101 Financial Accounting Practices: A Practical Working Questions & Answers

101 Financial Accounting Practices: A Practical Working Questions & Answers
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 COMPANY’S 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 Yingor’s Garages ..................................................... 46
©2013 George E. Ekeha 1

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 FREDDY’S FOOD ............................................. 79
Answer 64: FUNDAMENTAL ACCOUNTING CONCEPTS .................. 82
Answer 65: FREDDY’S 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
GH¢10,000 which he paid into the business account at Stanbic Bank in Accra
and Stock of goods valued at GH¢9,850. On the same day, he purchased a
Motor Van from Toyota Company valued at GH¢6,000 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 GH¢20,000 which
was granted at an interest of 12% per annum payable monthly.
Paid GH¢7,000 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 GH¢52,000 and
paid for half of the amount by cheque, after a cash discount of 4%
4/01 Purchased Office Equipment valued at GH¢2,500 and Furniture and
Fittings valued at GH¢3,000 paying all by cheque.
7/01 Sold goods valued at GH¢8,500 for cash and paid for some stationery
valued at GH¢900 by cash.
9/01 Sold goods to Mr. Tarzan valued at GH¢6,700 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 GH¢10,000 and above will qualify
for a trade discount of 6%.
12/01 Mr. James Brown came to purchase goods valued at GH¢14,500 and
paid half of the amount due by cheque, after necessary discounts. Total
cash sales for the day also amounted to GH¢8,974
13/01 Sold goods valued at GH¢5,000 to Akua Cynthia
14/01 Total cash sales for the day amounted to GH¢12,896 and cash banked
amounted to GH¢14,500
15/01 Sold goods to Malik Baako Ventures valued at GH¢16,785 who paid
half of the amount due by cash. Sent GH¢16,500 from the safe to bank.
18/01 Purchased goods from K. Gyasi Ltd valued at GH¢37,880 and paid half
of the amount due by cheque after a 5% cash discount. Total cash sales
for the day amounted to GH¢9,678
19/01 Sold goods to Honey Love valued at GH¢18,964, 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 GH¢18,259 and cash purchases
were also GH¢8,689. Received a cheque for GH¢4,680 from Akua
Cynthia as full settlement.
22/01 Sold goods valued at GH¢11,380 to Mr. Ugly Head who paid half of the
amount due by cash. Total cash lodged at the bank was GH¢33,860
25/01 Paid K. Gyasi GH¢8,940 by cheque on account and received final
payment by cheque from Malik Baako Ventures and cash sales
amounted to GH¢11,380.
30/01 Paid salaries of GH¢3,820 by cheque and utility bills of GH¢860 by
cash. Received a cheque for GH¢3,240 from Mr. Ugly Head as payment
on account.
At 31 January 20 ‘5 closing stock amounted to GH¢5,375.
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 Agueliya’s 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
11,702 25,357
The flowing information is relevant:

(1) The opening provision for doubtful debts consisted of a 50% provision
against Mahama’s 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 (136’967)
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 Bright’s 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 company’s 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 Star’s 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 ‘3/20’4 2,500
Less debts recovered in respect of written off in 20 ‘1/20’2 (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 director’s 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 couldn’t 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 Emmanuel’s 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 Emmanuel’s
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. Employer’s 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 manager’s salary 2,744
Plant repairs 4,480
Administration overheads 20,160
Factory lease at cost (20 year’s 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 company’s
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 Trash’s 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. Employer’s 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 employer’s Social Security contributions, and
Mensah’s bonus, if any, are to appear in the profit and loss account and
are not to affect the manufacturing cost. Note that bonuses don’t attract
any employer’s 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 20‘4.
(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 salesman’s 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 company’s 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 company’s 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 that’s 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 firm’s 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:
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 GH¢9,735
(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 GH¢178.
(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 partner’s 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 Mahoganey’s
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 COMPANY’S 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 company’s 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 supplier’s 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 company’s 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 customer’s
flooring. The claim for damages (not covered by insurance) was settled
in May 20 ‘5 for €5,500.
(e) Other company’s 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
Secretary’s 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 331/3% 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
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
20’4 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) Atongo’s 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 Atongo’s 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 year’s 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 company’s
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 Kafui’s 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 wholesaler’s 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, Kafui’s uncle, Bibio had lent the business a
substantial sum to help it during bad periods and had resisted
Kafui’s 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) Kafui’s 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 company’s 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 20‘6
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 they’ve 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 Boom’s premises.
(2) On 30 September 20 ‘8 Waawa and Boom felt that they enjoyed a good
relationship and would therefore enter into partnership together
retrospectively from 1 October 20 ‘7 and you have been asked to
prepare the partnership accounts. For the year ended 30 September 20‘8
Waawa and Boom have each prepared, from their respective practices
bank statements, a cash at bank account but neither has been able to
agree the closing bank balance with the balance shown by the bank
statements.

(3) Cash at bank accounts

JAK Waawa JJR Boom
€ € € €
Capital introduced 4,000 5,000
Fees received 38,265 40,126
Rental Income 3,000
42,265 48,126
Purchase of drugs/medical supplies 5,269 4,978
Property costs – rent, rates, etc 3,000 6,455
Receptionist – net salary (note (i)) 3,200 3,200
Paid to IRS for PAYE and Social 1,000 1,000
Surgery equipment, furniture/ fittings 4,562 5,983
Printing, telephone and office sundries 1,795 1,973
Travelling costs (note (ii)) 3,784 4,128
Medical books and subscriptions 555 678
Drawings on account of profit 17,000 18,500
(40,165) (46,895)
Closing balance 2,100 1,231
Notes to the cash at bank accounts

(i) The cost of the receptionist has been shared equally. Her gross
salary for the year, together with the employer’s Social Security
contributions, totalled €8,800.
(ii) JAK Waawa feels that 25% of his travelling costs represented
private motoring and JJR Boom puts his percentage at 331/3 %.
(4) You have prepared bank reconciliation statements as shown below.

JAK Waawa JJR Boom
€ €
Balances per ledger account 2,100 1,231
Less: Cheque for fees dishonoured on
presentation (irrecoverable) (1,220) -
880
Add Interest credited in bank accounts 163 214
Balances per bank statements 1043 1,445
Less: Cheques drawn but not presented
Drug purchases (642) (398)
Property costs - (246)
401 801
Add: Fees banked but not yet credited
In bank statements 1,164 1,310
1,565 2,111

Notes
(i) Interest credited is to be transferred to partners’ current accounts.
(ii) At 30 September 20 ‘8 the separate bank accounts were closed
off and a new joint account opened.
(5) At 1 October 20 ‘7 JAK Waawa and JJR Boom owned cars and
equipment which have been used in their practices. The agreed values at
1 October 20 ‘7 were as follows.
JAK Waawa JJR Boom
Equipment €2,060 €3,020
Motor cars €7,970 €9,246
(6) In the partnership accounts depreciation is to be provided
- at 25% on car valuations
- at 20% on the valuations plus additions of equipment, furniture
and fittings in use at the year-end
(7) The outstanding figures at 30 September 20 ‘8, as supplied to you by
JAK Waawa and JJR Boom, were as follows.
JAK Waawa JJR Boom
€ €
(i) Debtors for fees 3,650 4,012
(ii) Creditors for drugs 1,020 708
(iii) Creditors for property costs - 246
(iv) Stocks of drugs/medical supplies 495 535
(iv) Prepaid professional subscriptions 120 131
Notes
(a) You discover that items (i), (ii) and (iii) have been arrived at by
considering only the figures of receipts and payments entered in the
cash at bank accounts.
(b) A provision of €500 in respect of accountancy charges would be
appropriate.
(8) All the relevant figures relating to the two practices should be merged in
arriving at the partnership profit and in preparing the partnership
balance sheet. It is agreed, however, that the bad debt of €1,220,
although it is to be charged in the profit and loss account, is to be borne
4
/5 by JAK Waawa and 1/5 by JJR Boom, the necessary adjustment being
made through their current accounts.
(9) The partnership agreement, to take effect from 1 October 20 ‘7,
provides:
 for interest on capital at 10% per annum
 for basic annual partnership salaries of €9,000 for JAK Waawa and
€11,000 for JJR Boom

 for the balance of profit to be shared equally, and

 for separate capital and current accounts to be maintained for each
partner.
Requirements
(a) Prepare the profit and loss account for the partnership for the year ended
30 September 20 ‘8.
(b) Produce a partnership balance sheet at that date.
Question 101: Amfic Yingor’s Garages

You have just met Amfic Yingor at the late night drinking bar. He has a small
garage business and his accountant has just finished preparing the accounts for
his first year of trading. He says that he cannot understand all the fuss made
about balance sheets and accounts, for “all that really matters is how much
money there is in the bank”.
Requirement
Prepare notes for a meeting with Amfic later in the week which include
 A list of those likely to use Amfic Yingor’s accounts.
 An explanation of the reasons for preparing balance sheet.
 A response to Amfic’s comments that “all that really matters is how
much money there is in the bank”.

ANSWERS

SUGGESTED ANSWERS
Answer 1: WELLINTON SOLE PROPRIETORSHIP BUSINESS

THE CASH BOOK
Date Details F Bank Cash Disc. Date Details F Bank Cash Disc.
GH¢ GH¢ GH¢ GH¢ GH¢ GH¢
01/01 Capital 10,000 01/01 M. Van 3,000 / /
02/01 Loan a/c 20,000 / / 02/01 Rent a/c 7,000 / /
07/01 Sales / 8,500 / 03/01 GeeMerc 24,960 / 1,040
09/01 Tarzan 5,025 / / 04/01 Furniture 3,000 / /
12/01 J.Brown 6,474 / 341 04/01 Equip 2,500 / /
12/01 Sales / 8,525 449 07/01 Stationery / 900 /
14/01 Sales / 12,251 645 14/01 Bank C / 14,500 /
14/01 Cash C 14,500 / / 18/01 K. Gyasi 17,993 / 947
15/01 M. Bako / 7,495 394 15/01 Bank C / 16,500 /
15/01 Cash C 16,500 / / 19/01 GeeMerc 26,000 / /
18/01 Sales / 9,194 484 20/01 Purchases / 8,689 /
19/01 H. Love 12,701 / 669 22/01 Bank C / 33,860 /
20/01 Sales / 17,346 913 25/01 K. Gyasi 8,940 / /
20/01 Akua C. 4,680 / 320 30/01 Salaries 3,820 / /
22/01 Ugly H / 5,690 / 30/01 Utilities / 860 /
22/01 Cash C 33,860 / / / / /
22/01 Sales / 11,380 / / / /
25/01 M. Bako 7,889 / / / / /
30/01 Ugly H 3,240 / / / / /
31/10 Bals c/d 37,656 5,072 /
134,869 80,381 4,215 134,869 80,381 1987
01/02 Bals b/d 37,656 5,072
Capital account
20 ‘5 GH¢ 20 ‘5 GH¢
31 Jan Balance c/fwd 19,850 1 Jan Cash 10,000
1 Jan Stock 9,850
19,850 19,850
01 Feb Balance b/fwd 19,850
Motor Van account

20 ‘5 GH¢ 20 ‘5 GH¢
01 Jan Cash 6,000 01 Jan Bank 3,000
31 Jan Balance c/fwd 3,000
6,000 6,000

Stock account
20 ‘5 GH¢ 20 ‘5 GH¢
01 Jan Cash 9,850
Purchases account
20 ‘5 GH¢ 20 ‘5 GH¢
03 Jan GeeMerchant Ltd 52,000 31 Mar Trading account 98,569
18 Jan K. Gyasi 37,880
20 Jan Cash 8,689
98,569 98,569
Office Equipment account

20 ‘5 GH¢ 20 ‘5 GH¢
04 Jan Bank 2,500
Loan account (Stabic Bank)

20 ‘5 GH¢ 20 ‘5 GH¢
02 Jan Cash 20,000
Sales account
20 ‘5 GH¢ 20 ‘5 GH¢
31 Mar Trading 140,001 07 Jan Cash 8,500
09 Jan Tarzan 6,700
12 Jan J. Brown (14,500 x 94%) 13,630
12 Jan Cash 8,974
13 Jan Akua Cinthia 5,000
14 Jan Cash 12,896
15 Jan M. Bako (16,785 x 94%) 15,778
18 Jan Cash 9,678
19 Jan H. Love (18,964 x 94%) 17,826
20 Jan Cash 18,259
22 Jan Ugly Head 11,380
25 Jan Cash 11,380
140,001 140,001
Rent account
20 ‘5 GH¢ 20 ‘5 GH¢
02 Jan Bank 7,000 31 Jan P&L account 58
7,000 7,000

Furniture and Fittings account

20 ‘5 GH¢ 20 ‘5 GH¢
29 Mar Cash 3,000
Loan interest
20 ‘5 GH¢
31 Jan P&L account (20,000 x 12%)1/12 200
Tarzan account
20 ‘5 GH¢ 20 ‘5 GH¢
09 Jan Sales 6,700 09 Jan Bank 5,025
6,700 6,700
1 Mar Balance b/f 1,675
James Brown account

20 ‘5 GH¢ 20 ‘5 GH¢
12 Jan Discount 341
31 Jan Balance c/f 6,815
13,630 13,630
1 Apr Balance c/f 6,815
Malik Baako Venture account

20 ‘5 GH¢ 20 ‘5 GH¢
12 Jan Discount 394
25 Jan Bank 7,889
15,778 15,778
Honey Love account

20 ‘5 GH¢ 20 ‘5 GH¢
12 Jan Discount 669
31 Jan Balance c/f 4,456
17,826 17,826
1 Feb Balance c/f 4,456

Ugly Head account

20 ‘5 GH¢ 20 ‘5 GH¢
22 Jan Sales 11,380 09 Jan Cash 5,690
30 Jan Bank 3,240
11,380 11,380
01 Feb Balance b/f 2,450
Akua Cynthia account

20 ‘5 GH¢ 20 ‘5 GH¢
20 Jan Discount 320
5,000 5,000
GeeMerchant Ltd’s account

20 ‘5 GH¢ 20 ‘5 GH¢
03 Jan Bank 24,960 03 Jan Purchases 52,000
03 Jan Discount 1,040
31 Jan Bank 26,000
52,000 52,000
K. Gyasi account
20 ‘5 GH¢ 20 ‘5 GH¢
18 Jan Bank 17,993 18 Jan Purchases 37,880
18 Jan Discount 947
25 Jan Bank 8,940
37,880 37,880
Stationery account
20 ‘5 GH¢ 20 ‘5 GH¢
01 Jan Cash 900
Salaries account
20 ‘5 GH¢ 20 ‘5 GH¢
01 Jan Cash 3,820
Utilities account
20 ‘5 GH¢ 20 ‘5 GH¢
01 Jan Cash 860

(b) Trial balance at 31 January 20 ‘5

GH¢ GH¢
Cash in hand 5,072
Bank 37,656
Capital 19,850
Furniture and Fittings 3,000
Motor Van 6,000
Office Equipment 2,500
Purchases 98,569
Sales 140,001
Loan (Stanbic Bank) 20,000
Salaries 3,820
Rent 7,000
Debtors:
Tarzan 1,675
James Brown 6,815
Honey Love 4,456
Ugly Head 2,450
Creditors – K. Gyasi 10,000
Toyota Company Ltd 3,000
Utilities 860
Stock 9,850
Stationery 900
Discounts 4,215 1,987
194,838 194,838
(c) Trading and profit and loss account for the three months ended
31 January 20 ‘5
GH¢ GH¢
Sales 140,001
Purchases & Stock (98,569 + 9,850) 108,419
Less Closing stock (5,375)
(103,044)
Gross profit 36,957
Discounts 4,215 1,987
Expenses
Salaries 3,820
Rent 58
Loan interest 200
Office Sundry (900 + 860) 1,760
(10,053)
Net profit 28,891

Balance sheet at 31 January 20 ‘5

GH¢ GH¢
Fixed assets:
Motor van 6,000
Office Equipment 3,000
Furniture & Fittings 2,500
Current assets:
Stock 5,375
Debtors 15,396
Rent Prepaid 6,942
Cash 5,072
Bank 37,656
70,441
Creditors due within one year
Trade creditors (13,000)
Loan Interest accrued (200)
Net current assets 57,241
Creditors due after one year
Loan – Stanbic Bank (20,000)
48,741
Capital account
Capital introduced 1 January 20 ‘5 19,850
Profit for the period 28,891
48,741

Answer 5: GEEPROPERTIES RENTALS & FINANCIALS

Debtors’ account
$ $
Balance b/f 112,500 Cash from debtors 225,000
Sales 251,100 Cash – Sulemana 225
Bad debts A/c (recovered) 675 Bad debts expense
Sulemana (provision) 2,025
Banderas (written off) 1,350
Cash (Azumah) 675
Balance c/f 135,000
365,275 364,275
Balance b/f 135,000
Provision for doubtful debts account

$ $
Specific provision recovered 225 Balance b/f:
Specific provision written off 2,025 Specific 2,250
Balance c/f General 1,102
Specific 1,800 Increase in provision 2,030
General
1% x ($135,000 – 1,800) 1,332
5,382 5,382
Balance b/f 3,132
Bad debts expense account

$ $
Debtors A/c (A. Banderas) 1,350 Specific provision recovered 225
Increase in provision for Bad debts recovered 675
doubtful debts 2,030 P&L account 2,480
3,380 3,380
Answer 6: JENNIFER AGUELIYAH BOUTIQUE

(a) Debtors’ ledger
S Mahama
€ €
Balance b/f 12,540 Bad debts written off 6,600
Sales 330 Specific provision
gone bad 6,270
12,870 12,870

J Baafi
€ €
Balance b/f 12,811 Cash 12,540
Sales 11,616 Balance c/f 11,887
24,427 24,427
Balance b/f 11,887
Miklin Holidays
€ €
Sales 10,989 Balance c/f 10,989
23,806 23,806
Balance b/f 10,989
(b) Creditors’ ledger

M Normenyo
€ €
Cash 5,940 Balance b/f 12,058
Balance c/f 12,388 Purchases 6,270
18,328 18,328
Balance b/f 12,388
James Nkomode
€ €
Cash 330 Balance b/f 12,217
16,738 16,738
Balance b/f 16,408
Obraku Sarpong
€ €
19,622 19,622
Balance b/f 14,190
(b) Sales account

€ €
Debtors’ ledger control
Trading account 22,935 account 22,935

Purchases account
€ €
Creditors’ ledger control
account 18,183 Trading account 18,183
(c) Debtors’ ledger control account

€ €
Sales 22,935 Specific provision
gone bad 6,270
Bad debts expense
Written off – Mahama 6,600
Balance c/f 22,876
61,103 61,103
Balance b/f 22,876
Creditors’ ledger control account

€ €
54,688 54,688
Balance b/f 42,986
(d) Provision for doubtful debts account
€ €
Specific provision Balance b/f – Specific 6,270
gone bad 6,270 Increase in provision 271
Balance c/f 271
6,541 6,541
Balance b/f 271
Bad debts expense account
€ €
Debtors’ ledger control a/c P&L account 6,871
(written off – Mahama) 6,600
Provision account 271
6,871 6,871
(e) List of debtors List of creditors

R Baafi 11,887 M Normenyo 12,388
Miklin Holidays 10,989 James Nkomode 16,408
22,876 42,986

Answer 8: TIANSHI BRIGHT BUSINESS VENTURES

Trading and profit and loss account for eighteen months ended 31/12/20‘8
¥ ¥
Sales (W1) 129,998
Purchases (W2) 56,232
Closing stock (7,838) (48,394)
Gross profit 81,604
2
Light and heat ¥ (5,077 + ( /3 x 627)) 5,495
Postage and stationery 2,607
1
Rent and rates ¥ (10,175 – ( /4 x 6,600)) 8,525
Motor expenses 5,055
Interest on bank loan 2,475
Loss on sale of Van 3,575
Depreciation
Motor van (¥ (22,000 – 3,850) ÷ 3 x 9/12) 4,538
15
Office equipment (¥7,040 ÷ 5 x /12) 1,760 (34,030)
Net profit 47,574
Balance sheet at 31 December 20 ‘8

Cost Depn NBV
¥ ¥ ¥
Fixed assets:
Motor van 22,000 4,538 17,462
Office equipment 7,040 1,760 5,280
22,742
Current assets:
Stock 7,838
Debtors 1,331
Prepayments (¼ x ¥6,600) 1,650
Cash at bank 38,704
Cash in hand 3,833
53,356
Less Creditors due within one year
Creditors 3,080
Accruals (2/3 x ¥627) 418
Interest on bank loan 2,475
(5,973) 47,383
70,125
Bank loan (24,750)
45,375

Capital 27,500
Profit for eighteen months 47,575
75,075
45,375
WORKINGS
(1) Total sales
¥ ¥
Sales 129,998 Cash receipts 116,875
Credit receipts 10,753
Contra 1,040
Balance c/d ¥ (2,370-1,040) 1,330
129,998 129,998
(2) Total purchases

¥ ¥
Cash payments 11,880
Credit payments 40,233
Contra 1,040
Balance c/d ¥ (4,119–1,040) 3,079 Purchases (bal fig) 56,232
56,232 56,232
(3) Van - disposal

¥ ¥
Cost 8,250 Depreciation (immaterial) -
Sale 4,675
Loss on sale 3,575
8,250 8,250

Answer 13: CHUCKER AND ZOOLOO CAR DEALERS

Statement of adjustments to profit for the year ended 31 March 20 ‘9
+ - Total
R R R
Profit per draft accounts 90,000
Discounts (1) – no change
Bad debt recovered (2) 3,000
Insurance settlement (3) 140,000
Transfer of Ford from purchases:
To fixed assets (4) 18,000
Depreciation of Ford (4) 4,500
Omitted from purchases and stock (5)
- no change
Advertising prepaid (6) 50,000
Insurance prepaid (7) 6,000
217,000 (4,500) 212,500
Adjusted profit 302,500

Answer 17: PANGOLA STAR TILAPIA SHOPS

(a) Statement of affairs at 31 December 20 ‘6
R R
Shop fittings 5,000
Van 4,000
Stock 36,270
Debtors 19,600
Less Provision 5% (980)
18,620
Bank balance 4,790
Cash 210
68,890
Less Creditors 15,080
Sundry expenses 370
Rates owing (three months) 600 (16,050)
Opening capital 52,840
(b) Trading, profit and loss account for the year ended 31/12/20 ‘7
R R
Sales R(164,190 + 34,250 (W1)) 198,440
Opening stock 36,270
Purchases (W2) 165,770
202,040
Closing stock (46,510)
(155,530)
Gross profit 42,910
Expenses:
Van expenses R(1,680 + 600) 2,280
Advertising R(2,190 + 840) 3,030
Sundry R(4,460 + 1,190 – 370 + 410) 5,690
Rent R(2,250 + 750 (3 months arrears)) 3,000
Rates (R3,600 – 600(20 ‘6 arrears) – 600) 2,400
Loss on sale of van 1,000
Depreciation:
Van 2.000
Fittings 500
Bad debts R(420 + 30 (W3)) 450
(35,590)


Fixed assets: R R R
Fittings 5,000 500 4,500
Van 10,000 2,000 8,000
12,500
Current assets
Stock 46,510
Debtors R(20,200 – 1,010) 19,190
Rate prepaid 600
Cash 120
66,420
Creditors due in one year:
Bank overdraft 16,740
Accruals R(750 + 410) 1,16 0 (33,330) 33,090
Net assets 45,590
Capital account:
At 1 January 20 ‘9 52,840
Add New Capital (Private life Insurance) 1,420
Profit for the year 7,320
61,580
Less Drawings (W4) 15,990
45,590
WORKINGS
(1) Trade debtors
R R
Balance b/d 19,600 Cash 23,170
Sales (bal fig) 34,250 Bank 10,060
Bad debts 420
Balance c/d 20,200
53,850 53,850
(2) Trade creditors

R R
Bank 165,940 Balance b/d 15,080
Cash 1,040 Goods for own use 1,560
Balance c/d 15,430 Purchases 165,770
182,410 182,410

(3) Provision for doubtful debts

R R
Balance b/d 980
Balance b/d 1,010 P&L account 30
1,010 1,010
(4) Drawings
R
Bank 920
Cash 13,510
Goods 1,560
15,990
Answer 22: TRIPLE STAR COMPANY LTD CONTROL ACCOUNTS

Amended debtors’ ledger control account for the year ended 30/09/20 ‘4
(Northern region area)
R R R
Debtors at 1 Oct 20 ‘3 94,202 Cash received 632,429
Sales invoices 640,297 Less Relating to
Transfer to creditors’ ledger 2,010 Sep 20 ‘3 (1,685)
Bad debt recovered 2,045 630,744
Discounts allowed 5,840
Sales returns R(1,950 +
420 + 14,260 - 1,590 ) 15,040
Bad debts 2,500
Transfer to directors’
emoluments 540
Debtors at 30 Sep 20 ‘4 83,890
738,554 738,554
Amended total of the list of debtors’ ledger balances

R
Total as listed from the ledger 83,310
Less Transfer to directors’ emoluments (540)
Add Credit balance listed in error 1,120
83,890

Answer 28: MANDELA AMEWU ICE-CREAM VENDORS

Trading and profit and loss account for the year ended 31 December 20 ‘6
£ £
Sales (W10) 13,455
Less Cost of sales – Purchases (W8) (9,000)
Gross profit 4,455
Add Sundry income:
Rebate received 90
Discount received (W8) 223
313
4,768
Less Expenses:
Wages 615
Van expenses (450 + 40) 490
Laundry 156
Loss on disposal of van (W1) 150
Sundry expenses 446
Depreciation:
Motor Van (W1) 675
Equipment (W2) 53
Accountancy (W4) 96
Garage:
Rates (W3) 53
Rent (W5) 80
(2,813)
Net profit 1,955

Cost Depn
Fixed Assets: £ £ £
Equipment (W2) 525 473 52
Motor Van (W1) 2,700 675 2,025
3,225 1,148 2,077
Current assets:
Prepayment 21
Bank 885
906
Less Creditors due in one year (96 + 9) (105)
801
2,878
Capital account:

Opening capital 2,481

Add Net profit 1,955
Less Drawings (W9) (1,558)
2,878
WORKINGS
(1) Motor Van Account
£ £
Balance b/f 2,400 Motor Van disposal 2,400
Bank 1,650
Van disposal (trade-in) 1,050 Balance c/f 2,700
5,100 5,100
Accumulated depreciation – Motor Van

£ £
Motor Van – disposal 1,200 Balance b/f 1,200
Current Provision 675 P&L account 675
1,875 1,875
Motor Van – Disposal

£ £
Motor Van account 2,400 Motor Van – Trade-in 1,050
Accumulated depreciation 1,200
P&L account (over-valued) 150
2,400 2,400
(2) Equipment Account

£ £
Balance b/f 525 Balance c/f 525
Equipment – Accumulated depreciation

£ £
Balance c/f 473 Balance b/f 420
P&L account 53
473 473
(3) Rates
£ £
Balance b/fwd 14 P&L account 53
Bank 60 Advaced payment 21
74 74

(4) Accountancy
£ £
Bank 90 Balance b/fwd 90
Oustanding bill 96 P&L account 96
186 186
(5) Garage rent

£ £
Bank 78 Balace b/fwd 8
Outstanding bill 9 P&L account 79
87 87
(6) Bank
£ £
Balance b/f 1,260 Purchases 8,025
Cash 11,361 Wages 420
Rebate received 90 Van expenses 450
Laundry 156
Garage: Rent 78
Rate 60
Accountancy 90
New Motor Van 1,650
Sundry expenses 417
Drawings 480
Balance c/f 885
12,711 12,711
(7) Cash
£ £
Total sales 13,455 Purchases 752
Wages 195
Van expenses 40
Sundry expenses 29
Bank 11,361
Drawings (bal fig) 1,078
13,455 13,455
(8) Purchases
£ £
Bank 8,025 Trading account 9,000
Discount received 223
Cash (bal fig) 752
9,000 9,000

Total purchases – Rebate (1%) £90

Total purchases (90/0.01) £9,000
Discount received £8,910 x 2.5% £223
(9) Drawings
£ £
Bank 480 Capital account 1,558
Cash 1,078
1,558 1,558
(10) Sales £
Purchases £9,000 x 150% 13,500
Less unsalable stock destroyed by power failure 45
13,455
Answer 32: KANGAROO PLC, CARRIER BAGS MANUFACTURER

(a) Manufacturing, trading and profit and loss account for the year to
31 December 20 ‘1
Cost/U($) Unit $ $
Direct materials (W1) 44,800
Direct labour 33,600
Prime cost 78,400
Factory overheads (W2) 39,200
117,600
Factory cost:
Work in progress
Opening 20,160
Closing 25,760 (5,600)
Factory cost of actual production 11.2 10,000 112,000
Sales 16.8 12,000 201,600
Opening stock of finished goods 11.2 3,500 39,200
Transfers from factory 11.2 10,000 112,000
13,500 151,200
Closing stock of finished goods 11.2 (1,500) (16,800)
12,000 (134,400)
Gross profit 67,200
Administrative overheads (20,160)
Net profit 47,040

WORKINGS
(1) Direct materials $ $
Opening stock of Raw materials 3,920
Purchases 44,240 48,160
Closing stock (5,600)
42,560
Carriage inwards 2,240
44,800
(2) Factory Overheads
Light, heat and power 7,336
Plant: Depreciation 6,720
Repairs 4,480
Supervisory wages 2,744
Factory amortization 2,240
39,200
(b) Manufacturing, Trading & P & L for year to 31 December 20 ‘1

U/Cost Units $ $
Factory cost of actual production 11.20 10,000 112,000
Factory profit (25%) 2.80 28,000
Transfer to warehouse 14.00 140,000
Sales 16.80 12,000 201,600
Opening stock of finished goods 14.00 3,500 49,000
Transfers from factory 14.00 10,000 140,000
13,500 189,000
Closing stock of finished goods 14.00 (1,500) (21,000)
12,000 (168,000)
Warehouse profit 33,600
Factory profit 28,000
Provision for unrealised profit (no longer required) 5,600
Gross profit 67,200
Administrative overheads (20,160)
Net profit 47,040
WORKING
Provision for unrealized profit
$ $
P&L account 5,600 Provision b/f
Provision c/f $49,000 x 25/125 9,800
$21,000 x 25/125 4,200
9,800 9,800

Answer 35: ATONGO PIONEER NAILS MANUFACTURERS

(a) Manufacturing, trading, P & L for the year ended 31 March 20 ‘8
R R
Opening stock of raw material 13,125
Purchases 231,250
Carrier inwards 2,188 246,563
Less Closing stock of raw material (15,000)
Material consumed 231,563
Royalties 4,375
348,438
Factory overhead: Lighting and heating 3,906
Power 8,563
Insurance 2,188
Depreciation of plant 17,500
Indirect labour 90,625
Factory general expenses 19,375
496,845
Add work in progress 1 April 20 ‘8 8,437
505,282
Less work in progress 31 March 20 ‘8 (9,375)
Factory cost of finished production 495,907
Factory profit 20% 99,182
Transfers to warehouse 595,089
Sales 625,000
Less Cost of sales:
Opening stock of finished goods
R24,313 x 120/100 29,175
Product cost of goods completed 595,089
624,264
Less Closing stock of finished goods
R25,000 x 120/100 (30,000) (594,264)
Warehouse profit 30,736
Factory profit 99,182
New provision for unrealized Profit (W) (137)
Gross profit 129,781

Administrative expenses :
Salaries 27,500
Insurance 437
Light and heating 781
General expenses 8,375
Depreciation – computer 1,250 (39,593)
Selling and distribution expenses:
Sales Commissions 7,188
Salesmen’s salaries 18,750
Carriage outwards 3,687 (29,625)
Finance charges:
Discounts allowed 3,000
Bank charges 1,437 (4,437)
(73,655)
56,126
WORKING
Provision for Unrealised Profit account
R R
Balance c/f Balance b/f
R25,000 x 20% 5,000 R24,313 x 20% 4,863
P&L account 137
5,000 5,000
Balance b/f 5,000
(b) Balance sheet at 31 March 20 ‘8

Cost Depn Net Value
R R R
Fixed assets
Plant and equipment 175,000 48,750 126,250
Computers 12,500 6,250 6,250
187,500 55,000 132,500
Current assets:
Stocks (15,000+30,000–5,000+9,375) 49,375
Debtors 88,938
Bank 35,500
Cash 938
174,751
Creditors due in one year:
Creditors (78,125)
Net current assets 96,626
229,126

Capital at 1 April 20 ‘7 185,500

Net profit for the period 56,126
229,126
Answer 38: NORA NUSINYO FURNITURE COMPANY

Manufacturing, trading, profit and loss account for year end 30 June 20‘9
Per unit Cost
$ $ $
Direct materials (W1) 189,820
Direct expenses:
Equipment on hire 12,179
Prime cost 10,750 units @ $31.80 341,850
Factory overhead:
Supervision 23,564
Property ( 58,608 x 70%) 41,026
Factory Cleaning 6,466
Depreciation of factory plant 12,570
7.78 83,626
Factory cost of 10,750 units 39.58 425,476
Less Stock of work-in-progress

1,500 @ 1/2 x $39.58 (29,685)
Factory cost of 10,000u transferred 39.58 395,791
Sales 9,000 units @ $55 9,000 55.00 495,000

Transfers from manufacturing a/c 10,000 395,791
Less 1,000 units stock (1,000) (39,580)
9,000 39.58 (356,211)
Gross profit ($15.42 per unit) 138,789
Loss on damaged materials (W3) 5,036

Administrative costs (W4) 41,238
Selling costs (W5) 60,237
(106,511)

WORKINGS
(1) Direct materials
$ $
Materials 200,868
Less Damaged materials (7,393)
193,475
Less stock (15,148)
178,327
Cartons 9,088
Less Stock (973)
8,115
186,442
Instructions 3,727
Less Stock (349)
3,378
189,820
(2) Units of Tables Produced
Units of tables sold 9,000
In stock 1,000
10,000
Work in progress 1/2 x 1,500 750
10,750
(3) Loss on damaged materials
$
Materials 7,393
Less Scrap sales (2,357)
5,036
(4) Administrative costs
$
Property costs (58,608 x 15%) 8,791
Salary costs 24,646
Office Sundry Expenses $(10,268 – 3,727) 6,541
Depreciation of office equipment 1,260
41,238
(5) Selling costs
$
Property costs (58,608 x 15%) 8,791
Salary costs 29,321
Delivery 12,289
Advertising 3,896
Royalties (495,000 x 1.2%) 5,940
60,237

Answer 40: AKASANOMA VISION LTD MANUFACTURERS

Directors’ views on incentory valuation
Georgio. Prudent approach is necessary, also the concept of accruals is very
important. Not acceptable to value at prime cost. Valuing inventory at low
figures will not of itself help cash flow although, as profit will be reduced, the
outgoings for bonuses, taxation and dividends may also be reduced.
Kafui. Not acceptable – cannot include selling costs or costs not related to
production.
Suzzy. Budgeted cost not acceptable.
Opinion
Inventory should be valued at lower of cost and net realisable value in
accordance with the Interational Accounting Standard 2. According to the
standard, The cost of inventories shall comprise all costs of purchase, costs of
conversion and other costs incurred in bringing the inventories to their present
location and condition.
The costs of purchase of inventories, as per the standard, comprise the

purchase price, import duties and other taxes (other than those subsequently
recoverable by the entity from the taxing authorities), and transport, handling
and other costs directly attributable to the acquisition of finished goods,
materials and services. The conversion costs on the other hand, include costs
directly related to the units of production, such as direct labour and a
systematic allocation of fixed and variable production overheads that are
incurred in converting materials into finished goods. Fixed production
overheads are those indirect costs of production that remain relatively constant
regardless of the volume of production, such as depreciation and maintenance
of factory buildings and equipment, and the cost of factory management and
administration. The variable production overheads are those indirect costs of
production that vary in proportion with the volume of production. Other costs
are included in the cost of inventories only to the extent that they are incurred
in bringing the inventories to their present location and acceptable condition.
In the case of Akasanoma Vision, the cost of production refers to the cost of
all production functions which (including production planning) amounts to
£55 per radio.

This is analysed as follows:

£
Direct labour and material 38
Bought-in components 5
Factory overheads 8
Production planning (£4,000 ÷ 1,000) 4
55
The cost of inventories may not be recoverable if those inventories are

damaged, become wholly or partially obsolete, or if their selling prices have
declined. The cost of inventories may also not be recoverable if the estimated
costs of completion or the estimated costs to be incurred to make the sale have
increased. This principle is consistent with the prudence concept, thus the
view that assets should not be carried in excess of amounts expected to be
realised from their sale or use.
Estimates of net realisable value are based on the most reliable evidence
available at the time the estimates are made. The estimates must take into
consideration fluctuations of price or cost directly relating to events occurring
after the end of the period to the extent that such events confirm conditions
existing at the end of the period. It also takes into consideration the purpose
for which the inventory is held.
Net realisable value therefore means the selling price to be obtained on sale in
the normal course of business less any costs inevitably incurred on sale. In the
case of Akatanoma Vision, the selling price of the set have been reduced due
to intensed competition to £60. This amount is however not achievable
without payment of Salesmen commission and also Royalties. The Net
realisable value is therefore is £60 less royalty of £2 and commission of £4
equalling £54. The 1,000 inventory of stereo sets therefore should be valued at
£54 as it is less than the cost of $55.

Answer 43: MESSRS GEORGE & CYRIL AKPANAWAY CONSULTS

Trading and profit and loss account for the year ended 31 March 20 ‘4
GH¢ GH¢
Sales 91,699
Opening stock 8,550
Purchases 61,038
69,588
Closing stock (9,735) (59,853)
31,846
Expenses:
Motor vehicle running costs 3,515
General trade expenses 4,736
Rates and insurance 2,290
Depreciation:
Freehold 242
Motor vehicles 748
Reduction in provision for doubtful debts (60) (21,304)
Net profit 10,542
Appropriation statement
George Akpanaway (3) 6,325
Cyril Akpanaway (2) 4,217
10.542
Balance sheet at 31 March 20 ‘4

Fixed assets: GH¢ GH¢ GH¢
Freehold Premises GH¢ (12,113 – 242) 11,871
Motor vehicles GH¢ (2,990 – 748) 2,242
14,113
Current assets:
Stock 9,735
Debtors 9,405
Less Provision (178) 9,227
Cash at bank and in hand 1,858
20,820
Creditors due in one year (8,716) 12,104
26,217
Partners’ capital accounts (W):
26,217

WORKING
Partners’ capital accounts
George Cyril George Cyril
GH¢ GH¢ GH¢ GH¢
Drawings 1,900 1,425 Balance b/d 11,875 7,125
Balance c/d 16,300 9,917 Profit 6,325 4,217
18,200 11,342 18,200 11,342
Balance b/d 16,749 10,216
Answer 48: WAWA AND MAHOGANEY FURNITURE PRODUCERS

(a) Statement of amended profit and appropriation of profit for the
year ended 30 September 20 ‘7
- +
£ £
Profit as per P & L (Wawa 12,360; Mahoganey 6,180) 18,540
One year’s depreciation on Mahoganey’s car 6,000 @25% 1,500
Mahoganey’s drawings entered as salary 10,000
Bank charges 80
1
Mark-up on goods in customers’ hands 1,800 @ 33 /3% 600
Transposition of work in progress (15,730 – 12,940) x 2 5,580
Decrease in depreciation of plant (15,000 – 4,600)
= 10,400 @20% (W1) 2,080
Depreciation underprovided on plant sold (W1) 1,400
Bad debt provision 1,350
Sales returns 1,700
Legal and accountancy charges 1,240
6,520 37,550
(6,520)
Amended profit 31,030
Appropriation Wawa Mahoganey Total

£ £ £
Partners’ salary - 10,000 10,000
Interest on capital (W2) 6,080 1,600 7,680
Balance 2 : 1 8,900 4,450 13,350
14,980 16,050 31,030

(b) Elimination of suspense account

Suspense account
£ £
Substitution of balance per cash Balance per list of balances 6,160
book for balance per bank Drawings not debited
statement (4,330 + 880) 5,210 £(2,460 + 1,820) 4,280
Transposition of work in Sales returns 2 x 850 1,700
progress (15,730–12,940) x 2 5,580
Bad debt provision–Opening
balance ignored 1,350
12,140 12,140
(c) Balance sheet at 30 September 20 ‘7

Cost Depn
Fixed assets: £ £ £
Plant and equipment 85,100 38,020 47,080
Motor vehicles 36,000 16,500 19,500
121,100 54,520 66,580
Current assets:
Stock £(28,640 + 1,200) 29,840
Debtors £(30,390 – 1,800) 28,590
74,160
Less Creditors due in one year:
Bank overdraft 960
Creditors £(37,790 + 1,240) 39,030 (39,990)
34,170
100,750
Financed by:
Partners’ accounts Wawa Mahogany
£ £ £
Capital 76,000 20,000 96,000
Current 1,220 3,530 4,750
77,220 23,530 100,750
WORKINGS
(1) Plant and equipment £ £
Cost per list of balances 95,500
Add Proceeds of sales wrongly deducted 4,600
100,100
Less cost of disposal (15,000)
85,100

Depreciation per list of balances 49,100

Depreciation of plant sold (20% of 15,000 for 20 ‘3/04,
20 ‘4/05 and 20 ‘5/06, ie 3 x £3,000) (9,000)
40,100
Depreciation adjustment 20% on (15,000 – 4,600) (2,080)
38,020
Disposal:
Cost 15,000
Depreciation 9,000
Proceeds of sale 4,600 (13,600)
Depreciation underprovided 1,400
(2) Adjusted capital accounts

Wawa Mahoganey
£ £
Per list of balances 76,000 14,000
Car 6,000
76,000 20,000
Interest on Capital @ 8% 6,080 1,600
(3) Wawa’s adjusted account £

Stock value of garden furniture at 30/09/20 ‘6 10% of 3,600 (360)
Sold for 2,460
Profit included in the accounts 2,100
Amount already credited to Wawa 2/3 x 2,100 (1,400)
Adjustment required in favour of Wawa 700
(4) Partners’ current accounts

Wawa Mahoganey Wawa Mahoganey
£ £ £ £
Cash account 12,000 10,000 P&L a/c 14,980 16,050
Suspense account 2,460 1,820 Mahoganey’s
Wawa’s account (W3) 700 account (W3) 700
Balance c/f 1,220 3,530
15,680 16,050 15,680 16,050

Answer 52: OLUSEGUN INTERNATIONAL PLC, CATERING

Ordinary share account
$ $
Balance b/f 100,000
Cash 100,000
Balance c/f 240,000 Share premium a/c (bonus issue) 40,000
240,000 240,000
Balance b/f 240,000
Preference share account

$ $
Balance b/f 50,000
Cash 50,000
Balance c/f 110,000 Cash (rights issue) 10,000
110,000 110,000
Share premium account

$ $
Ordinary share account 40,000 Cash (ordinary shares) 50,000
Balance c/f 12,500 Cash (preference share) 2,500
52,500 52,500
Balance b/f 12,500
Balance sheet extracts at 31 December 20 ‘8

$
Capital and reserves:
Authorised
500,000 $1 ordinary shares 500,000
200,000 $1 6% preference shares 200,000
700,000
Allotted, called-up and fully paid:
240,000 $1 ordinary shares 240,000
110,000 $1 preference shares 110,000
350,000
Share premium account 12,500
362,500

Answer 59: AMAZING FREDDY’S FOOD DISTRIBUTION

Profit and loss account for the year ended 31 March 20 ‘1
Note £000
Turnover 1 4,137
Cost of sales (W1) (2,980)
Gross profit 1,157
Distribution costs (W1) (446)
Administration expenses (W1) (343)
Other operating income (W2) 46
Operating profit 2 414
Interest payable and similar charges £(15 + 17) (32)
Profit on ordinary activities before taxation 382
Taxation of profit on ordinary activities 3 (97)
Profit on ordinary activities after taxation 285
Dividends 4 (50)
Retained profit for the year 235
Statement of movement on reserves
Profit and loss account at 1 April 20 ‘0 736
Retained for the year 235
At 31 March 20 ‘1 971
Notes to the profit and loss account for the year ended 31 March 20 ‘1
(1) Accounting policies
(a) Turnover
Turnover represents sales to third parties and is stated net of
VAT, sales returns and allowances.
(b) Depreciation
Depreciation is provided on all fixed assets and calculated at rates
appropriate to write down the assets over their useful economic
lives as follows.
Freehold property 40 years
Plant and machinery 4 years
Furniture and fittings 8 years
(c) Stocks
Stocks are valued at lower of cost and net realizable value in
accardance with the IAS2.

(d) Grants
Revenue grants are credited to the profit and loss account in the
same period as the expenditure to which they relate. Where the
expenditure is to be incurred over a number of years, the grants
are credited to deferred income and amortised to match the
expenditure as it arises, as per the IAS20.
(2) Operating profit

Operating profit is stated after charging. £000
Depreciation 414
And after crediting
Rental income 35
Grants released to profit and loss account 11
(3) Taxation of profit on ordinary activities

£000
A corporation tax at 33% based on profits for the year 106
Over-provision in previous year (9)
97
(4) Dividends £000

Ordinary
Paid 20
Proposed (1,000,000 x 0.03) 30
50
WORKINGS
(1) Classification of costs
Cost of Distribution Administration
Sales Costs expenses
£000 £000 £000
Per question 193 240
Depreciation:
Freehold £(1,794 ÷ 40) 45
Plant £(955 + 55) ÷ 4 253
Furniture £(329 ÷ 8) 41
Purchases 3,058
Opening stock 141
Closing stock (219)
Bad debt 17
2,980 446 343

(2) Other operating income

£000
Grant received 55 ÷ 5 11
Rent received 35
46
Tutorial notes
(1) Assumptions made
(i) Depreciation of freehold property is charged to administrative
expenses.
(ii) Depreciation of plant and machinery (presumably installed in the
warehouse) is included under distribution costs. This seems appropriate
for a wholesale retailer.
(2) The basis of accounting could have been included under accounting
policies.

Answer 64: FUNDAMENTAL ACCOUNTING CONCEPTS

IAS 1 defines accounting concept in general as “the broad basic assumptions
which underlie the periodic financial accounts of business enterprises” and
names four (4) such concepts which are generally regarded as acceptable.
(a) Going Concern
This is the presumption that a business will continue to trade for the
foreseeable future, that is as opposed to going into liquidation. If a
business were on the verge of collapse, it will be necessary to write
down the assets to an amount which they would be likely to realise if
sold immediately. The going concern concept assumes that a healthy
business will not need a forced sales of assets to pay its debts as they
fall due, and therefore that, for example, fixed assets can be valued at
cost less depreciation, and stock at the lower of cost and net realisable
value. For this purpose, balances are carried down from one year to the
other.
(b) Prudence
This concept suggests that revenue and profits are taken into accounts
only when one can be sure of their having been earned. The usual
criterion for this is to say that only realised profits should be taken into
account, that is sales and other income which have either already
generated cash or are reasonably certain to do so in the near future.
For example, credit should not be taken for rent receivable from an
unreliable tenant unless the landlord is sure of receiving such rent. It is
also imprudent to overstate assets, eg by failing to charge adequate
depreciation or by valuing stock above cost. It is prudent to state the
effect of any pending law suit against the firm, which might have
financial burdens on the firm but very imprudent to realise any outcome
of law suit that the firm might have against any persons.
(c) Accruals
This concept, also known as the “marching” concept, requires that
revenue and expenditure are recognised in the accounts as they are
earned and/or incurred, but not only when they are received and/or paid.
Cash receipts and payments do not necessarily relate to the year or the
period in which they actually occurred; they may well relate to the
previous or following period. In such cases an adjustment needs to be
made to show in the profit and loss accounts the amount which does
relates to the period covered in the accounts. An electricity bill, for
example, may be received at the end of the year but may relate wholly

or partly to the year just ended. It should therefore be accrued and

charged to that year.
Depreciation of fixed assets is a further manifestation of this concept.

By depreciating fixed asset over its estimated economic useful life, its
cost is charged against the profits of the periods in which it is used, not
solely that of the period in which it was acquired.
(d) Consistency
This means that items in accounts should be treated according to the
same methods as in previous periods, so that the results of one period
can be meaningfully compared with those of previous and subsequent
periods. If, for example, there were to be a change in the method of
valuing stock or depreciating fixed assets, this would be likely to affect
any comparison which might be made between one balance sheet and
another. This is not to say that changes should never be made but that if
they are, the nature and reasons for the change and its responsible
financial effect should be disclosed in the notes to the accounts.
If no specific mention is made of these concepts in a set of accounts, it can

reasonably be assumed that they have all been complied with. Any departure
should be noted and explained in the notes to the accounts. The company’s
auditors may be expected to draw attention to the departure in their reports if
this were not complied with.

Answer 65: FREDDY’S CONNER

(a) Memorandum
To Directors of Freddy’s Conner Ltd
From Accountant
Date 1 November 20 ‘3
Subject Rent and rates
One of the fundamental accounting concepts as detailed in IAS 1 Presentation

of Financial Statements is the accruals concepts, which requires that revenue
and costs are accrued (i.e. recognized as they are earned or incurred but not as
money is received or paid). This implies that revenue and cost are matched
with one another so far as their relationship can be established or justifiably
assumed, and dealt with in the profit and loss account of the period to which
they relate.
The profit and loss account for the year ended 30 June 20 ‘3 should therefore
be charged with rent and rates incurred in respect of the period in order for it
to be set against revenues of that period. Any differences between the amount
charged and the amount paid should be dealt with through prepayment and
accruals. This would involved an adjustment to the accounts by increasing
profits by N12,300 (N16,400 x 9/12) (which is the amount attributable for the
coming accounting periods) and N15,000 (which is wholly for the next
accounting period) in respect of rates and rents respectively, and to increase
prepayment by N27,300 on the balance sheet.
(b)
IAS 1 Presentation of Financial Statements or IAS8 Accounting Policies,
Changes in Accounting Estimates and Errors state that the concept of
prudence is a broad basic assumption which underlies the periodic financial
accounts of business enterprises.
The concept is that revenue and profits are not anticipated, but are recognised
by inclusion in the profit and loss account only when realised in the form of
cash, or of other form of assets of which the ultimate cash realisation can be
assessed with reasonable certainly, and provision is made for all known
liabilities.
In the case of goods sent to customers on a sale or return basis, these may only
be included as sales for the period if, at the year-end, the customers have
agreed to buy them. If they have, the customers are debtors to the company
and the profit would be included in the profit and loss account of the period

assuming that the cash realisation of the proceeds could be foreseen with
reasonable certainly, i.e. that they will not prove to be bad.
On the other hand, if the customers had not by the year-end agreed to buy the
goods, the realisation of their sales price cannot be foreseen with reasonable
certainty and therefore they should be included in closing stocks at cost. In
this instance, consideration should also be given to whether any loss should be
foreseen if the goods with costumers have suffered any loss in value, eg
through deterioration or damage.
Under the latter assumption, the accounts would require adjusting to reverse
the entries relating to the sales of the goods, that is to reduce sales and debtors
by N40,000 and to increase closing stocks by the lower of their cost and net
realizable value.
(c)
Two fundamental accounting concepts as detailed in IAS 1 Presentation of
Financial Statement or IAS 8 Accounting Policies, Changes in Accounting
Estimates and Errors would be relevant in this situation, that is prudence and
going concern concerpts.
Firstly, it is necessary to assess, in the light of falling sales and the

introduction of the rival product, whether the stocks and work in progress are
fairly valued at cost, or whether a loss can be foreseen and immediately
provided for by valuing those goods at net realisable value, which may be
defined as the estimated proceeds of sale less all further costs to completion
and all cost to be incurred in marketing, selling and distributing.
Secondly, one must consider whether the valuation of stocks at net realizable
value is a valid basis of valuation, since it depends on the continued
operational existence of the company. For example, it requires the company
to complete the manufacture of work in progress and to sell it in an unforced
manner.
If the going concern assumption is valid, which assumes that the enterprise
will continue in operational existence for the foreseeable future, with no
intention or necessity to liquidate or curtail significantly the scale of operation,
then the stocks and other assets should be valued at their net worth to the
company at the balance sheet date which would assume immediate enforced
sale in their present condition.

Answer 67: ATONGO, THE SCIENCE STUDENT

Notes for meeting with Atongo, 14 January 20 ‘5
(a) Electricity
Charges in profit and loss accounts should reflect the amount due for the year
or period. Accruals (or matching) concept states that income and expenditure
should be recognised in accounts as they are earned or incurred respectively,
not necessarily as they are received or paid. This also involves prudence
concept which also states that not to accrue for electricity consumed is
overstating profits and understating liabilities, and thus painting too optimistic
a picture of the state of the business. The electricity bill for the year can
therefore be assumed, based on the previous average consumption. A
reasonable figure must be agreed upon and charged to the profit for the period
ending 20 ‘4 and previous one paid for inclusion in the appropriate accounting
period.
(b) Cash register

If fixed assets are written off all at once, this distorts the profit for that year
and gives a false impression of the results of the business. If they are not
depreciated at all, the value of the assets is overstated, as is profit.
Depreciation is principally an example of accruals/matching concept, thus
matching the cost of a fixed asset with the period(s) the entity expected to
benefit from the use of those assets. And also involves prudence concept, thus
failure to provide depreciation overstates assets as stated above, and in
particular allows extra drawings from higher profit figure. And this could in
the long run prejudice the solvency of the business. It is however important to
note that IAS 8, ensures that events are recorded in the accounts in accordance
with their materiality to the accounts. If the value of the cash register is very
significant in relation to the total value of the entity’s assets then it could be
recorded as assets. If, however, its value is very insignificant or immaterial
and would cost more in keeping it in the assets register with all the
depreciation complexities, then it could be written off as periodic cost.
(c) Outstanding sales orders

Atongo’s treatment seems reasonable at first sight. However, let him get away
with it this time and he will try it on with larger amounts and longer periods
next year. A firm cut-off date is important for the sake of accuracy, and also to
protect next year’s results, which could be distorted if the amount here is
material. This involves accruals, prudence and consistency concepts.
Consistency of treatment of like items year by year is important for the
purposes of comparison. It is important to note that the current transaction
occurred in the period of year 20 ‘5 so the sales cannot be recorded for 20 ‘4.

(d) Hotman’s New Shop

Prudence concept requires assets (stock in this case) not to be overvalued and
should be valued at net saleable value if lower than cost (this may be nil).
More fundamentally, the business is potentially in serious difficulties. Can it
continue trading for the foreseeable future? Only if we can be reasonably sure
that it can, it should be treated as a going concern. It is important for Atongo
to reconsider the value of his stock regarding the cuurent competition faces
from Hotman. Going concern concept presumes that a business can continue
trading for the foreseeable future. If it cannot, its assets should be valued on a
break-up basis, i.e. valued as if they were to be sold as soon as possible. It is
therefore very important to evaluate the threat posed by Hotman’s new
operations across the street. When it is obvious that Atongo cannot continue in
business, then the stock should be disposed off as quickly as possible.
Answer 71: LOGBA YOUNG LIONS PLC

GeeConsults Services
Chartered accountants
61 Melbourne Street
Chester CH12 3YY
Mr. Emmanuel Pasarani
Finance Director
Logba Young Ltd
55 Stallion Avenue
Logba Adzakoe, Ghana 25 January 20 ‘1
Dear Emmanuel
Deferred Research and Development Costs as Intangible Assets

Thank you for your letter of 22 January 20 ‘1 in which you requested advice
concerning the procedures which should be established in order to identify
development costs for capitalisation. My recommendations are based on
Internatonal Accounting Standard 38 (IAS38): Intangible Assets, which also
dealt with Research and Development, permits capitalisation of development
costs only if certain criteria are satisfied. It however, forbids capitalisation of
research based activities, unless such expenditure was acquired as part of
business combination. Accordingly my recommendations are as follows.

(a) Establish clear guidelines to enable research based activity to be

established
IAS38 distinguishes research and development activity by the presence or
absence of an appreciable amount of innovation. If the activity is research
based, and was internally generated then the activity must be treated as
expense. If the research activity is however purchased as part of an ongoing
project or business combination, it should be capitalised as an intangible asset
and amortised over a period. The standard stated that in the research phase of
an internal project, an entity cannot demonstrate that an intangible asset exists
that will generate probable future economic benefits and therefore, should be
recognised as an expense when it is incurred.
The standard also indentifies the following activities as research based:

1) Activities aimed at obtaining new knowledge; The expenditure
incurred in the search of new knowledge into the business operational
activities.
2) The search for, the evaluation of and final selection of, applications
of research findings or other knowledge; Thus the intial search for an
ideas, evaluation of those ideas and the selection of some among those
ideas.
3) The search for alternatives for materials, devices, products,
processes, systems or services; Thus looking for alternatives to
materials inputs for your product, the production process and even an
alternative product to your existing product.
4) The formulation, design, evaluation and final selection of possible
alternatives for new or improved materials, devices, products,
processes, systems or services.
(b) Establish and distinguish research phase activity from development

phase activity
As stated in above, you need to be sure that the activities involved meet the
criteria to qualify for development expenditure in order to be considered for
capitalisation as intangible asset. The standard demands that the research
phase of an internal activity must be separated from the development phase
and where it is imporsible to separate the two, then the expenditure must be
treated as periodic expenditure. The criteria here are the ability of the firm to
establish a clear ability of the activity to generate future economic value.
Accordingly, IAS 38 required that all the following conditions must be met for
an internal activity to qualify as development cost that could be classified as
intangible asset:

1) Your entity must establish that there exists technical feasibility of

completing the developed product so that it will be available for use or
sale.
2) Your entity must have good intention to complete the product beign
developed and use or sell it when completed.
3) Your entity shows that it has the ability to use or sell the product.
4) You should clearly demonstrate how the developed product will
generate probable future economic benefits. This can be done by
showing the existence of a market for the output of the development
expenditure or the intangible asset itself or, if it is to be used internally,
the usefulness of the intangible asset to the entity.
5) You must demonstrate the availability of adequate technical, financial
and other resources to complete the development and to use or sell the
asset.
6) You must also show your ability to measure reliably the expenditure
attributable to the development expenditure.
(c) Ensure that statutory and IAS 38 disclosure requirements are

satisfied
You should note that IAS 38 requires that the accounts disclose the total
amount of research and development charged in the profit and loss account.
This should be analysed into current year expenditure and amortisation of
deferred development expenditure. You are required to disclose the aggregate
amount of research and development expenditure recognised as an expense
during the period. Research and development expenditure comprises all
expenditure that is directly attributable to research or development activities.
You shall also disclose the following for your intangible assets resulting from
research and development:
1) State whether the useful lives of the capitalized evelopment cost are
indefinite or finite and, if finite, the useful lives or the amortisation rates
used;
2) You should indicate the amortisation methods used for the deffered
development cost with finite useful lives;
3) You should also indicate the gross carrying amount and any
accumulated amortization at the beginning and end of the period;
4) Show a statement reconciling the carrying amount at the beginning and
end of the period. The analysis should show all new additions in terms
of acquisition and/or new internal expenditure incurred during the year.
This should also include any increase or decrease resulting from
revaluation and/or impairment losses and any translation cost from
foreign affiliates.

I strongly believe that these requirements apply to Logba Young Lions plc
because of its public limited company status. If you require any further
guidance on any of the above recommendations I would be delighted to offer
you further assistance.
Yours sincerely,
Blewusi Ekegey
Chief Managing Consultant
Answer 78: KINGDOM FURNITURE, PLC

Cash flow statement for the year ended 30 April 20 ‘7
$000 $000
Net cash inflow from operating activities (note 1) 1,784
Returns from investments and servicing of finance
dividend paid (W5) (991)
Net cash outflow from returns on investment and
Servicing of finance (991)
Taxation:
Corporation tax paid (W4) (1,314)
Tax paid (1,314)
Investing activities :
Purchase of land and buildings (W3) (634)
Purchase of plant and equipment (1,668)
Purchases of investments (8,676)
Net cash outflow from investing activities (10,978)
Net cash outflow before financing (11,499)
Financing:
Issue of share capital (W2) 13,014
Redemption of debentures (1,345)
Net cash inflow from financing 11,669
Increase in cash and cash equivalents (note 2) 170

Notes to the cash flow statement

(1) Reconciliation of operating profit to net cash inflow from operating
Activities.
$000
Operating profit 6,726
Depreciation charges (W1) 1,075
Increase in stocks (730)
Increase in debtors (5,365)
Increase in creditors 78
1,784
(2) Analysis of changes in cash and cash equivalents during the year
$000
Bank balance at 1 May 20 ‘6 885
Increase in cash and cash equivalents 170
Bank balance at 30 April 20 ‘7 1,055
(3) Analysis of changes in financing during the year

Share Share Debentures
Capital premium lons
$000 $000 $000
Balance at 1 May 20 ‘6 12,220 6,110 5,194
Cash inflows/(outflows) 13,014 (1,345)
Premium on redemption of debentures - 122
Premium on issue of shares (4,915) 4,915 -
Balance at 30 April 20 ‘7 20,316 11,028 3,971
WORKINGS
(1) Plant and equipment depreciation
$000 $000
Balance at 1 May 20 ‘6 6,551 Balance at 30 Apr 20 ‘7 7,144
Additions 1,668 Depreciation 1,075
8,219 8,219
(2) Proceeds of issue of shares

Shares capital and share premium $000
At 30 Apr 20 ‘6 18,330
At 3 Apr 20 ‘7 31,344
3,666 shares @ $3.55 13,014

(3) Land and buildings

$000 $000
Balance at 30 Apr 20 ‘6 24,171
Revaluation surplus
$(9,105 – 3,238) 5,867
New Purchases 634 Balance at 30 Apr 20 ‘7 30,672
30,672 30,672
(4) Taxation
$000 $000
Cash paid 1,314 Balance at 30 Apr 20 ‘6 1,512
Balance at 30 Apr 20 ‘7 3,417 P&L account 3,219
4,731 4,731
(5) Dividends
$000 $000
Cash paid 991 Balance at 30 Apr 20 ‘6 587
Balance at 30 Apr 20 ‘7 635 P&L account 1,039
1,626 1,626
Answer 81: JUNE JULY ENGINEERING BUSINESS

Cash flow statement for the year ended 31 December 20 ‘2
$ $
Returns on investments and servicing of finance – Drawings (112,438)
Investing activities :
Purchase of fixed assets (W1) (67,445)
Sale of fixed assets ($11,084 + 6,896) 17,980
Financing – Capital introduced 82,100
Net inflow from financing 82,100
Decrease in cash and cash equivalents (5,010)


(1) Reconciliation of operating profit to net cash inflow from operating
activities
$
Operating profit 92,945
Depreciation charge (W1) 30,692
Profit on disposal of fixed assets $(5,337 + 2,791) (8,128)
Increase in stock and work in progress (104,756 – 70,040) (34,716)
Increase in debtors (35,466 – 22,706) (12,760)
Increase in creditors (44,894 – 38,134) 6,760
74,793
$
Balance at 31 December 20 ‘1 12,698
Net cash outflow (5,010)
(3) Cash and cash equivalents as shown on the balance sheet

20 ‘2 20 ‘1 Change
$ $ $
Cash at bank and in hand 7,688 12,698 (5,010)

Capital
Balance at 1 January 20 ‘2 164,200
Cash inflow 82,100
WORKINGS
(1) Fixed assets – plant, equipment, etc Cost
$ $
Balance b/f 138,634 Disposals account 24,630
Additions 67,445 Balance c/f 181,449
206,079 206,079
Depreciation
$ $
Disposals account 20,525 Balance b/f 29,671
Balance c/f 39,838 Depreciation charged to
P&L account 30,692
60,363 60,363

Plan & Equipment Disposals account

$ $
Plant, equipment – cost 24,630 Sales proceeds 6,896
P&L account – Profit on Depreciation on sales 20,525
disposal 2,791
27,421 27,421
(2) Trade investments – disposals account

$ $
NBV 5,747 Sales proceeds 11,084
P&L account – profit 5,337
11,084 11,084

Answer 82: DIVINE NOOQUE VOLUNTARIES LTD

(a) Cash flow statement for the year ended 31 March 20 ‘2
€000 €000
Returns on investments and servicing of finance
Interest paid (W2) (540)
Dividends paid (67)
Net cash outflow on ROI and servicing of finance (607)
Taxation:
Corporation tax paid (140)
Tax paid (140)
Investing activities:
Payments to acquire fixed assets (2,683)
Receipts from sales of fixed assets 186
Financing:
Issue of ordinary shares (3,910 – 2,794) 1,116
Issue of debentures (1,676 - 838) 838
Redemption of preference shares (438 – 670) (232)
Net inflow from financing 1,722
Decrease in cash and cash equivalents (note 2) (94)

(1) Reconciliation of operating profit to net inflow from operating
activities
€000
Operating profit 839
Depreciation charges (W1) 894
Profit on sale of plant (W1) (55)
Increase in stocks (358 – 207) (151)
Increase in debtors (335 – 223) (112)
Increase in creditors (62 – 49) 13
Net cash inflow from operating activities 1,428
€000
Balance at 1 January 20 ‘7 (33)
Net cash outflow (150)
Balance at 31 December 20 ‘7 (183)

(3) Cash and cash equivalents as shown in the balance sheet

20 ‘7 20 ‘6 Change
€000 €000 €000
Cash at bank and in hand 84 112 (28)
Bank overdraft (267) (145) (122)
(183) (33) (150)

Ordinary Preference Debenture
share share loans
€000 €000 €000
Balance 1 January 20 ‘7 2,794 670 838
Cash inflow/(outflow) from financing 1,116 (232) 838
3,910 438 1,676
WORKINGS
(1) Fixed assets and depreciation
Plant and machinery
€000 €000
Balance b/f 1,676 Disposals 466
Additions (bal) 1,304 Balance c/f 2,514
2,980 2,980
Payment for new Fixed Assets:

Plant and machinery €(1,304 – 18) 1,286
Land and buildings €(3,910 – 2,793) 1,117
Other equipment €(1,397 – 1,117) 280
2,683
Provision for depreciation – Plant & Machinery

€000 €000
Disposals 335 Balance b/f 558
Balance c/f 838 Charge to P & L (bal) 615
1,173 1,173
Charge for year: €000

Pant and machinery (as above) 615
Land and buildings €(335 – 279) 56
Other equipment €(670 – 447) 223
894

Plant & Machinery Disposal account

€000 €000
Plant & Machinery 466 Bank 186
Profit & Loss a/c - Profit 55 Depreciation a/c 335
527 527
(2) Interest expense a/c

€000 €000
Cash paid 540 Balance b/d 18
Balance c/d 37 P&L account 559
577 577
(3) Creditors
20 ‘7 20 ‘6
€ €
As per question 117,000 67,000
Less interest accrual (37,000) (18,000)
Plant creditor (18,000) -
62,000 49,000
(b) Ratio analysis

(1) Profitability
Profit before interest
and taxation
(1) Returns capital employed = ×100
Share + Loan capital +
Reserves (“capital employed”)
20 ‘7 839
6,164 ×100 = 13.61%
20 ‘6 587
4,369 ×100 = 13.44%
Sales
(2) Asset turnover =
Capital employed
20 ‘7 8,380
6,164 = 1.36 times
20 ‘6 6,983
4,369 = 1.6 times

Profit before interest and tax

(3) Net profit margin = × 100
Sales
20 ‘7 839
8,380 x 100 = 10%
20 ‘6 587
6,983 × 100 = 8.41%
Gross profit
(4) Gross profit margin = × 100
Sales
20 ‘7 5,029
8,380 × 100 = 60%
20 ‘6 4,749
6,983 × 100 = 68%
Cost of sales
(5) Stock turnover =
Stock
20 ‘7 3,351
358 = 9.36 times
20 ‘6 2,234
207 = 10.79 times
Comments
Return on capital employed can be misleading without further analysis. (In
this case it suggests no significant change from 20 ‘6 to 20 ‘7. In fact asset
turnover has gone down from 1.6 to 1.36 while the net profit margin has
increased for about 1.6%). Comparison between net and gross profit margins
indicates that overheads have been well controlled. Though gross profit
margin went down of about 8%, this did not reduce the net profit margin
which rather saw a little increase.
However, the increase in cost of sale of 50% was not comparable to the pantry
20% increase in sales. The 20% increase in sales also compares unfavourably
with the increase in fixed assets (40%) and in stocks (73%). This could as a
result of sluggishness among the salesmen. Alternatively it could also result
from an expansion of the business during the lateer part in the year which will
not be reflected in increased sales until 20 ‘8. The discrepancy between the

increase in cost of sales (50%) and that in overheads (0.1%) can be explained
as discipline in overhead cost management. This could also be due to
reduction in sales and distribution activities as the distribution cost remained
unchanged. It might therefore be the resons for a slow increase in the sales
figure. However, the high percentage increase in the cost of sales could also
be due to heavy increases in the cost of raw materials or direct labour.
Further information needed

Ratios help to indicate where questions should be asked. They do not
themselves provide answers. Thus, in order to draw conclusions from the
ratios mentioned above, the following further information would happen only
if a full investigation were carried out).
 Detailed analysis of trends from monthly management accounts.
 Details of purchases of fixed assets – what are they and at what point
during the year did the expenditure occur.
 Detailed analysis of the distribution cost during the current year.
 Analysis of stock movements with particular emphasis on the
proportions of raw materials and finished goods in the stock increase.
 The stock turnover ratio compared with that of other companies in
similar trades.
(ii) Liquidity
Current assets
(1) Current ratio =
Current liabilities
20 ‘7 417
312 = 1.3 times
20 ‘6 291
255 = 1.1 times
Current assets less stock
(2) Acid test (or quick) ratio =
Current liabilities
20 ‘7 225
312 = 0.72 times
20 ‘6 180
255 = 0.71 times

Debtors
(3) Average collection period =
Average daily sales
20 ‘7 180,000
12,328 = 14.5 days (€4.5m + 365)
20 ‘6 120,000
10,273 = 12 days (€3.75m + 365)
Comments
The calculation of the first two ratios assumes that the bank overdraft is to be
treated as a short-term liability, as shown in the accounts. If this could be
negotiated so as to become repayable more than twelve months after the
balance sheet date, the position would look rather better (current ratio 2.4 :
1.6, acid test ratio 1.3 :1.0).
It should not always be assumed that an acid of less than 1 is a sign of

insecurity, much will depend on the realisability of stocks and the exact time
at which the liabilities will fall due.
The debtors’ collection period appears to be very low in terms of days’ credit
taken. It has been calculated using the information in the published accounts,
but a more realistic figure might be arrived at if cash sales were excluded.
Further information needed
 Some indication of any seasonal fluctuations in the company’s trade: is
the stock level at the end of December typical for the whole year?
 The possibility of re-negotiation of the bank overdraft.
 When are the dividends and tax due to be paid?
 Comparative amounts of cash and credit sales, and in the case of the
later, a review of the effectiveness of the company’s credit control and
an age analysis of debtors.
Note: The comprehensive nature of this answer is to assist students in this

area, this complete solution could not be achieved under exam conditions.

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101 Financial Accounting Practices: A Practical Working Questions & Answers

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101 Financial Accounting Practices: A Practical Working Questions & Answers

©2013 George E. Ekeha 1

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

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CHAPTER 1: BASIC BOOKKEEPING AND ACCOUNTING PRINCIPLES

Question 1: Wellinton Sole Proprietorship Business

The following transactions took place in the month of January:

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Question 6: Jennifer Agueliyah Boutique

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During January 20 ‘7 Agueliya’s books of prime entry showed the following.

The flowing information is relevant:

Question 8: Tianshi Bright Business Ventures

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(2) A summary of his bank statement shows

(3) The office equipment was purchased on 1 October 20 ‘7.

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(7) On 31 December 20 ‘8 Tianshi owed ¥4,119 for goods bought on credit

Question 13: Chucker and Zooloo Car Dealers

You discover the following.

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(5) A Toyota Camry bought from Tamungah Transport on 30 March 20 ‘8

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CHAPTER 2 INCOMPLETE RECORDS AND CONTROL ACCOUNTS

Question 17: Pangola Star Tilapia Shops

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

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

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

Question 22: Triple Star Company Ltd Control Accounts

Your investigation, however, revealed the following:

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Question 25: Emmanuel Sasakawa Meat Shop

According to his bank account the balance in hand at 31 March 20 ‘6 was

 On 31 March 20 ‘6 takings of €640 awaiting banking; this was done on

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 Interest at the rate of 5% per annum is payable on each anniversary of

Question 29: Sight and Visions General Eye Clinic

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

(3) Cash – receipts/payments for the year ended 31 January 20 ‘4

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prepared at 31 January annually, and balancing payments made in

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CHAPTER 3 PREPARATION OF MANUFACTURING ACCOUNTS

Question 32: Kangaroo Carrier Bags Plc

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

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Question 36: Raphael Trash Manufacturer of Wheelie Bins

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(4) Summary of business bank account $

Manufacturing tools purchased 2,304

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(6) Production and sales

Question 40: Akasanoma Vision Ltd Manufacturers

The main executive directors involved in the policy discussion are:

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You, as the company’s Financial Consultant, were in attendance for advice.

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CHAPTER 4: PRESENTATION OF PARTNERSHIP ACCOUNTS

Question 42: Jonny, Ferdinand and Kwartson Business Ventures

Question 43: George and Cyril Akpanaway Consultants