and salaries	16,500
Repairs	9,800
General expenses	20,000
Capital accounts: Kojo		60,000
Capital accounts: Owusu		50,000
Current accounts: Kojo	2,500
Current accounts: Owusu		5,000
Office Premises	60,000
Provision for depreciation of premises		15,200
Office equipment	44,000
Provision for depreciation of office equipment		13,500
Receivables	45,000
Payables		32,000
Bank	65,000
Drawings: Kojo	20,000
Drawings: Owusu	25,000

(Dr Total: 314,800 GH¢ / Cr Total: 314,800 GH¢)

Additional information:

Electricity owing at 31 July 2021 amounted to GHȼ1,200.
Included in the general expenses is an item of office equipment purchased during the year for GHȼ5,000. This item has not yet been included in the office equipment account.
Repairs include an amount of GHȼ9,000 which relates to the extension of office premises.
Wages and salaries of GHȼ16,500 include an error of GHȼ2,000 salary paid to Kojo and GHȼ1,000 salary paid to Owusu.
Depreciation is to be provided as follows:
- Office equipment: 10% per annum on cost using the straight line method. A full year’s depreciation is provided on all office equipment held on 31 July 2021, regardless of the date of purchase.
- Office Premises: 2% per annum by the straight line method. The rate applies to the cost value at the year end, regardless of the date of any additions during the year.

Required:

i) Prepare the Statement of Profit and Loss (Profit and Loss and Appropriation Account) for the year ended 31 July 2021. (6 marks)
ii) Prepare the Current Accounts for the year ended 31 July 2021. (4 marks)
iii) Prepare the Statement of Financial Position as at 31 July 2021. (5 marks)

Answer

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Tags: IAS 16, Partnership, Plant and Equipment, Profit and Loss Account, Property, Statement of Financial Position
Level: Level 1

Topic: Non-current assets and depreciation, Preparation of Partnership accounts
Series: DEC 2023

FA – Aug 2022 – L1 – Q2 – Non-current assets and depreciation | Preparation of Partnership accounts

Preparation of ledger accounts for office equipment and disposal, calculation of profit due to a partner, and preparation of an appropriation account and current accounts for partners.

Question

a) The following Statement of Financial Position extract has been taken from the accounts of Yamfo Ltd as at 31 December 2020:

Non-current Assets	Cost (GHȼ)	Accumulated Depreciation (GHȼ)	Net Book Value (GHȼ)
Office Equipment	172,800	92,100	80,700

During the year ended 31 December 2021, the following transactions took place in relation to Office Equipment.

Disposals:

Equipment	Disposal Date	Purchase Date	Original Cost (GHȼ)	Disposal Proceeds (GHȼ)
Equipment 1	31 March 2021	1 January 2018	22,000	4,000
Equipment 2	30 June 2021	1 January 2017	30,000	5,100

Additions:

Equipment	Date of Addition	Cost (GHȼ)
Equipment 3	1 October 2021	35,000

Depreciation for Office Equipment is charged using the straight-line method based on a five-year life and an estimated residual value of 10% of the original cost. Depreciation is applied from the date the Office Equipment was bought until it was sold. All transactions were by cheque.

Required:
i) Prepare the Office Equipment ledger account for the year ended 31 December 2021.
(2 marks)

ii) Prepare the Disposal of Office Equipment ledger account for the year ended 31 December 2021.
(4 marks)

b) The following balances are in the books of a partnership as at 31 December 2021:

Account	Amount (GHȼ)
Capital accounts Badu, as at 1 January 2021	500,000
Tawiah, introduced 1 July 2021	300,000

Drawings	Amount (GHȼ)
Badu	220,000
Tawiah	100,000

Additional information:

Until 30 June 2021, Badu had run the business as a sole trader. Tawiah joined him on 1 July 2021, introducing capital of GHȼ300,000.
Under the partnership agreement, the balance of profit is to be shared between Badu and Tawiah in the ratio 3:2. No interest is to be charged on drawings. Both partners are to receive interest on their capital account balances at 5% per annum. Tawiah is to receive a salary of GHȼ40,000 per annum, but no salary is to be paid to Badu.
The profit for the year ended 31 December 2021 was GHȼ330,000. It was agreed that this profit had accrued one-third in the six months ended 30 June 2021 and two-thirds in the six months ended 31 December 2021, except for an irrecoverable debt of GHȼ30,000 charged in arriving at the profit, which was to be regarded as occurring in the six months ended 30 June 2021.

Required:
i) Calculate the amount of profit due to Badu for the six months to 30 June 2021.
(2 marks)

ii) Prepare the Appropriation Account for Badu and Tawiah for the six months ended 31 December 2021.
(6 marks)

iii) Prepare the Current Accounts for Badu and Tawiah for the year ended 31 December 2021.
(6 marks)

Answer

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Tags: Depreciation, Disposal of assets, Partnership Capital Accounts, Profit Sharing
Level: Level 1

Topic: Non-current assets and depreciation, Preparation of Partnership accounts
Series: AUG 2022

FA – April 2022 – L1 – Q4 – Accruals and prepayments | Bad and doubtful debt | Non-current assets and depreciation | Preparation of financial statements of a sole trader

Preparation of the Statement of Profit or Loss and Statement of Financial Position for a sole trader, including adjustments for depreciation, doubtful debts, and prepayments.

Question

The following trial balance was extracted from the books of Nsaa Zolko, a sole trader, on 31 December 2020:

Account	Debit (GHȼ)	Credit (GHȼ)
Land	251,200
Equipment	202,220
Accumulated depreciation on equipment		62,830
Inventory	49,620
Receivable and Payable	124,200	104,350
Value Added Tax (refund due)	10,320
Deposit on rented premises (security deposit)	17,900
Bank and Cash balances	15,640
Allowance for doubtful debt		11,250
Tax Liability		7,420
Business Rent	30,000
Sales		804,500
Purchases	390,200
Returns	8,300	7,500
Discount	4,300	6,240
Distribution and Advertising	8,900
Power	4,200
Communication	1,540
Insurance	22,500
Wages and Salaries	164,380
Employers Social Security contribution	16,560
4% Long term loan		182,500
Long term loan interest	3,520
Bad debt	2,240
Drawings	10,580
Retained Earnings		44,820
Capital		103,710
Suspense		3,200
Total	1,338,320	1,338,320

Additional Information: i) The inventory count as at 31 December 2020 showed closing inventory value at GHȼ42,390. ii) Nsaa Zolko has agreed an annual rent of GHȼ40,000 with his landlord. iii) Included in insurance above is an amount of GHȼ18,000 paid to insure the equipment. The policy year ends 28 February 2021. iv) Nsaa Zolko has specific concerns over GHȼ5,120 of receivables balance and wishes to set up a specific provision with respect to these balances. The general provision on the remaining receivable balance should be at 5%. v) Depreciation is to be charged as follows:

Land: No Provision
Equipment: 15% reducing balance method (Depreciation should be calculated to the nearest whole number). vi) The suspense account balance above relates to sales of GHȼ1,600 which was recorded as purchases in error. The receivables and payables balances are correct.

Required:
a) Prepare a Statement of Profit or Loss for the year ended 31 December 2020.
(10 marks)

b) Prepare a Statement of Financial Position as at 31 December 2020.
(10 marks)

Answer

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Tags: Accruals, Depreciation, Doubtful Debts, Prepayments, Statement of Financial Position, Statement of Profit or Loss
Level: Level 1

FA – Nov 2021 – L1 – Q4 – Bad and doubtful debt | Inventory | Non-current assets and depreciation | Preparation of financial statements of a sole trader

Preparation of the Statement of Profit or Loss and Statement of Financial Position for a sole trader, including adjustments for depreciation, inventory, and receivables.

Question

Additional Information:
i) The inventory count on 30 June 2019 showed closing inventory valued at GHȼ34,380.
ii) A review of receivables as at 30 June 2019 showed that a further GHȼ2,300 was to be written off as an irrecoverable debt. Therefore, it was decided that the closing allowance for receivables was 10% of the outstanding receivables balance as at 30 June 2019.
iii) On 30 June 2019, Sintim received a cheque of GHȼ1,680 in relation to an irrecoverable debt previously written off.
iv) A supplier of Sintim has charged an interest of GHȼ1,490 on a payable balance that has been outstanding for over 200 days.
v) GHȼ16,000 of insurance in the trial balance above relates to 1 January 2019 to 31 December 2019.
vi) Allowance to be made for depreciation is as follows:

Land: Not depreciated.
Delivery van: 10% straight line basis.
vii) Upon investigation, it was revealed that the balance in the suspense account relates to a cash receipt from a customer of GHȼ800 that was credited to the bank account in error.

Required:
a) Prepare the statement of Profit or Loss for the year ended 30 June 2019.
(12 marks)
b) Prepare the statement of Financial Position as at that date.
(8 marks)

Answer

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Tags: Allowance for Receivables, Depreciation, Inventory, Statement of Financial Position, Statement of Profit or Loss
Level: Level 1

Topic: Bad and doubtful debt, Inventory, Non-current assets and depreciation, Preparation of financial statements of a sole trader
Series: NOV 2021

FA – Nov 2021 – L1 – Q1 – Non-current assets and depreciation | The IASB’s Conceptual Framework

Explanation of duties of those charged with governance and preparation of motor vehicle-related accounts, including cost, depreciation, and disposal.

Question

a) Those charged with governance describe the role of persons entrusted with an entity’s supervision, control, and direction, thus ordinarily accountable for ensuring that the entity achieves its objectives.

Required:
Explain FOUR (4) duties and responsibilities of those charged with governance.
(10 marks)

b) On 1 January 2020, the following was extracted from the books of Gaga:

Item	Amount (GH¢)
Motor vehicles at cost	150,800
Accumulated depreciation on vehicles	95,700

During the year, the following occurred:

On 1 February 2020, Motor Vehicle C was traded in against a motor vehicle D.
Motor Vehicle C was purchased on 1 September 2016 for GHȼ 80,000.
Gaga wrote a cheque of GHȼ 40,000 for Motor Vehicle D. On the date of purchase, the list price of Motor Vehicle D was GHȼ 71,400.
Motor Vehicles are depreciated at 20% per annum on a straight-line basis from the month of purchase to the month of sale.

Required:
Prepare the following accounts for the year ended 31 December 2020.
i) Motor Vehicle at cost.
ii) Motor Vehicle accumulated depreciation.
iii) Disposal account for Motor Vehicle C.
(10 marks)

Answer

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Tags: Accumulated Depreciation, Depreciation, Disposal Account, Governance, Motor Vehicles
Level: Level 1

Topic: Non-current assets and depreciation, The IASB’s Conceptual Framework
Series: NOV 2021

FA – May 2021 – L1 – Q4 – Inventory | Non-current assets and depreciation | Preparation of limited liability company financial statements

Preparation of financial statements for a limited liability company, including adjustments for inventory, prepayments, accruals, depreciation, and allowance for receivables.

Question

The following is the trial balance of Poloo Ltd as at 31 December 2020:

Account	Debit (GH¢)	Credit (GH¢)
Authorised, issued, and called-up capital:
– 500,000 equity shares of GH¢1 each		500,000
– 60,000 7% redeemable preference shares of 50p each		30,000
Equipment: cost	350,000
Equipment: accumulated depreciation		75,000
Motor vehicle: cost	160,000
Motor vehicle: accumulated depreciation		25,650
Premises	220,000
Inventory as at 1 January 2020	51,980
Bank	10,050
Sales		508,420
Purchases	225,000
Trade receivables	130,010
Trade payables		10,200
Distribution costs	80,400
Administrative expenses	45,240
Irrecoverable debts	1,250
Allowance for receivables		14,360
Rent received		8,500
Income from investments		17,040
Interim dividend on equity shares	7,420
Retained earnings		51,760
General reserve		40,420
Total	1,281,350	1,281,350

Additional information:
i) Inventories as at 31 December 2020 are valued at GH¢85,420.
ii) Insurance includes GH¢840 for one and half years ending 30 June 2021. Insurance is included in administrative expenses.
iii) Rent received includes an amount of GH¢2,400 paid in advance as at 31 December 2020.
iv) Distribution costs of GH¢750 were prepaid, and administrative expenses of GH¢800 were owing as at 31 December 2020.
v) The total trade receivables balance of GH¢130,010 includes a balance of GH¢1,010 which has been outstanding for ten months. Poloo Ltd has decided to write off this balance.
vi) Poloo Ltd’s policy is to allow for receivables on the basis of the length of time the debt has been outstanding. The aged analysis of trade receivables at 31 December 2020 and the required allowance are shown below:

Age of Debt	Balance (GH¢)	Allowance Required
0 – 30 days	80,000	Nil
31 – 60 days	40,000	20% of balances
Over 60 days	10,010	85% of balances

vii) On 15 January 2020, Poloo Ltd purchased premises at a cost of GH¢105,000. This cost included GH¢3,500 relating to legal costs. The legal costs of GH¢3,500 had been included in administrative expenses and not in the cost of premises. Premises are not depreciated.
viii) On 1 April 2020, Poloo Ltd purchased equipment that cost GH¢50,000. This transaction was entered in the accounts on 1 April 2020.
ix) Depreciation is to be provided as follows:

Equipment: 20% per annum on cost
Motor vehicles: 20% per annum reducing balance basis
x) Depreciation on equipment is apportioned 20% to administrative expenses and 80% to distribution costs. Depreciation is charged for each month of use. Depreciation of motor vehicles is treated as a distribution cost.

Required:
Prepare, for Poloo Ltd, the following statements in accordance with International Financial Reporting Standards (IFRS):
a) Statement of Profit or Loss for the year ended 31 December 2020.
(10 marks)
b) Statement of Financial Position as at 31 December 2020.
(10 marks)

Answer

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Tags: Allowance for Receivables, Depreciation, Income Statement, Inventory, Statement of Financial Position
Level: Level 1

Topic: Inventory, Non-current assets and depreciation, Preparation of limited liability company financial statements
Series: MAY 2021

FA – May 2021 – L1 – Q1 – Non-current assets and depreciation | The IASB’s Conceptual Framework

Explanation of stakeholders' interest in financial statements and preparation of a schedule for non-current assets with depreciation and revaluation adjustments.

Question

a) Explain why each of the following would be interested in the published financial statements of a company.
i) Shareholders
ii) Lenders
iii) Customers
iv) Suppliers
v) Financial analysts and advisers
(10 marks)

b) The following details were taken from the books of Suban Ltd for the year ended 31 July 2020.
i) Tangible non-current assets at cost as at 1 August 2019 were:

Item	Amount (GH¢)
Land and Buildings (Land GH¢120,000)	520,000
Motor Vehicles	310,000
Equipment	115,000

ii) Accumulated depreciation as at 1 August 2019:

Item	Amount (GH¢)
Land and Buildings	75,000
Motor Vehicles	110,000
Equipment	40,000

Suban Ltd depreciates non-current assets as follows:

Buildings: 3% per annum on cost.
Motor vehicles: 20% per annum reducing balance basis.
Equipment: 10% per annum on cost.
Depreciation is charged for each month of ownership.

iii) On 1 October 2019, Land was revalued at GH¢200,000.
iv) A Motor Vehicle purchased on 1 May 2018 for GH¢40,000 was sold on 1 February 2020.
v) All equipment as at 1 August 2019 had been purchased after 1 February 2013, except for one equipment which cost GH¢10,000 purchased on 1 August 2008.
vi) During the year, the following assets were purchased:

Motor vehicles GH¢35,000 on 1 November 2019.
Equipment GH¢20,000 on 1 February 2020.

Required:
Prepare the Schedule of Non-Current Assets for the year ended 31 July 2020.
(10 marks)

Answer

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Tags: Depreciation, Non-current Assets, Revaluation, Users of financial statements
Level: Level 1

Topic: Non-current assets and depreciation, The IASB’s Conceptual Framework
Series: MAY 2021

FA – Nov 2020 – L1 – Q4 – Accruals and prepayments | Inventory | Non-current assets and depreciation | Preparation of financial statements of a sole trader

Preparation of the income statement and statement of financial position for a sole trader with adjustments for inventory, accruals, prepayments, depreciation, and other relevant adjustments.

Question

Kofi Badu, a sole trader, extracted the following Trial Balance from the business books as of 30 April 2019:

The following information is also relevant:
i) The closing inventory as at 30 April 2019 was valued at GH¢8,010.
ii) As at 30 April 2019, accrued rent income for the year amounted to GH¢420; heat and light accrued was GH¢260; whilst salaries of GH¢720 was paid in advance.
iii) During the year, Kofi Badu had withdrawn goods costing GH¢720 for his personal use. This had not been recorded in the accounts.
iv) New equipment costing GH¢2,650 was purchased during the year but had been mistakenly included in purchases. This is yet to be corrected.
v) A cheque for GH¢440 received from a customer in full settlement of a debt of GH¢450 has not yet been entered in the accounts.
vi) Allowance for doubtful debt is to be maintained at 2% of receivables.
vii) Depreciation is to be provided for as follows:

Equipment- 20% per annum using the straight-line method. A full year’s depreciation is provided on all equipment held at 30 April 2019, regardless of the date of purchase.
Motor vehicles- 40% per annum using the reducing balance method.

Required:
a) Prepare a statement of profit or loss for Kofi Badu for the year ended 30 April 2019.
(12 marks)

b) Prepare a statement of financial position for Kofi Badu as at 30 April 2019.

Answer

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Tags: Accruals, Allowance for Doubtful Debts, Depreciation, Drawings, Income Statement, Prepayments, Statement of Financial Position
Level: Level 1

Topic: Accruals and prepayments, Inventory, Non-current assets and depreciation, Preparation of financial statements of a sole trader
Series: NOV 2020

FA – May 2020 – L1 – Q1 – Double entry bookkeeping | Non-current assets and depreciation | Preparation of financial statements of a sole trader

This question requires preparing ledger accounts related to depreciation, disposal, and asset balances for Tansah Ltd.

Question

a) Write a short note to a client explaining the following issues:

i) Outline the differences between Cost and Management Accounting and Financial Accounting. (3 marks)

ii) Explain FOUR (4) roles of an Accountant in an organization. (4 marks)

iii) Outline SIX (6) key information provided by a Statement of Profit or Loss and Other Comprehensive Income and the Statement of Financial Position. (3 marks)

b) At 1 July 2017, the following information was extracted from the books of Tansah Ltd:
Non-current assets at cost:

Reference	Description	Amount (GH¢)
M1	Machinery	25,000
E1 & E2	Equipment	15,400
MV1	Motor Vehicle	18,500

Provision for depreciation:

Reference	Description	Amount (GH¢)
M1	Machinery	18,500
E1 & E2	Equipment	8,600
MV1	Motor Vehicle	6,500

During the financial year ended 30 June 2018, the following transactions took place:
Purchases:

Date	Description	Reference	Amount (GH¢)
1 April 2018	Machinery M2	M2	10,800
1 January 2018	Equipment E3	E3	6,800

Disposals:

Reference	Description	Purchase Date	Disposal Date	Original Cost (GH¢)	Sale Proceeds (GH¢)
E2	Equipment	1 January 2015	31 March 2018	7,200	6,400

All transactions took place through the bank account.

Depreciation rates per annum:

Machinery: 10% straight line on cost
Equipment: 12.5% straight line on cost
Motor Vehicle: 15% reducing balance

Depreciation for new assets commences in the month in which the asset is acquired.

Required:
For Tansah Ltd, prepare the following ledger accounts for the year ended 30 June 2018:

i) Provision for Depreciation of Machinery (2 marks)
ii) Provision for Depreciation of Equipment (4 marks)
iii) Disposal of Equipment (3 marks)
iv) Motor vehicle (1 mark)

Answer

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Tags: Depreciation, Disposal of assets, Financial Statements, Ledger Accounts
Level: Level 1

Topic: Double entry bookkeeping, Non-current assets and depreciation, Preparation of financial statements of a sole trader
Series: MAY 2020

FA – Nov 2019 – L1 – Q4 – Non-current assets and depreciation | Preparation of limited liability company financial statements

Prepare the statement of profit or loss and financial position for Tudu Ltd with adjustments for depreciation, allowances, and accruals.

Question

The following balances were extracted from the books of Tudu Ltd on 31 December 2018.

Additional information:

Inventories at 31 December 2018 was valued at GH¢18,226.
Directors’ bonuses for the year ended 31 December 2018 calculated at GH¢1,160 have not been accounted for.
Distribution costs include a payment of GH¢3,750 for rent for the three months to 28 February 2019.
The company’s depreciation policies are as follows:
- Fixtures and Fittings – Straight line over 5 years.
- Motor vehicles – Reducing balance method at 20% per annum.
- All non-current asset residual values are estimated at zero.
The company reviewed the trade receivables at 31 December 2018, and the following adjustments are required:
- Irrecoverable debts of GH¢450 in addition to those already written off.
- Specific allowance for receivables of GH¢650.
- General allowance of 3% against the remaining receivables.

Required:

a) Prepare the Statement of Profit or Loss for Tudu Ltd for the year ended 31 December 2018. (10 marks)

b) Prepare the Statement of Financial Position for Tudu Ltd as at 31 December 2018. (10 marks)

Answer

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Tags: Depreciation, Financial Adjustments, Statement of Financial Position
Level: Level 1

Topic: Non-current assets and depreciation, Preparation of limited liability company financial statements
Series: NOV 2019

FA – May 2019 – L1 – Q3 – Accruals and prepayments | Non-current assets and depreciation

Explain accruals and depreciation concepts, and adjust the financial statements of a sole trader for various accruals, prepayments, and depreciation.

Question

a) Identify, and briefly explain, the basic accounting principle which requires prepayments to be included in final accounts. (3 marks)

b) Briefly explain the purpose of depreciation charge in the statement of profit or loss. (2 marks)

c) A newly qualified accountant has prepared draft accounts for a client for the year ended September 2018, but has not dealt with the adjustments for accrued expenses, prepaid expenses, irrecoverable debts, allowance for receivables, and depreciation.

Below is the statement of financial position prepared by the newly qualified accountant.

The newly qualified accountant has given the following information about the remaining adjustments:

The last fixed bill paid for electricity covered three months period to 31 July 2018. The bill was GH¢34,350.
Rent of GH¢142,500 for six months to December 2018 was paid in March 2018.
The trade receivables figure of GH¢747,055 in the draft account is stated after deducting allowance for doubtful debts of GH¢39,500 from the total receivable balance of GH¢786,555.
The trade receivable balance of GH¢786,555 includes a balance of GH¢3,300 which has been outstanding for 10 months. The client has decided to write this balance off his books.
The policy of the client is to allow for receivables on the basis of the length of time the debt has been outstanding. The aged analysis of trade receivables as at 30 September 2018 is as follows:

Required:
i) Calculate the accrued electricity expense and the prepayment for rent, and update the financial statements. (4 marks)

ii) Calculate the new allowance for receivables and update the financial statements. (3 marks)

iii) Calculate the depreciation charge and update the financial statements. (2 marks)

iv) Prepare the updated Statement of Financial Position after accounting for the above adjustments. (6 marks)

Answer

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Tags: Accruals, Adjustments, Depreciation, Financial Statements, Prepayments
Level: Level 1

Topic: Accruals and prepayments, Non-current assets and depreciation
Series: MAY 2019

FA – May 2019 – L1 – Q1 – Accruals and prepayments | Non-current assets and depreciation | Preparation of limited liability company financial statements

Prepare the Statement of Profit or Loss and the Statement of Financial Position for Nhyiraba Ltd, incorporating adjustments for depreciation, accruals, and provisions.

Question

The trial balance below was extracted from the ledger of Nhyiraba Ltd as at 31 December 2018.

The following additional information is provided:
i) Allowance is to be made for depreciation on the non-current assets on a straight-line method at the following rates:

Building: 3%
Plant & Machinery: 20%
Motor Vehicle: 20%
Furniture & Fittings: 10%

ii) The value of land included in Land and Building is GH¢20,000,000.

iii) The following payments were made in advance:

Rent: GH¢4,320,000
Insurance: GH¢1,740,000

iv) One year interest is due on the loan notes.

v) Provision for doubtful debt is to be adjusted so that it is 3% of trade receivables.

vi) Allowance is to be made for audit fees of GH¢3,600,000.

vii) Directors’ fees of GH¢4,500,000 were due at the year-end.

viii) The cost of closing inventories at 31/12/2018 was GH¢43,740,000. However, due to a market recession, the net realizable value of the goods is GH¢37,430,000.

ix) The directors have recommended a transfer of GH¢20,000,000 to the general reserve.

x) The year’s preference dividend is to be provided for.

xi) Current year income tax charged was GH¢9,630,000.

xii) Authorised share capital comprises:

50,000,000 10% preference shares at GH¢1 each GH¢50,000,000.
250,000,000 ordinary shares at GH¢0.5 each GH¢100,000,000.

Required:
a) Prepare Nhyiraba Ltd’s Statement of Profit or Loss for the year end 31 December 2018. (10 marks)
b) Prepare Nhyiraba Ltd’s Statement of Financial Position as at 31 December 2018. (10 marks)

Answer

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

FA – May 2018 – L1 – Q2 – Non-current assets and depreciation

Record and depreciate non-current asset transactions over a 15-month period.

Question

Asasepa Ltd prepares its financial statements to 31 December each year until 31 December 2016, when the business changed its accounting date. The company prepared its next financial statements for 15 months to 31 March 2018.

At 1 January 2017, the following balances existed in the business’s accounting records:

Plant and machinery: cost GH¢819,000; accumulated depreciation GH¢360,000.
Motor vehicles: cost GH¢148,000; accumulated depreciation GH¢60,000.

Depreciation policy
The business’ policy on depreciation is to charge proportionate depreciation in the periods of purchase and sale of its non-current assets, charging depreciation as from the first day of the month in which assets are acquired, and up to the last day of the month before any disposal.
Annual rates of depreciation taken are:

Plant and machinery: 15% straight line
Motor vehicles: 25% straight line

Transactions during the year
During the 15 months ended 31 March 2018, the following transactions took place:

10 January 2017: An item of plant was purchased. The cost was made up as follows:
- Cost ex-factory: GH¢41,200
- Delivery: GH¢300
- Installation costs: GH¢800
- Construction of foundations: GH¢3,600
- Spare parts for repairs: GH¢4,000
- Cost of one-year maintenance agreement: GH¢2,000
- Total: GH¢51,900
18 April 2017: A new motor vehicle was purchased for GH¢18,000. An existing vehicle which had cost GH¢12,000, and which had a book value at 1 January 2017 of GH¢6,000, was given in part exchange at an agreed value of GH¢5,000. The balance of GH¢13,000 was paid in cash.

Required:
a) Prepare the ledger accounts to show the balances at 1 January 2017.
b) Record the non-current asset transactions for the 15 months period ending 31 March 2018.

Answer

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Tags: Depreciation, Disposal of assets, Ledger Accounts, Non-current Assets
Level: Level 1

Topic: Non-current assets and depreciation
Series: MAY 2018

FA – Nov 2017 – L1 – Q5 – Preparation of limited liability company financial statements | Non-current assets and depreciation

Prepare the Statement of Profit or Loss and Statement of Financial Position for Bob & Sons as of December 31, 2016, including necessary adjustments.

Question

The following trial balance was extracted from the ledger account of Bob & Sons, a sole proprietor, as at 31 December 2016:

Trial Balance as at 31 December 2016

Account	Debit (GH¢)	Credit (GH¢)
Building, at cost	650,000
Office equipment at cost	135,000
Plant and Machinery	263,500
Accumulated depreciation
– Building		39,000
– Office equipment		27,000
– Plant and Machinery		65,875
Purchases	248,000
Sales		500,000
Inventory 1 January 2016	27,500
Discount allowed	4,800
Returns inwards	3,200
Wages and Salaries	64,885
Rent	5,580
Insurance	6,000
Trade receivables	145,000
Trade payables		132,750
Provision for bad debt		24,840
Bank overdraft		58,956
Cash in hand	5,400
Long-term loan		350,000
Capital 1 January 2016	1,558,865	360,444 1,558,865

Additional Information:

i) Inventory as at December 2016 was valued at GH¢24,000.
ii) Insurance was paid for 15 months ending 31 March 2018.
iii) 3 months rent is outstanding. The agreed amount per month is GH¢620.
iv) Included in wages and salaries is an amount of GH¢2,500 withdrawn by the owner. Secondly, the cleaner has not been paid his salary for December 2016 as at the end of the year. His monthly salary is GH¢500.
v) Interest on capital per annum is 15% and is yet to be recorded.
vi) Depreciation for the year ended 31 December 2016 has not been charged as follows:

Building 3% per annum using the straight-line method.
Office equipment 20% using the reducing balance method.
Plant and machinery 25% using the reducing balance method.

Required:

a) Prepare Bob & Sons’ Statement of Profit or Loss account for the year ended 31 December 2016. (8 marks)
b) Prepare the Statement of Financial Position as at that date. (12 marks)

Answer

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Tags: Depreciation, Financial Statements, Sole Proprietorship
Level: Level 1

Topic: Non-current assets and depreciation, Preparation of limited liability company financial statements
Series: NOV 2017

FA – May 2017 – L1 – Q4 – Correction of errors | Non-current assets and depreciation

Differences between companies and partnerships, disadvantages of sole proprietorships, depreciation calculation for Otiko Ltd, and error correction for WD.

Question

a) Partnerships and limited liability companies present several similarities for business owners looking for the right company structure. Both have similar income distribution and tax-reporting formats, and both are simpler to set up and operate than a corporation. Despite their similarities, they have differences.

Required:
Identify and explain THREE fundamental differences between a company and a partnership. (6 marks)

b) Sole proprietorships are the smallest form of business organization, and also the most common in the country. However, while there are certain advantages (it is easier to set up a sole proprietorship than a limited liability company, for instance), there are numerous disadvantages.

Required:
State FOUR disadvantages of the sole proprietorship as a mode of business. (4 marks)

c) Otiko Ltd’s head office building is the only building it owns. Using professional valuers, it revalued this building on 1 January 2016, at GH¢2,100,000. Otiko Ltd has adopted a revaluation policy for buildings from this valuation date and has decided that the original useful life of buildings has not changed as a result of the revaluation. The building was acquired on 1 January 2006. The cost of the building on acquisition was GH¢2,500,000 and the accumulated depreciation to the 31 December 2015 amounted to GH¢500,000. The depreciation up to 1 January 2016 was depreciated evenly since acquisition. The professional valuer believes that the residual value on the building would be GH¢600,000 at the end of its useful life.

Required:
Calculate the depreciation amount of the building for the year ended 31 December 2016 based on the information provided in the above scenario. (6 marks)

d) WD noted in 2016 that in 2015 it had omitted to record a depreciation expense on an asset amounting to GH¢600. Its accounts before the correction of the error are;

	2016 (GH¢000)	2015 (GH¢000)
Gross profit	6,000	6,900
Distribution costs	(600)	(600)
Administration expenses	(1,800)	(1,800)
Depreciation	(600)	Nil
Profit from operations	3,000	4,500
Income tax	(600)	(900)
Net profit	2,400	3,600

WD’s retained earnings (income surplus) for the two years before the correction of the error were;

	2016 (GH¢000)	2015 (GH¢000)
Retained earnings carried forward	6,900	4,500
Retained earnings brought forward	4,500	900

Required: Describe how the above error should be corrected in accordance with IAS 8: Accounting policies, changes in accounting estimates and errors. (4 marks)

Answer

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Tags: Depreciation, Error Correction, IAS 8, Limited Liability Companies, Partnerships, Sole Proprietorships
Level: Level 1

Topic: Correction of errors, Non-current assets and depreciation
Series: MAY 2017

FA – Nov 2016 – L1 – Q1 – Non-current assets and depreciation

Prepare ledger accounts for Machinery, Accumulated Depreciation, Motor Vehicles, and Disposal of Motor Vehicles for PQ Ltd.

Question

PQ Ltd had, among others, the following balances in the books at 1st January 2015:

Description	Debit (GH¢)	Credit (GH¢)
Machinery at cost	750,000
Machinery accumulated depreciation		301,000
Motor vehicles at cost	1,000,500
Motor vehicles accumulated depreciation		402,000

The following information relates to the non-current assets for the financial year ended 31st December 2015:

a) On 1st July 2015, PQ Ltd purchased machinery at a cost price of GH¢75,000, paying by cheque.
b) On 1st December 2015, PQ Ltd purchased machinery at a cost price of GH¢27,600, on credit from BD Machinery Ltd.
c) No disposals of machinery took place during the year ended 31st December 2015.
d) Machinery is depreciated at 20% per annum using the straight-line method, the rate being charged for each proportion of the year the machinery is owned. No allowance is made for any residual value. All machinery held at 31st December 2015 had been purchased within the previous four years.
e) On 30th June 2015, motor vehicles which originally cost GH¢40,000 and with a net book value of GH¢16,000 at the date of sale were sold at a profit of GH¢600. The disposal receipt was paid into the bank account.
f) No purchases of motor vehicles took place during the year ended 31st December 2015.
g) Motor vehicles are depreciated at 25% per annum using the straight-line method, the rate being charged for each proportion of the year the motor vehicles are owned. No allowance is made for any residual value. All motor vehicles held at 31st December 2015 had been purchased within the previous three years.

Required:
Prepare the following ledger accounts of PQ Ltd for the year ended 31st December 2015, where appropriate showing the balance carried down to the next financial year. Dates are not required.
a) Machinery. (4 marks)
b) Accumulated Depreciation of Machinery. (4 marks)
c) Motor vehicles. (4 marks)
d) Accumulated Depreciation of Motor vehicles. (4 marks)
e) Disposal of Motor Vehicles. (4 marks)
(Total: 20 marks)

Answer

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Tags: Accumulated Depreciation, Disposal Account, Machinery Account, Motor Vehicles Account
Level: Level 1