practice questions and answers

101 Financial Accounting Practices: A Practical Working Questions & Answers

2013 George E. Ekeha 1

Table of Contents

CHAPTER 1: BASIC ACCOUNTING PRINCIPLES .................................. 3

Question 1: Wellinton Sole Proprietorship Business .................................... 3

Question 6: Jennifer Agueliyah Boutique ..................................................... 4

Question 8: Tianshi Bright Business Ventures ............................................. 5

Question 13: Chucker and Zooloo Car Dealers ............................................ 7

CHAPTER 2 INCOMPLETE RECORDS AND CONTROL ACC ............... 9

Question 17: Pangola Star Tilapia Shops ..................................................... 9

Question 22: Triple Star Company Ltd Control Accounts ......................... 10

Question 25: Emmanuel Sasakawa Meat Shop ........................................... 12

Question 29: Sight and Visions General Eye Clinic ................................... 13

CHAPTER 3 PREPARATION OF MANUFACTURING ACC .................. 16

Question 32: Kangaroo Carrier Bags Plc .................................................... 16

Question 36: Raphael Trash Manufacturer of Wheelie Bins ....................... 17

Question 40: Akasanoma Vision Ltd Manufacturers .................................. 19

CHAPTER 4: PRESENTATION OF PARTNERSHIP ACC ........................ 21

Question 42: Jonny, Ferdinand and Kwartson Business Ventures .............. 21

Question 43: George and Cyril Akpanaway Consultants ............................ 21

Question 48: Wawa and Mahoganey Carpentry Ventures .......................... 22

CHAPTER 5 PREPARATION OF COMPANYS ACCOUNTS ................ 25 Question 50: Alluwako Company Ltd, Alluminium Products .................... 25

Question 57: ZoomVultures Ltd, Cleaners & Cleaning Products ............... 26

Question 62: Ekegey Plantations Plc Farms & Equipments ........................ 29

CHAPTER 6 FUNDAMENTAL ACCOUNTING CONCEPTS ................. 31

Question 64: Fundamental Accounting Concepts ....................................... 31

Question 67: Atongo, The Science Student ................................................ 31

Question 71: Logba Young Lions plc, Footbal Club .................................. 32

CHAPTER 7 CASH FLOW STATEMENTS .............................................. 33

Question 76: Darryl Amfic Company Ltd, Cold Stores .............................. 33

Question 78: Kingdom Furniture Plc .......................................................... 34

CHAPTER 8: STATEMENTS ANALYSIS & INTERPRETATION .......... 36

Question 82: Divine Nooque Oil Company Ltd ......................................... 36

Question 86: Kantamanto Scrappers And Melters ...................................... 38

Question 89: Kafui Akpoblu Mobile Company .......................................... 38

CHAPTER 9: PRACTICAL BRAIN TEASERS .......................................... 42

Question 92: Bamboozer Ltd, Food Distribution ........................................ 42

Question 93: JAK Waawa and JJR Boom Veterinary Services................... 43

Question 101: Amfic Yingors Garages ..................................................... 46



SUGGEATED ANSWERS ............................................................................. 47

Answer 1: WELLINTON SOLE PROPRIETORSHIP .............................. 48

Answer 5: GEEPROPERTIES RENTALS & FINANCIALS..................... 54

Answer 6: JENNIFER AGUELIYAH BOUTIQUE ................................... 54

Answer 8: TIANSHI BRIGHT BUSINESS VENTURES .......................... 57

Answer 13: CHUCKER AND ZOOLOO CAR DEALERS ....................... 59

Answer 17: PANGOLA STAR TILAPIA SHOPS ..................................... 60

Answer 22: TRIPLE STAR COMPANY LTD .......................................... 62

Answer 28: MANDELA AMEWU ICE-CREAM ..................................... 63

Answer 32: KANGAROO PLC, CARRIER BAGS .................................. 66

Answer 35: ATONGO PIONEER NAILS MANUFACTURERS .............. 68

Answer 38: NORA NUSINYO FURNITURE COMPANY ....................... 70

Answer 40: AKASANOMA VISION LTD ............................................... 72

Answer 43: MESSRS GEORGE & CYRIL AKPANAWAY ..................... 74

Answer 48: WAWA AND MAHOGANEY FURNITURE ....................... 75

Answer 52: OLUSEGUN INTERNATIONAL PLC .................................. 78

Answer 59: AMAZING FREDDYS FOOD ............................................. 79 Answer 64: FUNDAMENTAL ACCOUNTING CONCEPTS .................. 82

Answer 65: FREDDYS CONNER ............................................................ 84 Answer 67: ATONGO, THE SCIENCE STUDENT .................................. 86

Answer 71: LOGBA YOUNG LIONS PLC ............................................... 87

Answer 78: KINGDOM FURNITURE, PLC ............................................. 90

Answer 81: JUNE JULY ENGINEERING BUSINESS ............................. 92

Answer 82: DIVINE NOOQUE VOLUNTARIES LTD ............................ 95



CHAPTER 1: BASIC BOOKKEEPING AND ACCOUNTING PRINCIPLES

Question 1: Wellinton Sole Proprietorship Business

On 1 January 20 5, Mr. Wellinton started business Weliware Ventures with GH10,000 which he paid into the business account at Stanbic Bank in Accra

and Stock of goods valued at GH9,850. On the same day, he purchased a

Motor Van from Toyota Company valued at GH6,000 and paid half of the

amount by cheque.

The following transactions took place in the month of January:

2/01 Negotiated a Loan from Stanbic for an amount of GH20,000 which

was granted at an interest of 12% per annum payable monthly.

Paid GH7,000 by cheque as rent advance to his landlord for the

premises of the business covering a period of 10 years.

3/01 Purchased goods from GeeMerchants Ltd valued at GH52,000 and

paid for half of the amount by cheque, after a cash discount of 4%

4/01 Purchased Office Equipment valued at GH2,500 and Furniture and

Fittings valued at GH3,000 paying all by cheque.

7/01 Sold goods valued at GH8,500 for cash and paid for some stationery

valued at GH900 by cash.

9/01 Sold goods to Mr. Tarzan valued at GH6,700 who paid three quarter of

the amount by cheque.

11/01 In order to increase sales Mr. Wellinton decided to run a promotion

from 12th

January to 20th

January. All sales with cash payment will be

given a 5% discount and all sale of GH10,000 and above will qualify

for a trade discount of 6%.

12/01 Mr. James Brown came to purchase goods valued at GH14,500 and

paid half of the amount due by cheque, after necessary discounts. Total

cash sales for the day also amounted to GH8,974

13/01 Sold goods valued at GH5,000 to Akua Cynthia

14/01 Total cash sales for the day amounted to GH12,896 and cash banked

amounted to GH14,500

15/01 Sold goods to Malik Baako Ventures valued at GH16,785 who paid

half of the amount due by cash. Sent GH16,500 from the safe to bank.

18/01 Purchased goods from K. Gyasi Ltd valued at GH37,880 and paid half

of the amount due by cheque after a 5% cash discount. Total cash sales

for the day amounted to GH9,678

19/01 Sold goods to Honey Love valued at GH18,964, who paid three

quarters of the amount due by cheque. Paid GeeMerchants the full

balance on their account by cheque.



20/01 Total cash sales for the day amounted to GH18,259 and cash purchases

were also GH8,689. Received a cheque for GH4,680 from Akua

Cynthia as full settlement.

22/01 Sold goods valued at GH11,380 to Mr. Ugly Head who paid half of the

amount due by cash. Total cash lodged at the bank was GH33,860

25/01 Paid K. Gyasi GH8,940 by cheque on account and received final

payment by cheque from Malik Baako Ventures and cash sales

amounted to GH11,380.

30/01 Paid salaries of GH3,820 by cheque and utility bills of GH860 by

cash. Received a cheque for GH3,240 from Mr. Ugly Head as payment

on account.

At 31 January 20 5 closing stock amounted to GH5,375.

Requirements

(a) Write up the ledger accounts using the three column cash book.

(b) Extract a trial balance at 31 January 20 5 (c) Prepare a trading and profit and loss account for the months ended 31

January 20 5 and a balance sheet at that date.

Question 6: Jennifer Agueliyah Boutique

Jennifer Agueliyah is a dealer in fancy designer clothes. At 1 January 20 7 her ledger included the following balances.

Debtors 38,168

Provision for doubtful debts 6,270

Creditors 36,505

Debtors at 1 January 20 7 were: S Mahama 12,540

J Baafi 12,811

The Miklin Holidays 12,817

Creditors at 1 January 20 7 were: M Normenyo 12,058

James Nkomode 12,217

Obraku Sarpong 12,230



During January 20 7 Agueliyas books of prime entry showed the following. Purchases day book Sales day book

Normenyo 6,270 Mahama 330

James Nkomode 4,521 Baafi 11,616

Obraku Sarpong 7,392 Miklin Holidays 10,989

18,183 22,935

Cash payments book Cash receipts book

Normenyo 5,940 Baafi 12,540

James Nkomode 330 Miklin Holidays 12,817

Obraku Sarpong 5,432

11,702 25,357

The flowing information is relevant:

(1) The opening provision for doubtful debts consisted of a 50% provision

against Mahamas debt. During January Mahama was run over by an invalid car on the highway and was found to have died penniless.

(2) Baafi argued about 271 of her outstanding balance, saying that the goods concerned were of the wrong design. Agueliya decided to

provide for this amount as a specific provision.

Requirements

Write up for the month of January 20 7 (a) Individual debtors and creditors accounts (b) Sales and purchases accounts

(c) Debtors and creditors ledger control accounts (d) Provision for doubtful debts and bad debt expense accounts

(e) The individual debtors and creditors listings

Question 8: Tianshi Bright Business Ventures

Tianshi Bright is a sole trader who does not maintain a set of ledgers to record

his accounting transactions. Instead, he relies on details of cash receipts and

payments, bank statements and files of invoices. He started business on 1 July

20 7 with private capital of 27,500 which comprised a second-hand van valued at 8,250 and 19,250 cash which he deposited in a business bank

account on that date. He has not prepared any accounts since he commenced

trading and you have agreed to prepare his first set of accounts for him in

respect of the eighteen months ended 31 December 20 8. You have discovered the following.



(1) A summary of his cash transactions from his cash book for the period was

Receipts:

Capital introduced 19,250

Cash sale receipts 116,875

Sale of motor van 4,675

140,800

Payments:

Cash paid to bank 117,425

Cash purchases 11,880

Postage and stationery 2,607

Motor expenses 5,055 (136967) Cash in hand at 31 December 20 8 3,833

(2) A summary of his bank statement shows

Receipts

Cash paid into bank 117,425

Bank loan 24,750

Credit sale receipts 10,753 152,928

Payments:

Purchase of goods 40,233

Office equipment 7,040

Motor van 22,000

Drawings 29,700

Rent and rates 10,175

Light and heat 5,077 (114,224)

Balance are 31 December 20 8 38,704

(3) The office equipment was purchased on 1 October 20 7. (4) The new motor van was purchased on 1 April 20 8 to replace the

original second-hand van which was sold on the same date.

Depreciation charges for the year on the second-hand van can be

ignored.

(5) Tianshi expects the office equipment to last five years but to have no

value at the end of its life. The motor van bought on 1 April 20 8 is expected to be used for three years and to be sold for 3,850 at the end

of that time.

(6) The cost of goods unsold on 31 December 20 8 was 7,838. Tianshi thought he would sell these for 14,575, with no item being sold for less

than its original cost.



(7) On 31 December 20 8 Tianshi owed 4,119 for goods bought on credit and was owed 2,370 for goods sold on credit. Of these amounts 1,040

was due from/to Harry Governor who is both a customer and supplier of

Tianshi. A contra settlement arrangement has been agreed by both

Tianshi and Harry Governor.

(8) Rent and rates paid includes an invoice for 6,600 for the rates due for

the billing year to 31 March 20 9, accrued on equal monthly basis. (9) No invoice was received for light and heat in respect of November and

December 20 8 until 25 February 20 9. This showed that the amount due for the three months ended 31 January 20 9 was 627.

(10) The bank loan was received on 1 January 20 8. Interest is charged at 10% per annum on the amount outstanding.

Requirement

Prepare Tianshi Brights trading and profit and loss account for the period ended 31 December 20 8 and his balance sheet at that date.

Question 13: Chucker and Zooloo Car Dealers

Chucker and Zooloo are well established car dealers on Zulu street. Their draft

account for the year ended 31 March 20 8 show a net profit of R90,000 which they feel was lower than expected and ask you their accountant to investigate.

You discover the following.

(1) Discount received in August 20 8 of R2,100 have been credited, in error, to purchases.

(2) A debt of R3,000 due from Francis Nguemah & Co was written off as

irrecoverable in December 20 7. Since preparing the draft account, Francis Nguemah & Co has settled the debt in full.

(3) The companys main warehouse was burgled in June 20 7, when goods costing R200,000 were stolen. This amount has been shown in the draft

accounts as an overhead item Loss due to burglary. Although the insurance company denied liability originally, in recent days, the decision

has been changed as they have agreed to pay R140,000 as settlement.

(4) On 1 January20 8 a Ford Mondeo car, which had cost R18,000, was taken from the showroom for use by one of the sales representatives

whilst on business. The price tag on this vehicle in the showroom was

R24,000. The transfer has not been effected in the books although the

car was not included in the trading stock valuation at 31 March 20 8. The business provides for depreciation on motor vehicles at the rate of

25% of the cost of all vehicles held at the end of each financial year.



(5) A Toyota Camry bought from Tamungah Transport on 30 March 20 8 at a cost of R12,000 was not recorded in the books until April 20 8. Although unsold on 31 March 20 8, the car in question was not included in the stock valuation at the date.

(6) The business is hoping to market a new car accessory in July 20 8. The new venture is to be launched with an advertising campaign

commencing in April 20 8. The cost of the campaign is R50,000 and this has been debited in the profit and loss account for the year ended 31

March 20 8 and is included in current liabilities as a provision, notwithstanding the confident expectation that the new product will be a

success.

(7) On 31 March 20 8 the business paid an insurance premium of R6,000, the renewal being the year beginning 1 April 20 8. This premium was included in the insurance charge of R11,000 debited in the draft profit

and loss account.

Requirement

Prepare a statement of adjustment to profit for the year ended 31 March 20 9.



CHAPTER 2 INCOMPLETE RECORDS AND CONTROL ACCOUNTS

Question 17: Pangola Star Tilapia Shops

Pangola Star runs a Tilapia retail shop on Maputo Street, but many of his

accounting records were destroyed when the bookkeeper had a boat accident

on her way to the board meeting. During examination of Pangola Stars books you find that his recorded assets and liabilities on 31 December 20 6 were: R

Shop fittings 5,000

Van 4,000

Stock 36,270

Trade debtors 19,600

Trade creditors 15,080

An analysis of his bank pass book gives the following information.

R R

Balance at 1 January 20 7 4,790 Payments to creditors 165,940 Receipts from debtors 10,060 Purchase of new van on

Cash banked 155,370 30 September 20 7 10,000 Sale of old van on 30/09/7 3,000 Rent, nine months to 30/09/20 7 2,250 Rates, eighteen months to

31 March 20 8 3,600 Sundry expenses 4,460

Van expenses 600

Advertising 2,190

Balance at 31/12/20 7 16,740 Drawings 920 189,960 189,960

An analysis of his cash transactions printout gives the following information.

R R

Balance at 1 January 20 7 210 Wages and salaries 15,240 Cash sales 164,190 paid into bank 155,370

Receipt from debtors 23,170 Van expenses 1,680

Proceeds from private life Advertising 840

Insurance policy 1,420 Drawings 13,510

Sundry expenses 1,190

Payments to creditors 1,040

Balance at 31/12/20 7 120 188,990 188,990



You are informed of the following in addition to the above.

(1) On 31 December 20 7 stock at cost was R46,510, debtors were R20,200 and creditors were R15,430. There was also an unpaid account

of R410 for sundry expenses.

(2) There was an unpaid account of R370 for sundry expenses outstanding

on 31 December 20 6. (3) Depreciation is to be provided on shop fittings at 10% reducing balance,

and on motor vans at 20% reducing balance, on closing balances.

(4) During 20 7 Pangola Star has taken some Tilapia from the shop costing R1,560 for his own use. He has not paid for these.

(5) A provision for doubtful debts should be raised (at the beginning and

end of the year) of 5% of the debtors. During the year bad debts

amounting to R420 have been written off, and are not included in the

figure of debtors on 31 December 20 7. Requirements

(a) Prepare a statement of affairs at 31 December 20 7. (b) Prepare a trading and profit and loss account for the year ended 31

December 20 7 and a balance sheet at that date.

Question 22: Triple Star Company Ltd Control Accounts

Ronaldo and Movete plc is a company specialized in the manufacturing and

sale of digital televisions. The accounts for the year ended 30 September 20 4 are in the course of preparation. The debtors total account controlling sales in the Northern sector of the country has been prepared by an inexperience

assistant as below:

Rs Rs

Debtors at 1/10/ 20 3 (agreed Cash received 632,429 with total list of balances Transfer to creditors ledger 2,010 extracted from the ledger) 94,202 Sales returns (VAT incl. fig.) 14,260

Sales invoiced for the year 556,780 Bad debts 1,955

Discounts allowed 5,840 Debtors at 30/09/20 4 6,168 656,822 656,822

Your investigation, however, revealed the following:

Note Points (a) to (e) relate to the control accounts only.



(a) Sales

The following was a summary of the sales sheets for the year.

Rs

Sales excluing VAT 556,780

Value added tax 83,517

640,297

(b) Sales returns

For the last month of the year, returns were Rs1,950 but there is a mistake in

the addition of the total column of one sheet resulting in a total which is

Rs420 lower than the correct figure. Moreover, including in the total of

Rs14,260 representing returns for the year, the figure of Rs1,950 was taken as

Rs1,590.

(c) Transfer

The transfer of Rs2,010 to the creditors ledger is in respect of cash received from a supplier for an overpayment to him.

(d) Bad debts

The figure of Rs1,955 as shown in the bad debts account is made up as

follows.

Rs

Bad debts written out of the debtors ledger in 20 3/204 2,500 Less debts recovered in respect of written off in 20 1/202 (2,045)

455

General bad debt provision against debts remaining on the ledger 1,500

1,955

(e) Cash received

The total of Rs632,429 includes the bad debt recovered, and also a cheque for

Rs1,685 which was first received from a customer in September 20 3 and entered in the records in that month. In October 20 3 it was dishonoured and debited on the bank statement. It was presented again and duly honoured. It

therefore appeared on both sides of the cashbook in October 20 3. (f) List of balances

The total of the balances as extracted and listed from the Northern sector

ledger is Rs83,310. This includes a debit balance of Rs540 standing on an

account in the name of a director. It is agreed that this will not be paid but

should be transferred to the directors emoluments accounts.

A ledger sheet relating to the Western sector area has been misfiled in the

Northern sector at the time when the balances were extracted. It shows a credit

balance of Rs1,120.



Requirement

Prepare an amended debtors ledger control account relating to the Northern region area for the year ended 30 September 20 4 showing the reconciliation of the debtors figure with the totals list extracted from the ledger.

Question 25: Emmanuel Sasakawa Meat Shop

Emmanuel Sasakawa is a meat retailer who has been so busy since he

commenced business on 1 April 20 5 and couldnt keep adequate accounting records. His opening capital consisted of 15,000 which he used to open a business bank account. His statement for the year ended 31 March 20 6 have been summarised as follows:

Receipts: Loan from Pozo Hughes his friend 10,000 Takings 42,000

Payments:

Purchases of goods for resale 26,400

Electricity for period to 31 December 20 6 760 Rent of for fifteen months to 30 June 20 6 3,500 Rates of premises for year ended 31 March 20 6 1,200 Wages of assistants 14,700

Purchase of van, 1 October 20 5 7,600 Purchase of large waterbed for private use 8,500

Van license and insurance, covering a year 250

According to his bank account the balance in hand at 31 March 20 6 was 4,090 in Emmanuels favour. Whilst the intention was to bank all takings intact, you have discovered that, in addition to cash drawings, the following

payments were made out of taking before banking.

Van running expenses 890 Postages, stationary and other sundry expenses 355

On 31 March 20 6 takings of 640 awaiting banking; this was done on 1 April 20 6. It has now been discovered that amounts paid into the bank of 340 on 29 March 20 6 were not credited to Emmanuels accounts until 2 April 20 6 and a cheque of 120, drawn on 28 March 20 6 for purchases was not paid until 10 April 20 6. The normal rate of gross profit on the goods sold by Emmanuel is 50% on sales. However,

during the year a purchase of kilos of meat from a new supplier costing

600 proved to be unpalatable with customers and therefore the entire stock had to be sold at cost price.



Interest at the rate of 5% per annum is payable on each anniversary of the loan from Pozo Hughes on 1 January 20 6.

Depreciation is to be provided on the van on the straight line basis; it is estimated that the van will be disposed of after five years use for 100.

The stock of goods for resale at 31 March 20 6 has been valued at cost at 1,900.

Creditors for purchases at 31 March 20 6 amounted to 880 and electricity charges accrued at that date were 180.

Trade debtors at 31 March 20 6 totalled 2,300. Requirement

Prepare a trading profit and loss account for the year ended 31 March 20 6, a balance sheet at that date.

Question 29: Sight and Visions General Eye Clinic

Euzebius Coffie is an eye specialist and surgeon practicing at the Sight and

Visions General Eye Clinic, which is located on Brigham Street, Manchester.

For the purpose of preparing his accounts for the year ended 31 January 20 4 the following information is available to you.

(1) Balances in his computerised books of account at 1 February 20 3

Motor Vehicle

Cost 34,900

Depreciation 12,500

Optical equipment

Cost 71,160

Depreciation 28,404

Office furniture and equipment:

Cost 17,400

Depreciation 10,400

Stock of contact lenses, at cost 8,230

Debtors for fees earned 16,728

Fees for operations, received in advance 6,760

Creditor for property costs 3,215

Accountancy 875

Creditors for medical books 217

Amount due for PAYE and Social Security 718

Cash in hand 116

Cash at bank 11,153

Capital account Euzebius 96,598 159,687 159,687



(2) Summary of bank statements for the year ended 31 January 20 4

Balance at 1 February 20 3 11,153 Receptionist/secretary Total cheques received from salary (net) for year 15,059

patients 124,850 Payments for PAYE

Cash banked 6,900 and Social Security 9,633

Insurance claim received for Contact lens purchased 14,928

damaged equipment (to be offset Fees to Medical Ass. 6,410

against equipment repairs) 1,104 Medical books 1,491

Property costs 18,335

Accountancy charges 875

Repairs to equipment 3,084

New optical equipment

bought on 1/08/20 3 11,100 Medical supplies 1,202

Car expenses 5,332

Drawings 39,100

Balance at 31/01/20 4 17,458 144,007 144,007

(3) Cash receipts/payments for the year ended 31 January 20 4 Receipts:

Fees paid by patients in cash 10,680

Payments:

Office stationery, postage and sundries 3,372

Cheque cashed for patient 110

Cash banked 6,900

(4) Fees

The patients fees printout for the Brigham Street practice shows total fees billed for the year of 143,120 of which 2,546 relates to an

operation on an overseas visitor who returned home without paying.

This fee is not recoverable. In addition to his practice, Euzebius has two

part-time hospital consultancy appointments. These fees, which totalled

54,500 for the year under review, are paid gross as they are brought

into account as part of the profits of his practice. Euzebius in fact paid

this total of 54,500 into his private bank account.

(5) Property costs

The premises are used by three other medical specialists. Property costs

are shared between occupants in proportion to space occupied. Monthly

payments on account are made by each specialist into a separate bank

account, out of which the costs are paid. A statement of account is



prepared at 31 January annually, and balancing payments made in

February. For the year under review this statement shows the following.

Rent, rates and insurance 72,700

Repairs 5,556

Heat and light 8,706

Security services 1,020

Front Desk Assistant 474

88,456

Euzebius agreed share is 20% and his payments on account have been at the rate of 1,260 per month.

(6) Receptionist/secretary

The lady who works at the practice with this title has a gross salary of

22,300 per annum. Employers Social Security contributions can be taken as being 12.5% of gross salary.

(7) Mrs Coffie

Included in Euzebius drawings of 39,100 is a total of 4,100 paid by him to his wife for her work in maintaining patients records.

(8) Car expenses

The total expenses incurred by Euzebius are paid through the practice. It

is agreed, however, that only 90% of such expenses, and depreciation,

shall be charged against the practice profits.

(9) Depreciation

Depreciation on all fixed assets is charged at 20% on the cost of assets

in use at the year-end, subject to (8) above.

(10) Stocks, debtors and creditors at 31 January 20 4

Stock of contact lenses 8,625

Debtors for fees to be calculated

Due for property costs to be calculated

Due to the PAYE and Social Security to be calculated

Fees received in advance 5,402

Outstanding accountancy charges 950

Fees due to medical assistants 1,930

Requirements

(a) Prepare the profit and loss account for the year ended 31 January 20 4 (b) Produce the balance sheet at 31 January 20 4



CHAPTER 3 PREPARATION OF MANUFACTURING ACCOUNTS

Question 32: Kangaroo Carrier Bags Plc

(a) Kangaroo Plc makes Carrier Sucks for Nursing Mothers, which it sells

to the wholesale traders. The following trial balance was extracted from

the books of the company at 31 December 20 1. Stocks at 1 January 20 1: $ $ Raw materials, at cost 3,920

Work in progress, at factory cost 20,160

Finished goods (3,500 units) at factory cost 39,200

Raw materials purchased 44,240

Sales (12,000 units) 201,600

Manufacturing wages 33,600

Factory rent and rates 15,680

Factory light, heat and power 7,336

Plant, at cost 67,200

Plant depreciation at 1 January 20 1 31,360 Work managers salary 2,744 Plant repairs 4,480

Administration overheads 20,160

Factory lease at cost (20 years period) 44,800 Amortization at 1 January 20 1 13,440 Share capital 84,000

Debtors and bank balance 52,080

Creditors 27,440

Carriage inwards 2,240

357,840 357,840

Plant depreciation is to be provided at 10% on cost of plant owned at

the year-end.

Raw materials costing $5,600 were in stock on 31 December 20 1. Finished goods are transferred to the warehouse as soon as they are

completed. During the year under review, 10,000 units were completed

and transferred to the warehouse. Work in progress at close of 20 1 (at factory cost) amounted to $25,760. There was no wastage or pilferage

during 20 1. Requirement

Prepare the manufacturing, trading and profit and loss account for the

year ended 31 December 20 1. (b) Facts as in part (a) except that it had always been the companys

practice to transfer completed units from the factory to the warehouse at



cost plus 25%. Stocks of finished goods are valued at the transfer price

for the trading account but at factory cost for balance sheet purposes.

Requirement

Prepare the manufacturing, trading and profit and loss account for the

year ended 31 December 20 1.

Question 36: Raphael Trash Manufacturer of Wheelie Bins

On 1 February 20 4 Raphael Trash has received patent for his design of an electrical recycling device for Wheelie Bin with a trade name Wheelietrash. He started business on the same date, with arrangements to supply

Wheelietrash to a wholesaler in West Africa, Ghana to be distributed all over

Africa to reduce waste in the continent. For the sake of accounting

harmonisation, all takings are paid in the US dollar. The following

information relates to the year ended 31 January 20 5. (1) Premises

On 1 February 20 4 Trash acquired the lease of a garage workshop at an annual rent of $10,240 excluding property rates. The workshop is

solely for manufacturing purposes. All administration is done on a mini

laptop at Trashs home by his wife acting as secretary. Trash feels that a figure of $960 per annum would be a reasonable charge for the business

use of his house.

(2) Employees

On 1 February 20 4 Trash engaged a machinist/assembler at a gross salary of $17,280 per annum, a salesman at a gross salary of $12,160

per annum with the right to a bonus of $0.32 per unit sold, payable at

the end of each year. Employers Social Security contributions can be taken as 12.5% of gross salaries.

Trash also negotiated an arrangement with Akwesi Mensah, a freelance

electrical engineer, whereby Mensah would make daily visits to the

workshop to plan and supervise production, effective 1 February 20 4 with an agreed annual fee of $6,400 plus a bonus of $0.13 per unit

produced if the annual average production cost per unit does not exceed

$24. The charges for employers Social Security contributions, and Mensahs bonus, if any, are to appear in the profit and loss account and are not to affect the manufacturing cost. Note that bonuses dont attract any employers Social Security contribution.

(3) Bank account

On 31 January 20 4 Trash opened a business bank account by transferring $8,320 from his private account, and arranged a business



overdraft limit of $6,400 for two years. Before opening the account,

Trash had made the following payments out of his private account.

(i) Patent Fees $

(to be written off over two years) 1,472

(ii) Workshop rent for the quarter starting 01/02/20 4 2,560 (iii) Manufacturing machinery 4,480

(4) Summary of business bank account $

Cash transferred 8,320

Cash received from customers 125,440

Bank overdraft at 31 January 20 4 3,351 137,111

Manufacturing tools purchased 2,304

Workshop: Rent 5,120

Rates: Period ended 31 March 20 4 768 Year ended 31 March 20 5 3,584 Power, light and heat 3,520

Salaries net payments to machinist and salesman 19,936 Payment on account of PAYE/Social Security 8,960

Manufacturing material and electrical components 64,791

Advertising costs 4,837

Bank interest and charges 1,005

Delivery van:

Deposit 1,024

Hire purchase instalments 3,872

Delivery Van expenses 3,438

Payments on account to Mensah 5,760

Cheques drawn for cash 3,072

Personal Drawings 5,120

137,111

(5) Cash details

$ $

Collected on account of Office stationery and sundries 1,869

Small sales orders 3,002 Paid to Mrs Trash on account of

Drawn from bank 3,072 agreed secretarial fee $2,560

(no liability for PAYE or Social 1,920

Typewriter and filing cabinets

bought 28 February 20 4 922 Weekly drawings by Trash 1,331

Balance at 31/01/20 5 32 6,074 6,074



(6) Production and sales

4,400 sets of Wheelietrash were sold during the year at a fixed selling

price of $32 per set. No cash discounts were allowed and there were no

bad debts. At 31 January 20 5 there were 100 sets of finished units in stock to be valued at total workshop cost. There were no stocks of partly

finished units and during the year no sets were lost or scrapped.

(7) Hire purchases agreement

This provided for the purchase of the van at a cost of $8,704 with a

deposit of $1,024 and hire purchase charges of $768. The balance due is

payable by twenty-four equal monthly instalments from 31 March 204. (8) Outstanding items at 31 January 20 5 Apart from those from information already given, these were as follows.

$

Creditors for production materials 7,209

Stocks of production materials at cost 8,640

Creditors for:

Accountancy charges 333

Workshop power, light and heat 422

(9) Depreciation

The machinery and salesmans van are to be depreciated at 20% per annum on the cost of the assets in use at year-end. The typewritten and

cabinets are to be depreciated at the rate of 20% per annum on the

reducing instalment basis. The manufacturing tools are to be dealt with

by revaluation. The tools on hand at the year-end were valued at $1,617.

Requirements

(b) Prepare a manufacturing account for the year ended 31 January 20 5 showing cost per unit for each main element of cost.

(c) Produce a trading and profit and loss account for the year ended 31 January 20 5 and also the balance sheet as at that date.

Question 40: Akasanoma Vision Ltd Manufacturers

Akasanoma Vision Ltd is an old established company operating in the highly

competitive business of manufacturing and marketing digital stereo system. A

new board of directors is considering the draft accounts, prepared under the

historical cost convention, for the year ended 30 September 20 4.

The main executive directors involved in the policy discussion are:

Giorgio Blewusi (Managing Director)

Walter Kafui (Sales Director)

Suzzy Selase (Production Director)



You, as the companys Financial Consultant, were in attendance for advice. A standard model radio has the following disclosed costs.

Direct labour and material 38

Bought-in components 5

Factory overhead costs 8

Patent Royalty on sale 2

For 1,000 radio sets, the other overhead costs are 14,000 made up as follows.

Salary and space costs of production planning executives 4,000

General office administration 2,500

Selling and distribution costs (incl. a fixed 4 per set commission) 7,500

The selling price of the model has recently been reduced to 60 because of

intensive competition. The three directors have expressed the following views

on the most appropriate method of valuing the companys closing stock: (1) Giorgio

A most prudent approach is necessary, particularly as the company has a cash flow problem which means that the amount locked up in stock inventories

should be kept as low as possible. I propose a valuation of 43 per set. (2) Walter

All the functions of the company are directed towards the production and sale of good quality finished products and therefore I think each set should be

valued at the total cost involved, including all other overhead costs. (3) Suzzy

I proposed 47 per set, because thats what the production cost we would have if we had been more efficient and kept in line with budgets.

Requirement

Give your opinion in a note form on the views expressed by each director with

your own opinion of the appropriate valuation stating the principles involved.



CHAPTER 4: PRESENTATION OF PARTNERSHIP ACCOUNTS

Question 42: Jonny, Ferdinand and Kwartson Business Ventures

Jonny, Ferdinand and Kwartson are in partnership sharing profits and losses in

the ratio 2:2:1 respectively. Interest is charged on partners drawings at the rate of 5% per annum and also credited on partners capital account balances with an interest of 5% per annum. Ferdinand is the firms sales manager and for his specialized services he is to receive a salary of $12,000 per annum.

During the year ended 30 April 20 1 the net profit of the firm was $93,000 and the partners drawings were Jonny $6,600

Ferdinand $4,400

Kwartson $3,500

In each case the above drawings were withdrawn in two equal instalments on

31 October 20 0 and 30 April 20 1. On 31 October 20 0 the firm agreed that Jonny should withdraw $2,500 from his capital account for some personal family needs and that Kwartson should

subscribe a similar amount to his capital account.

The credit balances on the partners accounts at 1 May 20 0 were as follows. Capital accounts Current accounts

Jonny $44,000 $3,520

Ferdinand $38,500 $3,080

Kwartson $36,000 $2,640

Requirements

(a) A profit and loss appropriation statement for the year to 30 April 20 1. (b) The partners capital and current accounts for the year to 30 April 20 1.

Question 43: George and Cyril Akpanaway Consultants

The following printout of balances was extracted from the computer records

of George and Cyril Akpanaway at 31 March 20 4.

Capital at 1 April 20 3: GH GH George Akpanaway 11,875

Cyril Akpanaway 7,125

Cash drawings:

George Akpanaway 1,900

Cyril Akpanaway 1,425

Freehold buildings at 1 April 20 3 12,113 Motor vehicles at 1 April 20 3 2,990 Stock at 1 April 20 3 8,550



Purchases 61,038

Sales 91,699

Debtors 9,405

Creditors 8,716

Wages and salaries 9,833

Motor vehicle running costs 3,515

General trade expenses 4,736

Rates and insurance 2,290

Cash at bank and in hand 1,858

Provision for bad and doubtful debts 238

119,653 119,653

Additional information

(1) Stock at 31 March 20 4 was GH9,735 (2) Provision is to be made for depreciation at the following rates.

Motor vehicles 25% per annum

Freehold buildings 2% per annum

(3) The provision for bad and doubtful debts is to be reduced to GH178.

(4) George and Cyril Akpanaway share profits and losses in the ratio 3:2

respectively.

Requirement

Prepare the trading and profit and loss account for the year to 31 March 20 4 and a balance sheet at that date.

Question 48: Wawa and Mahoganey Carpentry Ventures

Wawa and Mahoganey have traded in partnership as furniture manufactures

since 1 October 20 6. Prior to that date Wawa was in business as a sole trader. The draft accounts for the year ended 30 September 20 7 have been prepared by a new and inexperienced Account Clerk.

The following balances were shown after the draft manufacturing, trading and

profit and loss account:

Dr Cr

Capital accounts:

Wawa 76,000

Mahoganey 14,000

Current accounts:

Wawa:

Share of net profit 12,360

Drawings 12,000

Mahoganey share of net profit 6,180



Debtors and creditors 30,390 37,790

Stocks at cost 28,640

Work in progress 15,730

Cash at bank per bank statements 4,330

Cost and depreciation:

Plant and equipment 95,500 49,100

Motor vehicles 30,000 15,000

210,430

Suspense account 6,160

216,590 216,590

You have been asked to locate the difference, review the accounts, and make

such adjustments as may be necessary.

Your enquiries disclosed the following matters:

(1) Mahoganey joined Wawa in partnership on 1 October 20 6, bringing in cash capital of 14,000. The clerk was told only that profits were to be shared

in the ratio of 2:1 and no adjustments or entries have been made for the items

below:

(i) On admission Mahoganey brought into the firm his Van at an agreed value of 6,000.

(ii) Mahoganey is entitled to a partners salary of 10,000 per annum. He drew this amount during the year, and it has been included in salaries

charged to profit and loss account.

(iii) Interest on capital is to be allowed at the rate of 8% per annum, calculated on the balances at 1 October 20 6 after making any necessary adjustments arising from the above.

(2) There is a batch of furniture costing 3,600, which was thought to be

unsaleable at 30 September 20 6 and was included in stock at scrap value equal to 10% of cost. Surprisingly, it was all sold on 30 June 20 7 for 2,460. It is agreed that the surplus arising should be regarded before Mahoganeys admission and that a transfer to reflect this should be made through the

partners capital accounts without any adjustment being made in the profit and loss account or appropriation account.

(3) The clerk has made the following note on the bank statements at 30

September 20 7.

Cash at bank per bank statements 4,330

Add Cheques received but not credited by bank 370

4,700

Less Cheques drawn but not presented to the bank (5,660)

Overdrawn per cash book (960)



The balance overdrawn per the cash book is in fact 880, but bank charges

totalling 80 have not been entered in cash book. (4) A set of chairs has been included in sales and debtors at an invoice

value of 1,800, representing a mark-up on cost of 50%. In fact, the

goods were sent on a sale or return basis and by 30 September 20 7 had not been accepted by the customer.

(5) In the draft manufacturing account, the closing work in progress of

15,730 has been added to cost and the opening work in progress of

12,940 deducted from cost.

(6) Furniture supplied without charge to partners has been evaluated at

Wawa 2,460 and Mahoganey 1,820 and included in sales, no other

entries having been made. Assume goods are sold to the partners at cost.

(7) During the year plant costing 15,000 on 1 December 20 3 was sold for 4,600. This figure of 4,600 has been deducted from the cost of

plant and equipment and debited as a receipt in the cash book but no

adjusting entries have been made. Depreciation has always been

calculated for plant and equipment, and for motor vehicles at 20% and

25% respectively based on the cost of fixed assets in use at the year-

end. For the purpose of the draft accounts, the depreciation has been

based on the cost figures as shown in the list of balances.

(8) At 1 October 20 6 a bad debt provision of 1,350 was brought forward in the books. At 30 September 20 7 it was decided to increase the provision to 5,200 and this figure of 5,200 has been debited to profit

and loss account and deducted from debtors in the list of closing

balances.

(9) Sales returns of 850 have been credited to sales, although correctly

entered in the relevant sales ledger accounts.

(10) Legal and accounting charges totalling 1,240 have not been provided

and paid for.

Requirements

Prepare the following.

(a) A statement showing the amended profit and appropriation of profit for

the year ended 30 September 20 7. (b) A statement showing the elimination of the suspense account.

(c) A final balance sheet at30 September 20 7



CHAPTER 5 PREPARATION OF COMPANYS ACCOUNTS

Question 50: Alluwako Company Ltd, Alluminium Products

The draft balance sheet of a small company, Alluwako Ltd, has been prepared

by a junior accounts officer in the form set out below.

Balance sheet at 31 October 20 3 Fixed assets:

Plant, fixtures/fittings and equipment, at cost 159,932

Accumulated depreciation (53,235)

106,697

Current assets:

Stocks 52,297

Debtors 32,242

Prepayments 2,548

Bank 21,819

108,906

Less Creditors falling due within one year:

Creditors 26,653

Taxation 23,309

Proposed dividend 8,000

(57,962)

50944

157,641

Share capital:

Authorized 100,000 shares of 1 each Issued 80,000 shares of 1 each fully paid 80,000 Share premium 17,500

Unappropriated profits 41,051

10% debentures 24,375

162,926

Investigation has produced the following information.

(1) The companys depreciation policy has always been to provide depreciation at the rate of 20% per annum on the cost of fixed assets on

the basis of usage.

Equipment costing 24,375 on 30 April 20 1 was sold for 11,781 on 30 June 20 3. The receipt of 11,781 has been duly debited in the cash book, but in error, has been credited to the trading sales account. No

other entries have been made.



(2) 6,400 10% debentures were redeemed on 30 October 20 3 at a premium of 5%. The amount paid has been credited in the cash book

but no other entries made. The question of debenture interest has been

dealt with correctly.

(3) On 31 August 20 3 a bonus issue of shares (not ranking for dividend in the year of issue) was made on the basis of one new share for every ten

held. No entries recording this issue have been made.

(4) A debit balance of 2,921 on a suppliers ledger account in the purchases ledger has been carried down as 1,291 and then inadvertently added to the total of suppliers credit balances.

(5) A provision of 8,361 has been made in respect of doubtful debts and this amount has been debited to profit and loss account and deducted

from debtors in the balance sheet at 31 October 20 3 . The account officer has, however, overlooked the fact that there was a credit balance

of 2,397 on doubtful debts account at 1 November 20 2. (6) Accrued rent of 1,625 at 31 October 20 3 has been duly debited to

rent account but carried down as a debit balance and included under

prepayments in the balance sheet. (7) The company wishes to maintain a large balance as possible of

unappropriated profits.

It is the companys policy to net off all balances standing on the purchases ledger, and similarly with the sales ledger.

Requirement

Prepare for review by the Directors of Alluwako Ltd an amended balance

sheet at 31 October 20 3.

Question 57: ZoomVultures Ltd, Cleaners & Cleaning Products

(a) On 1 April 20 4 ZoomVultures Ltd was incorporated and 700 paid for formation expenses from its bank account.

(b) Details of the company and of shareholdings are as follows.

Directors: Cyril S. Garibah, Giorgio Ekegey and Norris Ekegey

Secretary: Doris Ekegey

Business : Contract cleaning of offices and homes and production and

sale of cleaning liquids and polishes



Share Authorised - 30,000 in shares of 1 each; Issued Shareholders No of shares Price Receipts paid

into bank account

C S Garibah 6,000 par 6,000

G Ekegey 6,000 par 6,000

Norris Ekegey 1,000 par 1,000

Mrs Ekegey 1,000 par 1,000

Various relatives 6,000 1, 20 7,200 (c) On 1 October 20 4 the company bought a window-cleaning business

for 16,500. The tangible assets consisted of ladders and sundry equipment valued at 2,400 and vehicles at 8,100. No liabilities were taken over. The reputation established by the business purchased is

likely to be of high benefit to ZoomVultures Ltd over the two years to 1

October 20 6 (d) In February 20 5 a defective polisher seriously damaged a customers

flooring. The claim for damages (not covered by insurance) was settled

in May 20 5 for 5,500. (e) Other companys transactions for the year to 31 March 20 5 are set out

below.

(i) Receipts and debtors Receipts Paid Debtors at 31

into bank March 20 5 Amount received and outstanding under cleaning contracts:

For quarter years ended before and on 31/3/20 5 198,000 12,300 For quarter year ending 30 April 20 5 16,800 4,800 For quarter year ending 31 May 20 5 24,000 10,800 Window cleaning receipts 26,330 -

Sales of liquid and polishes 42,120 2,770

(All contracts provide for quarterly instalments payable in advance)

(ii) Payments and creditors Paid out Creditors at 31

of bank March 20 5 Large electrical polishers 41,000 -

Small items of cleaning equipment 9,500 -

Wages, PAYE and Social Security 149,320 5,810

Administrative and property costs 20,150 440

Purchases of liquids and polishes 30,060 1,820

Secretarys fees 8,000 - Accountancy charges 1,300 500

Audit fee - 1,600



(f) The directors have not drawn any remuneration during the year but it is

proposed that, directors fees for the year totalling 42,000 should be provided.

(g) A dividend of 0. 25/share is proposed for the year to 31 March 20 5. (h) Corporation tax is to be provided on the basis of 30% of the net trading

profit of the year.

(i) At 31 March 20 5 there were the following stocks of cleaning liquids and polishes.

Cost Net realizable Value

Toilet Liquids 2,970 4,250

Window Shine 1,500 650

Floor Polish 3,640 6,280

(j) The large electrical polishers are expected to have a four year life and to

have a residual value of 1,000. The total cost of ladders and all small items of equipment are to be depreciated at 33

1/3% based on cost and in

use at the year-end.

Requirement

Prepare for internal use a trading and profit and loss account for the year

ended 31March 20 5, together with a balance sheet at the date.



Question 62: Ekegey Plantations Plc Farms & Equipments

Ekegey Plantations plc has traded for many years as a farmer and popular

manufacturer of small farm machinery for other local farmers. The trial

balance, after the preparation of the draft trading and profit and loss account

for the year ended 31 October 20 4, was as follows: Dr Cr

$ $

Freehold land and buildings: Cost 162,812

Accumulated depreciation at 31/10/20 4 84,032 Plant and machinery: Cost 1,129,180

Accumulated depreciation at 31/10/20 4 406,345 Stock at 31 October 20 4: Raw materials 75,009

Work in progress 4,891

Finished goods 43,784

Trade investment 11,295

Suspense account 134,451


Balance at bank 258,398

Ordinary shares of $0.50 each (fully paid) 262,600

15% Preference shares of $1 each (fully paid) 157,560

12% Debentures 20 0 91,910 Profit and loss account,

unappropriated balance, 1 November 20 3 400,389 Net profit after tax for year to 31 October 20 4 253,278 Provision for doubtful debts 9,454

Dividend from trade investment 1,996


Interim ordinary dividend 7,878

1,945,789 1,945,789

You are given the following information.

(1) Certain items which the bookkeeper, Mr Sarpong, was unable to deal

with were posted to a suspense account which is made up as follows.

$

Proceeds of issue of 157,560 ordinary shares of $0.50 118,170

Sale of trade investment 16,281

134,451

(2) The provision for doubtful debts is to be adjusted to 5% of the trade

debtors.



(3) Certain stocks of finished goods costing $15,756 (and included in the

$43,784 above) are considered obsolete. The expected net realizable

value is $3,545.

(4) The board of directors has made the following recommendations.

(i) The payment of the preference dividend for the year.

(ii) The payment of an ordinary dividend of $0.10 per share.

(5) During the year a reputable firm of chartered surveyors, revalued the

land by $19,695 (original cost $30,199). The directors wish to

incorporate this into the accounts. There have been additions of plant

and machinery during the year of $59,925 but no other movements.

The following depreciation was charged for the year.

Freehold land and buildings $3,285

Plant and machinery $36,680

(6) The corporation tax charges for the year ended 31 October 20 4 is estimated at $19,960.

This has not been paid at the year-end and is included in trade creditors.

(7) The authorised share capital is as follows.

15% preference shares 400,000 at $1 each

Ordinary shares 950,000 at $0.50 each

Requirement

As far as the information permits prepare a balance sheet as at 31 October

204 in a form suitable for presentation to members. Include notes on assets, stocks, creditors, share capital and reserves. An accounting policies note is not

required.



CHAPTER 6 FUNDAMENTAL ACCOUNTING CONCEPTS

Question 64: Fundamental Accounting Concepts

IAS 1 names four fundamental accounting concepts which underline the

preparation of accounts. Describe these concepts and give an example of the

application of each.

Question 67: Atongo, The Science Student

Atongo is a science student operating a small medical supplies shop. He has

never heard of accounting concepts, and would certainly not know what to do

with them if he cames across them.

Requirement

Prepare notes for a meeting with Atongo in order to explain to him which of

the fundamental accounting concepts would cause you to make adjustments to

the accounts of his business in the following circumstances. Give your

reasons. Assume that each circumstance is separate from and not dependent on

the others.

(a) He has no idea what his electricity bill will be for the last two months of

the financial year, since he has not yet received it. He proposes to

account only for what has already been paid.

(b) His cash register will last for years and he is willing either to write it off

completely in the year of purchase or to carry it as a fixed asset at cost

price in the balance sheet. He cannot see any point in any half-way

between the two.

(c) At the latest year-end, 31 December 20 4, he had several large outstanding orders for products, which did not arrive until two days

after the year-end. He dispatched them to the customers on the same

day, and considers them to be sales for the year 20 4 rather than 20 5. (d) Atongos shop assistant, Hotman, has left and has opened a low-price

suplies shop a few streets away from his shop. Customers are flocking

to Hotman and the bottom is falling out of Atongos market. Much of his stock has passed its sell-by dates.



Question 71: Logba Young Lions plc, Footbal Club

Your client, Logba Young Lions plc, wishes to defer research and

development costs as intangible asset where possible and has asked for your

advice on what procedures to set up in order to identify any relevant costs.

Requirement

Write a letter to the Finance Director of Logba Young Lions plc which

addresses his concerns



CHAPTER 7 CASH FLOW STATEMENTS

Question 76: Darryl Amfic Company Ltd, Cold Stores

The financial statements of Darryl Amfic Ltd at 30 June were as follows.

20 7 20 6 Fixed Assets

Building: cost 24,728 13,488

depreciation (4,498) (1,124)

20,230 12,364

Plant & machinery: cost 5,620 5,620

depreciation (2,529) (2,248)

3,091 3,372

23,321 15,736

Current Assets:

Stock 17,984 12,364

Debtors 11,184 3,035

Bank and cash - 29,168 1,461 16,860

Creditors due within 1 year:

Bank overdraft 12,364 -

Trade creditors 8,992 12,364

Tax creditor 2,023 1,124

Accrual for interest 787 225

(24,166) (13,713)

Creditors due after 1 year

Loan (6,744) (11,240)

21,579 7,643

Represented by:

Ordinary share capital 3,370 3,370

Profit and loss account 18,209 4,273

21,579 7,643

20 7 20 6 Profit and loss account (extracts) Opening profit 17,308 6,632

Interest charge (1,124) (1,574)

Profit before tax 16,186 5,058

Taxation (2,248) (1,686)

Retained profit for the year 13,936 3,372



Machinery of net book value 250 was sold at the beginning of 20 7 for 393. This machinery had originally cost 1,124. In recent years, no dividends have been paid.

Prepare a cash flow statement, with notes, for the year ended 30 June 20 7.

Question 78: Kingdom Furniture Plc

Kingdom Furniture plc manufactures and distributes furniture to their

customers from a showroom. Their financial statements are prepared and the

summarized accounts are set out below.

Profit and loss accounts for the years ended 30 April

20 7 20 6 $000 $000

Turnover 91,259 85,463

Cost of sales (63,049) (58,006)

Gross profit 28,210 27,457

Distribution and administration costs (21,484) (20,676)

Operating profit 6,726 6,781

Premium on redemption of debentures (122) -

Taxation (3,219) (1,336)

Profit after taxation 3,385 5,445

Dividend Interim and Final (1,039) (929) Retained profits 2,346 4,516

Balance sheets at 30 April

20 7 20 6 $000 $000 $000 $000

F. assets (cost/valuation) less depr. 37,816 30,722

Currents assets

Stocks and work in progress 20,150 19,420

Debtors 15,268 9,903

Investments at cost 8,676 -

Cash at bank 1,055 885

45,149 30,208

Less Creditors due in one year 8,269 6,238

Net current assets 36,880 23,970

Total assets less current liabilities 74,696 54,692

Less Creditors due after one year 3,971 5,194

70,725 49,498



Share capital - $1 ordinary shares 20,316 12,220

Share premium account 11,028 6,110

Revaluation reserve 9,105 3,238

Profit and loss account 30,276 27,930

70,725 49,498

Notes relating to the accounts

(1) Fixed asset analysis 20 7 20 6 $000 $000

Freehold land and buildings 30,672 24,171

Plant and equipment 7,144 6,551

37,816 30,722

(2) Depreciation has not been provided on freehold land buildings. During

the year a professional revalution taking account of additions during the year has been incorporated in the books of account. There were no disposals during the year.

(3) Additions to plant and equipment during the year totalled $1,668,000 at

cost. There were no disposals.

(4) Creditors falling due within one year

20 7 20 6 $000 $000

Trade and other creditors 4,217 4,139

Taxation 3,417 1,512

Dividends 635 587

8,269 6,238

Taxation provided at 30 April 20 6 was settled at a figure lower than the amount provided.

(5) Creditors falling due after more than one year relate to 9% discount

debentures which pay no interest. The stock redeemed during the year

was redeemed at premium of 10% which was provided out of the share

premium account.

(6) During the year the company made a rights issue of shares on the basis

of 3 new shares for every 10 shares held at a price of $3.55 per share.

Pending the purchase of new plant, part of the proceeds of the issue has

been invested.

(7) All the investments were due to mature six months after the date of

purchase.

Requirement

Prepare a cash flow statement, with notes, for the year ended 30 April 20 7.



CHAPTER 8: STATEMENTS ANALYSIS AND INTERPRETATION

Question 82: Divine Nooque Oil Company Ltd

Divine Nooque Oil Company Ltd is a distibutor of crued oil. You have been

asked by a client to investigate the company with a view to a possible buy-out.

You have managed to obtain copies of the last two years accounts, thus 31 December 20 7 and 20 6 which are set out below:

Profit and loss accounts

20 7 20 6 000 000 000 000 Turnover 8,380 6,983

Cost of sales (3,351) (2,234)


Distribution costs 1,676 1,676

Administrative expenses 2,514 2,486

(4,190) (4,162)

Operating profit 839 587

Interest payable (559) (279)

Profit before taxation 280 308

Taxation (140) (151)

Profit after taxation 140 157

Dividends (67) (112)

Retained profit for year 73 45

Retained profit b/f 67 22

Retained profit c/f 140 67

Balance sheets

20 7 20 6 Fixed assets: 000 000 000 000 Land and buildings

Cost 3,910 2,793

Depreciation (335) (279)

3,575 2,514

Plant and machinery

Cost 2,514 1,676


1,676 1,118

Other equipment

Cost 1,397 1,117


727 670

5,978 4,302



Current assets

Stocks 358 207

Debtors 335 223

Cash at bank and in hand 84 112

777 542

Creditors Amounts due in 1 year: Bank overdraft 267 145

Trade creditors 117 67

Taxation payable 140 151

Proposed dividends 67 112

(591) (475)

Net current assets 186 67

Total C. Assets less C. Liabilities 6,164 4,369

Creditors Amount due after 1 year: 10% debentures (1,676) (838)

4,488 3,531

Capital and reserves: Share capital

Ordinary shares of 1 each 3,910 2,794 8% Redeemable P. Shares of 1 each 438 670 4,357 3,463

Profit and loss account 140 67

4,488 3,531

Notes

(1) During 20 7 some plant, which had cost 466,000 and had been depreciated by 335,000, was sold for 186,000.

(2) Included in trade creditors is end of year accrued interest of 37,000 (18,000 in 20 6).

(3) Included in trade creditors is a creditor for plant purchases of 18,000.

Requirements

(a) Prepare a cash flow statement, with notes, for the year ended 31

December 20 7. (b) Using appropriate accounting ratios, compare the companys

profitability and short term liquidity for the years 20 7 and 20 6, and indicate what further information you would need to back up your

comments.



Question 86: Kantamanto Scrappers And Melters

Kantamanto carries on business as a scrap metal merchant but is seriously

short of funds. He is unable to introduce further capital into the business from

his own resources and the bank is not willing to offer more funds withhout a

security. His draft balance sheet at 31 December 20 1 was as follows. $ $ $

Fixed assets

Freehold premises at cost 13,488

Plant and machinery 6,744

20,232

Current assets

Stock 26,976

Debtors 10,116

37,092

Creditors: Amounts due in one year:

Bank overdraft (unsecured) 13,480


(20,224) 16,868

37,100

Capital account

Balance at 1 January 20 1 40,460 Net profit for the year 6,740

47,200

Less Drawings (10,100)

37,100

Requirement

Write a short letter to Kantamanto commenting briefly on his position as

shown by his balance sheet and setting out five ways in which he might be

able to improve the liquidity of the business.

Question 89: Kafui Akpoblu Mobile Company

Kafui Akpoblu has been in retail business for some years as a quality mobile

phone retailer but currently having trouble with his bank manager who is

concerned at the fact that substantial business bank balances at 31 July 20 5 have been replaced by a bank overdraft at 31 July 20 6. The overdraft is secured by the business assets but the manager says that these assets are of

adequate value only for as long as the business remains a going concern. The

overdraft is now at much the same level as it was at 31 July 20 6.

Kafui has tried to reassure the manager by telling him that despite a difficult

year, gross profit margin has been maintained and, by drastic economies, it



has been possible to prevent any substantial increases in overheads so that net

profit for the year to 31 July 20 6 has increased by 1,000 as compared with the figure for the previous year. The manager, who has the accounts for the

previous year, says that if this is the case he can only think that Kafui has

substantially increased his personal drawings from the business.

You are acting as Kafuis accountant and, although you are not yet in a position to complete the accounts for the year to 31 July 20 6, an approximate and reliable summary of the result and position is given you as follows:

Trading account summary

20 6 20 5 Sales 148,000 137,780

Opening stock 7,950 6,420

Purchases 112,910 97,080

120,860 103,500

Less Closing stock 17,260 7,950

(103,600) (95,550)


Expenses and depreciation (31,240) (30,110)

13,160 12,120

Balance sheet summary

20 6 20 5 Fixed assets : At cost 35,680 30,970

Depreciation (19,340) (15,360)

16,340 15,610

Current assets

Stock 17,260 7,950

Debtors 17,110 10,500

Bank:

Current account - 1,230

Deposit account - 8,000

50,710 43,290



Capital account

Opening balances 33,370 29,610

Net profit 13,160 12,120

46,530 41,730

Drawings (9,090) (8,360)

37,440 33,370

Loan account - 3,830

Creditors due in 1 year:

Trade creditors 8,450 6,090

Bank overdraft 4,820 -

50,710 43,290

Notes

(1) Closing stock at the end of each year can be regarded as representative

of average stock carried during each year.

(2) No fixed assets were sold during the year.

(3) Trade creditors include an amount of 700 still outstanding in respect of the purchase of fixed assets.

(4) For both current and previous year, sales accrued more or less evenly

over the year.

Kafui gives you the following information.

(i) For some years one of his main wholesalers supplied him with a

substantial volume of high quality brand of Mobile Phones on a

sale or return basis. The wholesalers business was taken over by a large group in August 20 5 with the result that this practice ceased. Kafui thinks that the loss of this facility has almost

doubled the value of his average stock.

(ii) In order to maintain the level of sales, Kafui has been forced to

allow a longer period of credit to the majority of his customers,

all of whom have cash flow problems. (iii) Many years ago, Kafuis uncle, Bibio had lent the business a

substantial sum to help it during bad periods and had resisted

Kafuis recent attempts to pay off the balance of the loan as he liked to retain some interest. However, when Bibio died in September 20 5, Kafui was obliged to repay the outstanding balance to the executors of his will.

(5) Kafuis shop front had remained unchanged for nearly twenty years without any serious renovation and 4,000 was spent on a new front and showcase in July 20 6. Kafui says that this improvement has helped trade, as sales in August 20 6 showed a very good increase over those for August 20 5.



(6) As from 1 October 20 6 Kafui has come to an arrangement with some of his major suppliers that they will guarantee delivery of small

numbers of standard phones within seven days of receipt of order. Kafui

estimates that this will reduce his stock level by some 3,500. He is also proposing to allow a cash discount to customers which should reduce

average debtors by about 10%.

Although he realizes that you will not be in a position for some two or three

weeks to send the accounts for the year ended 31 July 20 6, Kafui has asked you to write now to the bank manager to get him out of my hair.

Requirement

Write a letter to the bank manager of Windows Bank Ltd which;

(a) Set out briefly the salient points of the trading results shown by the draft

accounts for the year ended 31 July 20 6 (b) Includes a concise, annotated cash flow statement explaining how the

overdrawn situation has arisen. Treat drawings as a return on

investment.

(c) Indicates the changes and the reasons for the changes, which have taken

place in the ratios relating to stock, debtors and current assets, and

(d) Reassures the manager about the future of the business.



CHAPTER 9: PRACTICAL BRAIN TEASERS

Question 92: Bamboozer Ltd, Food Distribution

(1) Bamboozer Ltd was formed on 1 December 20 6 to carry on business as wholesaler of staple food, within the southern sector of the country.

(2) Proper accounts records have been maintained for trading transactions

but all capital receipts and some capital payments have been credited

and debited to one account in the nominal ledger.

(3) The balances standing on the companys records at 30 November 20 7, after a drafted trading, profit and loss account, are as set out below.

The following fixed assets were bought during the year.

Cost Depn

Freehold depots 296,400 13,894 282.506

Office and warehouse equipment 73,328 14,666 58,662

Vehicles 138,320 34,580 103,740

508,048 (63,140)

Total Assets book value 444,908

Operation profit after depreciation 369,666


Creditors 68,759

Stocks at cost 241,373

Audit fee payment on account 2,470 Provision for bad debt 1,853

Cash at bank 28,042 Dr

Capital receipts and payments account 394,583 Cr

Depreciation rates are based on the cost of assets in use at the year-end.

(4) The share register has been written up properly and records of 1 ordinary shares, issued at a price of 2.47 per share, as follows.

No. of shares issued

Thierry Akolatse 80,000

Jasinta Akolatse 30,000

Ransford Akolatse 15,000

Others 35,000

Authorized share capital is 300,000 in 1 ordinary shares.

(5) Cash has been received for all shares issued with the following

exceptions.

(i) Thierry Akolatse has been issued with 10,000 of his 80,000

shares in recognition of the goodwill attracting to his name after

long experience in the trade.



(ii) Ransford Akolatse owed 6,175 in respect of his shares at 30 November 20 7 but this was received in December 20 7.

(6) Preliminary and formation expenses totalling 3,705 has been debited to the capital receipts and payment account, together with an initial

payment of 1,730 and three monthly instalments (out of twenty-four) of 620 each on computers bought under a hire purchase agreement. The computers, which can be classified as office equipment, had a cost

excluding credit charges of 13,585. (7) The remaining credit balance on capital receipts and payments account

represents moneys lent to the company by Jasinta Akolatse carrying

interest (not yet provided for) at 10% per annum from 1 December 206 and repayable on 1 January 20 9.

(8) Adjustments are also required for the following matters:

(i) Directors remuneration of 67,925 of the year has been fixed but not yet paid or provided for.

(ii) The full audit fee for the year is 5,680. (iii) The bad debt provision is to be adjusted to 1% of trade debtors.

(iv) A dividend of 10p per share on all shares in issue is proposed.

(v) Provision is to be made of 70,210 for corporation tax. Requirements

Prepare the profit and loss account for the year ended 30 November 20 7 and balance sheet at that date.

Question 93: JAK Waawa and JJR Boom Veterinary Services

(1) John Akuffour Wawaa and John Jrakpata Boom, have both just

graudated from Universities as qualified veterinary surgeons. Since

October 20 6 theyve been practicing separately from the same premises. The premises is oned by JJR Boom and it was agreed that

JAK Waawa should pay 3,000 per annum for the use of his surgery in JJR Booms premises.

(2) On 3

practice questions and answers

Documents

table of contents chapter

alluwako company

triple star company

darryl amfic company

kwartson business ventures

financial accounting

divine nooque oil company

kafui akpoblu mobile