Professional Documents
Culture Documents
IN PRACTICE
PRACTICAL QUESTIONS IN THE GHANAIAN
PERSPECTIVE
(FOR ANSWERS TO ALL THE QUESTIONS PLEASE GO TOhttp://ssrn.com/author=1590490 AND
PURCHASE THE WHOLE QUESTIONS AND ANSWERS)
FOR
UNDERGRADUATES & DIPLOMA
STUDENTS
COMPILED BY
MR GEORGE EKEGEY EKEHA
(MBA Fin., MBA, B.Com)
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Abstract
More often that not, our accounting practices at the corporate levels have been very different from what
actually goes on in our schools and universities. Many of our graduate students in accounting get into the
real world of work and realised that whatever they learnt in the classrooms have got not much impact on
the practice of accounting in the corporate environment. It is very pathetic to see graduates in accounting
with very good honours but cannot even conduct a simple bank reconciliation investigation when they got
to the office. It is therefore becoming a normal practices to engage a fresh university graduate in an
organisation with all the financial stress on the organisation, as a result of the recruitment process, and
then spend some amount again to train them for the work environment. It is therefore s common place to
see organisations asking for several years of work experience before taking them in the job. I have heard
various youth advocacy groups in the country complaining about these demands from the recruiting
organisation stating that it frustrates the ambition of the youth. But unfortunately, nobody seems to care
about designing a strategy that would help our nations to come out of these situations and we all just
cherish complaining.
It is my intention to bring this practical (not totally though, but I am sure it would help others to start
thinking about the solutions) questions for prospective accounting graduates to test themselves on the
realities of accounting jobs. The business or corporate environments, I agreed, differ from one industry to
another and also from one particular organisation to the other. However, there are various issues which
are very common with any accounting practice, such as taxation and VAT. There is also a generally
accepted practices in the Ghanaian business environment (and Africa as a whole) which are practicable
within every organisation.
The Financial Accounting Practices, Question and Answers is compiled to help aspiring accounting
professionals to engage themselves in both theory and practical questions in accounting. Most of the
questions in this book are designed to help students understand some practical activities carried out by the
account officers in the corporate environments. I hope that it would be of immense help to all those who
are currently practicing accounting and still having petty problems on the job by using it as a reference
material for their jobs. I also hope that this material would go a long way to help University students in
Accounting, Polytechnic students in DBS Accounting and aspiring Professionals in any Accounting Field
in their endeavour to helping build a good Corporate Governance for this countrys business environment
which would protect the investors interest and thereby encouraging more investor to invest in the
country.
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Table of Contents
CHAPTER 1
BASIC BOOKKEEPING AND ACCOUNTING PRINCIPLES............................ 1
Question 1 Atongo Sole Business.................................................................................................... 1
Question 2 FA Manyame Business Ventures .................................................................................. 2
Question 3 Bazzers Bombers Car Services ..................................................................................... 2
Question 4: Geeproperties Rentals .................................................................................................. 3
Question 5: Jennifer Agueliyah Boutique........................................................................................ 4
Question 6: Gifty Adams Showers Ltd ............................................................................................ 5
Question 7: Big Bright Business Ventures ...................................................................................... 5
Question 8: Reggis Amevors Bank Reconciliation ........................................................................ 7
Question 9: Chicken John Eateries and Drinkeries ......................................................................... 8
Question 10: Suzzy and Daryl Ventures .......................................................................................... 9
Question 11: Amaglagla Business Ventures.................................................................................. 11
Question 12: Chucker and Zooloo Car Dealers ............................................................................. 12
CHAPTER 2
INCOMPLETE RECORDS AND CONTROL ACCOUNTS .............................. 13
Question 13: Prempeh Street Groceries ......................................................................................... 13
Question 14: Kwaku Agyepong Businesses .................................................................................. 14
Question 15: Volta Star Grocery Shops......................................................................................... 15
Question 16: Blow Bambaloo Retailing Ventures......................................................................... 16
Question 17: Kokompeh Spare Parts Venture ............................................................................... 17
Question 18: Kofi Ghetto Ltd Bank Reconciliation ...................................................................... 18
Question 19: Norris Walter Ltd Control Accounts ........................................................................ 19
Question 20: Ronaldo Movete Ltd Control Accounts .................................................................. 20
Question 21: Jorgbenue Ltd Reconciliation Accounts .................................................................. 21
Question 22: Akosombo Fabrics Suspense Accounts ................................................................... 23
Question 23: John Jasper Shoes ..................................................................................................... 23
Question 24: Akwapim Botanical Gardeners ................................................................................ 24
Question 25: Ablode Tomefa Trading Company .......................................................................... 25
Question 26: Mandela Amewu Ice-cream Vendors....................................................................... 16
Question 27: Euzebius Abusuapanyi Eye Clinic ........................................................................... 28
Question 28: Johnson Azaglo Conner Shops................................................................................. 31
CHAPTER 3
MANUFACTURING ACCOUNTS AND STOCK VALUATION ..................... 33
Question 29: Gomoah Rubber Producers ...................................................................................... 33
Question 30: Kangaroo Carrier Bags Plc....................................................................................... 33
Question 31: Calippo Sweets Production ...................................................................................... 34
Question 32: Bonavester Plc .......................................................................................................... 35
Question 33: Atongo Plastic Manufacturers .................................................................................. 36
Question 34: Jerry Leggs Wellington Boots .................................................................................. 37
Question 35: Borllar Waste Kitchen Accessories .......................................................................... 40
Question 36: Jonny Wood Garden Seats ....................................................................................... 42
Question 37: Sir Johayes Importers ............................................................................................... 43
Question 38: Akasanoma Vision Ltd Manufacturers .................................................................... 44
CHAPTER 4: PARTNERSHIP ACCOUNTS .............................................................................. 45
Question 39: Aba, Borbor and Chochoo Partnership .................................................................... 45
Question 40: Aba, Borbor and Chochoo Partnership II................................................................. 45
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CHAPTER 8
FINANCIAL STATEMENTS ANALYSIS AND INTERPRETATION ............. 83
Question 81: Divine Nooque Voluntaries Ltd ............................................................................... 83
Question 82: Gloria Suleman Ltd .................................................................................................. 85
Question 83: GeeBee Fashionable Trading Company Ltd ............................................................ 85
Question 84: Brad Pitts Business Ventures .................................................................................. 86
Question 85: Kantamanto Scrap Metal Merchants ........................................................................ 87
Question 86: Richard Branson Ltd ................................................................................................ 88
Question 87: Dansoman Control Ltd ............................................................................................. 89
Question 88: Kafui Akpoblu Diamonds Retailers ......................................................................... 90
Question 89: Gee Marketing Ltd ................................................................................................... 92
Question 90: GBEWAA & Co Architectural Engineers ............................................................... 93
REVISION QUESTIONS ................................................................................................................. 97
Question 91: Bamboozer Ltd, Wholesale Groceries ..................................................................... 97
Question 92: JAK WAWAA and JJR BOOM Veterinary Services .............................................. 98
Question 93: Suame Magazine International Garages Conglomerate ......................................... 100
Question 94: Logba Angry Lions Plc, Wholesaler of Alcoholic Beverages ............................... 101
Question 95: GeeMarketing & Co, Partners in Furniture & Equipment ..................................... 104
Question 96: Desmond and Tootoo Dental Practices .................................................................. 105
Question 97: Confidence Foofoos Restaurateurs ....................................................................... 107
Question 98: KINGDOM Furniture Assemblies ......................................................................... 109
Question 99: Alongays Double Glazing ..................................................................................... 111
Question 100: Amfic Yingors Garages ...................................................................................... 112
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CHAPTER 1
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(c)
(d)
(e)
(f)
FA Manyame paid rent of GH1,500 during the year for the fifteen month period ending on
31 March 2005.
FA Manyame had paid for electricity up to date at 1 January 2004. During the year he paid
GH420 to cover charges from 1 January 2004 to 31 July 2004. He received further bills but
never got round to paying them. Assume that charges accrue evenly over the year.
In December 2004 FA Manyame had a rush of blood to the head and paid GH500 to the
Gas Board.
Gas consumed during 2004 amounted to only GH275.
Bank interest has been charged to the bank account as follows.
Up to 31 May 2004 (no overdraft)
GHNil
1 June to 31 August 2004
GH14
1 September to 30 November 2004
GH35
The bank statements shows that GH51 was charged to the account on 28 February 2005 in
respect of the three months ended on that date.
Business rates
In December 2003 FA Manyame paid GH2,400 for the six months ended 31 March 2004.
During June 2004 He paid GH2,800 to cover the six months ended 30 September 2004.
In February 2005 he paid GH3,300 in respect of the six months ended 31 March 2005.
In March 2004 FA Manyame received GH2,500 from Nyamenaye for rent of the premises
in respect of the six months ended 31 March 2004.
As from 1 April 2004 FA Manyame increased the rent to GH6,000 per annum; during
2004 Nyamenaye paid the full amount for the year ended 31 March 2005.
Requirement
Write up the ledger accounts for each of the above items, showing all relevant balances and
transactions.
(b)
A Skoda (cost GH4,000) had been bought on hire purchase. The terms of the agreement
included a deposit of GH500 and this was paid on 10 December 2005. The only entries
which had been made were to credit the cash book and debit the motor vehicles account in
respect of the deposit.
A Fiat, which was purchased in June 2002 for GH3,200, was scrapped. There were no
proceeds and no entries had been made in relation to the disposal.
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(c)
(d)
A Lada, which was purchased in March 2003 for GH4,400, was sold in August 2005 for
GH2,500. The only entry made in respect of the disposal was to debit cash and credit the
motor vehicles account with the proceeds.
No depreciation had yet been charged for the year 2005. The company charges depreciation
at 25% per annum on the cost of motor vehicles held at the year-end.
Requirement
Write up the motor vehicles account, provision for depreciation account, depreciation expenses
account and disposals account for the year ended 31 December 2005.
GH
1,500
735
2,235
Charles Sulemana paid Geeproperties GH150 and then vanished without trace to a new
world, leaving no assets.
Another tenant, Antonio Banderas, who owed GH900, fell into a river and was also found
to have died penniless.
Azuma Nickson returned from total obscurity and an amount of GH450 which
Geeproperties had written off in 2003.
Credit sales for the year amounted to GH167,400 and cash received from debtors (other
than Sulemana and Azuma) totaled GH150,000
At 31 December 2006 Geeproperties decided to provide in full against a disputed debt of
GH1,200 owed by Kwesi Otoo Pratt, and to maintain the 1% general provision on other
debtors.
Requirement
Write up Geepropertiess debtors account, provision for doubtful debts account and bad debts
expense account for the year ended 31 December 2006.
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2,700
150
2,469
5,319
GH
150
5,280
4,995
10,425
GH
5,700
5,826
11,526
Sales for the week ending 27 March 2003 amounting to GH850 had been omitted from the
control account.
A debtors account balance of GH300 had not been included in the list of balances.
Cash received of GH750 had been entered in a personal account as GH570.
Discounts allowed totalling GH100 had not been entered in the control account.
A personal account balance had been undercast by GH200.
A contra item of GH400 with the creditors ledger had not been entered in the control
account.
A bad debt of GH500 had not been entered in the control account.
Cash received of GH250 had been debited to a personal account.
Discounts received of GH50 had been debited to Adams debtors ledger account.
Returns inwards valued at GH200 had not been included in the control account.
Cash received for GH80 had been credited to a personal account as GH8.
A cheque for GH300 received from a customer had been dishonoured by the bank, but no
adjustment had been made in the control account.
Requirements
(a)
Prepare a corrected debtors account, bringing down the amended balance at 30 October
2003.
(b)
Prepare a statement showing the adjustments that are necessary to the list of personal
account balances so that it reconciles with the amended debtors ledger control account
balance.
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(1)
A summary of his cash transactions from his cash book for the period was
GH
Receipts
Capital introduced
3,500
Cash sale receipts
21,250
Sale of motor van
850
GH
25,600
Payments
Cash paid to bank
Cash purchases
Postage and stationery
Motor expenses
21,350
2,160
474
919
(5)
(6)
(7)
(8)
(9)
697
Receipts
Cash paid into bank
Bank loan
Credit sale receipts
Payments
Purchase of goods
Office equipment
Motor van
Drawings
Rent and rates
Light and heat
Balance are 31 December 2008
(3)
(4)
(24,903)
GH
GH
21,350
4,500
1,955
27,805
7,315
1,280
4,000
5,400
1,850
923
(20,768)
7,037
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(10)
The bank loan was received on 1 January 2008. Interest is charged at 10% per annum on the
amount outstanding.
Requirement
Prepare Big Brights trading and profit and lass account for the period ended 31 December 2008
and his balance sheet at that date.
Payments
GH
Balance b/f
Credits
Credits
343842
Credits
343844
Credits
343846
Charges
Cheque returned
Amount paid in by NLM
Receipts
GH
318
1,174
684
Balance
GH
734 Cr
1,052 Cr
1,542 Cr
86
925
623
703 Cr
1,326 Cr
84
44 Dr
762
69
623
GH
50
140
178
695
479
86
623
768
85
3,104
2002
5 Dec
19 Dec
28 Dec
28 Dec
28 Dec
31 Dec
GP Ltd
TP Ltd
SR Ltd
Q
AB
Balance b/f
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GH
905
762
187
43
236
971
3,104
The cheque issued to GP Ltd on 5 December 2002 for GH925 was entered into the cash book as
GH905 in error.
Requirement
Make any necessary adjustment to the cash account and prepare a bank reconciliation statement at
31 December 2002.
(8)
(9)
(10)
Discounts allowed of GH1,000 had been credited to the profit and loss account, and
discounts received amounting to GH1,500 had been debited to the profit and loss account.
A loan of GH5,000 had been credited to the profit and loss account.
Trade creditors had been understated by GH10,000.
Requirement
Prepare Chicken Johns corrected balance sheet at September 2003. A working showing how the
suspense account is cleared should be included.
Note: Chicken John does not maintain control accounts.
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
(11)
(12)
(13)
(14)
A loan to the business of GH10,000 from the owners brother, Amfic, has been added to
capital.
Accrued interest on the bank loan of GH458 has been credited to the bank loan account
instead of being treated as a current liability.
Bank charges of GH1,000 have been completely omitted from the books.
Fixed assets with an original cost of GH11,879 and accumulated depreciation of
GH10,943 have been sold for GH2,000. This amount is shown as a separate item in the
trial balance, and no entry has been made in the assets or provision for depreciation
accounts. Any surplus or deficit on sale should be shown in a separate account.
Deduction of GH6,088 for PAYE income tax and GH1,766 for National Insurance,
graduated pensions, etc, were made from employees wages and salaries during the year.
The companys contribution for National Insurance amounted to GH3,000. No entries have
been made for these items.
In addition to allowing discount of GH240 and receiving discount of GH260, various
debtors and creditors accounts amounting to GH10,000 were set off by contra. No
entries have been made in respect of these items.
Debtors amounting to GH2,000 are bad and need to be written off.
A debt of GH1,000 written off as bad in a previous year has been recovered in full. The
amount has been credited to the debtors account and deducted from the total of the other
debtors.
Goods returned from a debtor of GH630 have been correctly entered into the debtors
account but by mistake were entered in the returns outwards journal.
A payment for stationery of GH234 was correctly entered in the cash book but debited in
the ledger as GH243.
A payment of GH76 for packing materials has been correctly entered in the cash book, but
no other entry has been made.
A payment of GH124 for advertising has been debited to repairs and maintenance.
A cheque payment of GH26 for insurance has been recorded in all accounts as GH62.
A page in the purchase account correctly totalled GH125,124 was carried forward to the
top of the next page as GH125,421.
All entries other than those given above are to be assumed to have been made correctly.
Requirements
(a)
Show the correcting entries in journal form (i.e. showing accounts and amounts debited and
credited but no supporting narrative is required) in respect of each of the mistakes
mentioned above.
(b)
Show the trial balance of the company at 31 December after these corrections have been
made.
A working, showing how the suspense account is cleared, should be included.
Note Control accounts are not maintained.
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CHAPTER 2
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Requirements to Prepare:
(a)
A statement of Prempehs capital at 1 January 2001
(b)
A profit and loss account for the year ended 31 December 2001
(c)
A balance sheet at that date.
A cheque drawn on 28 December 2006 of GH125 for goods purchased was presented to the bank
on January 4, 2007.
(5)
During the year bad debts of GH223 arose and were irrecoverable. The trade debtors at 31
December 2006 amounted to GH637, of which GH100 is doubtful and for which
provision should be made.
(6)
At 31 December 2006 there were
GH
Stock in trade
2,360
Stock of wrapping materials
53
Trade creditors purchases
358
Electricity accrued
50
Accountancy fees accrued
100
Cash float in till
180
(7)
The difference arising on the cash account was discussed with Kwaku Agyepong but
remained unexplained and was dealt with in an appropriate manner.
(8)
Depreciation is to be provided at the rate of 10% per annum on the fixtures and at the rate of
20% on the van.
Requirement
Prepare a trading and profit and loss account for the year ended 31 December 2006 and a balance
sheet at the date.
GH
16,594
1,000
225
360
446
60
219
92
18,996
(4)
(5)
(6)
(7)
Withdrew from the bank GH80 per month for personal expenses.
Paid into the bank a legacy of GH300.
Paid by cheque income tax of GH600 (treat as drawings).
Withdrew an unspecified amount of cash from takings prior to banking.
At 30 June 2006 stocks at cost was GH4,000, debtors totalled GH7,000 and creditors were
GH3,500; the balance at bank amounted to GH1,950. Depreciation of plant was 10% per annum
on the reducing balance. No depreciation is to be provided on the van.
Requirement
Prepare a trading and profit and loss account for the year ended 30 June 2006 and a balance sheet at
that date.
Requirements
(a)
Prepare a statement setting out the claim for loss of stock.
(b)
Prepare a profit and loss account for the ten weeks ended 9 June 2003 and a balance sheet at
that date, assuming that the claims for loss of stock, cash and fixtures and fittings are
admitted.
balance has been arrived after including an amount ofGH1,977 in the addition of the credit
side of the account, which was in fact the account number.
Requirements
(a)
(b)
(The balance sheet statement should show a reconciliation of the adjustments made.)
(2)
(3)
(4)
(5)
(6)
(7)
A consignment of wines sent to an agent on a sale or return basis, and which remained
unsold at the year-end has been included in the sales daybook for November 2001 at the
pro-forma invoice value, but the amount has not been posted to the debtors ledger. The proforma invoice value included a mark-up of GH275 representing 33 1/3% on cost.
Wines are quoted at a price which includes delivery, but in the case of some October 2001
invoices delivery costs totalling GH325 have been added in error to the quoted prices, and
these invoices have passed through the sales records in the normal manner.
Cash of GH115 paid to a customer to settle a credit balance owing to him has been
correctly posted to the relevant debtors ledger account but has been analysed incorrectly in
the cash book with the result that it has been included in the total of creditors ledger
payments.
A special discount of GH19 allowed to a customer has been correctly entered in the
discounts column of cash book but posted to the debtors ledger account as GH91.
A customer was issued with credit note of GH54 for wines returned by him in September.
He subsequently asked for a copy of this credit note. Both the original and the copy have
been entered in the sales returns book but only one credit entry has been made in the
customers ledger account.
A credit balance of GH86 standing on the account of a customer has been listed as a debit
balance of GH68 in extracting the list of debtors ledger balances.
The debtors ledger account of one customer contains credit entries in fact totalling
GH1,840. As a result of a casting error, this total was originally shown as GH1,890 but
then carried forward to the next page of the account as GH1,980.
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Requirements
(a)
(b)
656,822
The total of the balances as extracted and listed from the South Western area ledger is GH83,310.
Investigation brings out the facts given below.
Note Points (a) to (e) relate to the control accounts only.
(a)
Sales
The following is a summary of the sales sheets for the year.
GH
Sales exclusive of VAT
556,780
Value added tax
83,517
640,297
(b)
Sales returns
For the last month of the year, returns were GH1,950 but there is a mistake in the addition
of the total column of one sheet resulting in a total which is GH420 lower than the correct
figure. Moreover, including in the total of GH14,260 representing returns for the year, the
figure of GH1,950 was taken as GH1,590.
(c)
Transfer
The transfer of GH2,010 to the creditors ledger is in respect of cash received from a
supplier for an overpayment to him.
(d)
Bad debts
The figure of GH1,955 as shown in the bad debts account is made up as follows.
GH
Bad debts written out of the debtors ledger in 2003/04
2,500
Less Bad debts recovered in respect of a debt written out of the
Ledger in 2001/02
(2,045)
455
General bad debt provision against debts remaining on the ledger 1,500
1,955
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(e)
Cash received
(f)
The total of GH632,429 includes the bad debt recovered, and also a cheque for GH1,685
which was first received from a customer in September 2003 and entered in the records in
that month. In October 2003 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 2003.
List of balances
The total of GH83,310 includes a debit balance of GH540 standing on an account in the
name of a director. It is agreed that this will not be paid but should be transferred to the
directors emoluments accounts.
A ledger sheet relating to the North Eastern area has been mis-filed in the South Western
area at the time when the balances were extracted. It shows a credit balance of GH1,120.
Requirement
Prepare an amended debtors ledger control account relating to the South Western area for the year
ended 30 September 2004 showing the reconciliation of the debtors figure with the totals list
extracted from the ledger.
Bank reconciliation
Balance per cash book
Balance per bank statement
(ii)
Debtors
Balance per list of balances
Balance on debtors ledger control account
(iii)
GH743,206
GH736,747
Creditors
Balance per list of balances
Balance on creditors ledger control account
GH698,741
GH702,946
Mr. Mawusi cannot reconcile the differences, and requests you to investigate further. He also has to
present the monthly management accounts to his superior, Mrs. Apenor. These accounts show a
profit for the month of GH17,257 and Mrs Apenor urgently requires a revised profit figure, if any
changes arise as a result of your investigation.
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(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
(11)
(12)
(13)
Interest and bank charges amounting to GH1,137 were debited by the bank on 30 June
2001, but no entries had been made in the cash book. When you inform Mr Mawusi, he is
incensed at the figure and telephones the bank which agrees to a reduction of GH837 and
this is credited on 17 July 2001.
Cheques received totalling GH2,736 from credit customers had been correctly entered in
the cash book on 28 June 2001. No entry had been made in the individual ledger accounts,
and the lodgement did not appear on the bank statement until 7 July 2001.
Cheques payable to suppliers amounting to GH7,257 had been correctly entered in the cash
account on 27 June 2001. The cheques did not appear on the bank statement until 8 July
2001, whilst you discover that only GH2,557 thereof had been entered in the individual
ledger accounts.
A dividend receipts of GH1,200 on the bank statement had not been entered anywhere in
the books of account.
Debit balances of GH1,200 in the debtors ledger had been included as credit balances in
the creditors ledger, whilst credit balances of GH348 in the creditors ledger had been
included as debit balances in the debtors ledger.
A bad debt of GH75 owed by Westham had been correctly written off in his individual
ledger account, but no entry had been made in the debtors ledger control account.
Discounts allowed by a supplier, James Nuque Ltd, had been correctly recorded in its
individual ledger account, but had been credited to the creditors ledger control account and
debited to the discounts allowed account. These discounts amounted to GH737.
The sales day book had been undercast by GH4,750 and the purchase day book overcast by
GH3,250.
The total of the debtors ledger balances had been overcast by GH72 and the total of the
creditors ledger balances undercast by GH363.
A sales invoice to Barbara amounting to GH182 had been recorded incorrectly in the sales
day book as GH128. The wrong amount had been entered twice in the ledger account of
Barbara.
A purchase invoice for GH4,500 had been debited to Whitechapel Ltds creditors ledger
account, but no entry had been made elsewhere.
Contras of GH747 between the debtors ledger and the creditors ledger had been
incorrectly entered in the control accounts as GH447.
A cheque paid to Martin amounting to GH65 had bee correctly entered in the cash account,
but incorrectly credited to the creditors ledger account of Martini ltd.
Requirements
(a)
(b)
(c)
(d)
Calculate the corrected balance per the cash account and prepare a statement which
reconciles it with the balance per the bank statement.
Reconcile the balance per the list of debtors ledger balances with the debtors ledger
control account.
Reconcile the balances per the list of creditors ledger balances with the creditors ledger
control account.
Calculate the revised profit figure for the monthly management accounts for Mr Mawusi to
present to Mrs Apenor.
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According to his bank account the balance in hand at 31 March 2006 was GH4,090 in John
Jaspers favour. Whilst the intention was to bank all takings intact, it now transpires that, in
addition to cash drawings, the following payments were made out of taking before banking.
Van running expenses
GH890
Postages, stationary and other sundry expenses
GH355
On 31 March 2006 takings of GH640 awaiting banking; this was done on 1 April 2006. It has now
been discovered that amounts paid into the bank of GH340 on 29 March 2006 were not credited to
Johns accounts until 2 April 2006 and a cheque of GH120, drawn on 28 March 2006 for
purchases was not paid until 10 April 2006. The normal rate of gross profit on the goods sold by
John Jasper is 50%on sales. However, during the year a purchase of glittering suits costing GH600
proved to be unpopular with customers and therefore the entire stock bought had to be sold at cost
price.
Interest at the rate of 5% per annum is payable on each anniversary of the loan from John Wawa on
1 January 2006.
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 GH100.
The stock of goods for resale at 31 March 2006 has been valued at cost at GH1,900.
Creditors for purchases at 31 March 2006 amounted to GH880 and electricity charges accrued at
that date were GH180.
Trade debtors at 31 March 2006 totalled GH2,300.
Requirement
Prepare a trading profit and loss account for the year ended 31 March 2006 and a balance sheet at
that date.
(6)
2008
GH
2,060
260
Requirement
Prepare a trading and profit and loss account for the year ended 30 June 2008 and a balance
sheet at that date.
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His cash in hand at the beginning of the year was GH150 and at the end of the year GH125.
(2)
His summarised bank statements for the year show the following.
Balance at 1 April 2001
Deposits
GH
1,216
44,700
372
Payments to creditors
Purchase of new van
Telephone
Rent, rates and insurance
Repairs
Cash withdrawn for self
46,288
GH
39,720
5,000
181
457
310
620
46,288
The banking included GH950 received from the sale of his van on 1 April 2001 when the net book
value of the van was GH1,200.
(3)
Other assets and liabilities were as follows.
31 March
2002
2001
GH
GH
Stock
7,200
5,300
Trade debtors
3,900
3,140
Trade creditors
5,450
4,100
Accrual telephone
38
26
Prepayment rent, rates and insurance
145
120
(4)
(5)
(6)
(7)
Requirements
(a)
(b)
Prepare a trading and profit and loss account for the year ended 31 March 2002 and a
balance sheet at that date.
State two factors which could cause the estimates of goods drawn for him to be incorrect.
GH
1,654
1,600
800
350
280
9
60
840
5
2,799
2,799
You obtain the following information of his transactions for the year to 31 December 2006.
(1)
From cheque books, paying-in books and bank statements.
GH
FAN goods for resale
5,350
Wages
280
Van expenses
300
Laundry
104
Garage rent (52 weeks)
52
Garage rates (two half-years)
40
Accountancy
60
Rebate from FAN Ice Cream Ltd (referred to above)
60
New van
1,100
Sundry business expenses
278
Private payments
320
Cash banked ex takings
7,574
Balance at bank at 31 December 2006
590
(2)
There is no record of taking and some goods for resale have apparently been paid out of
takings. The only cash payments are as follows.
Petrol and oil
GH27
Casual wages
GH130
Sundry expenses
GH19
Any cash not accounted for is to be treated as drawings.
(3)
The old van was traded in for GH700, and this sum was used as a deposit on a new van
costing GH1,800.
(4)
Due to a power supply failure, stock with a resale value of GH30 was damaged and had to
be destroyed.
(5)
Depreciation is to be provided on a straight line basis at 25% on the van and 10% on the
equipment, the new van to be depreciated as if in use on 1 January 2006.
(6)
GH64 is to be provided for accountancy.
(7)
At the year-end the amounts for accrued rent and prepaid rates were GH6 and GH14
respectively.
Requirement
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Prepare Mandela Amewus trading and profit and loss account 31 December 2006 and a balance
sheet at that date.
Motor car
Cost
12,500
Depreciation
4,500
Optical equipment
Cost
25,450
Depreciation
10,180
Office furniture and equipment:
Cost
6,250
Depreciation
3,750
Stock of contact lenses, at cost
2,975
Debtors for fees earned
6,010
Fees for operations, received in advance
2,450
Creditor for property costs
1,184
Accountancy
348
Creditors for medical books
113
Due to Inland Revenue for PAYE and National Insurance
292
Cash
In hand
77
At bank
4,019
Capital account Euzebius
34,464
(2)
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5,414
3,476
5,367
2,325
568
6,584
348
1,137
4,000
465
1,940
14,000
5,950
51,574
51,574
(4)
(5)
The patients fees printout for the Brigham Street practice shows total fees billed for the
year of 51,150 of which 945 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 19,500 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 19,500 into his private bank account.
Property costs
(3)
3,850
1,240
75
2,500
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.
(6)
Euzebius agreed share is 20% and his payments on account have been at the rate of 450
per month.
Receptionist/secretary
(7)
The lady who works for Euzebius has a gross salary of 8,000 per annum. Employers
National Insurance contributions can be taken as being 11.5% of gross salary.
Mrs Abusuapanyi
(8)
Included in Euzebius drawings of 14,000 is a total of 1,500 paid by him to his wife for
her work in maintaining patients records.
Car expenses
The total expenses incurred by Euzebius are paid through the practice. It is agreed, however,
that only 90%of such expenses, and of depreciation, shall be charged against the practice
profits.
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(9)
(10)
Depreciation
Depreciation on all fixed assets is charged at 20% on the cost of assets in use at the yearend, subject to (8) above.
Stocks, debtors and creditors at 31 January 2004
Requirements
(a)
(b)
Prepare the profit and loss account for the year ended 31 January 2004
Produce the balance sheet at 31 January 2004
(Accounts are to be presented in vertical form.)
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Azaglo is a pipe smoker, and takes from stock each week, without payment, tobacco with a
sales value of GH750.
He knows also that losses arise because of
(i)
(ii)
(e)
(f)
Experience has shown him that the loss under (i) amounts to 1% of cost of goods sold and
under (ii) totals GH5 per week in terms of selling price of unsalable magazines.
Azaglo suspects that during the year ended 30 September 2004, Amoateng has been
gambling heavily and has been using money taken from the shop to try to recoup gambling
losses. He does not think that there is anything amiss with the petty cash, but suspects that
Amoateng has been misappropriating shop takings and drawings excessive amounts to pay
wages.
Figures relating to the three categories of goods sold are given below.
Tobacco
(g)
Confectionery
Stationery,
Mags & Novelties
GH
GH
GH
Stocks at 1 October 2003
At cost
24,360
8,745
6,026
Purchases
135,485
50,213
35,042
Stocks at 30 September 2004
At cost
20,840
10,158
6,160
Sales for the year
Cash banked
152,380
59,045
49,073
(there was no unbanked cash at the start or end of the year)
Included in the opening stock of stationery, etc are a number of sets of childrens games.
Supplies of these were bought in March 2003 for GH2,120. One-half of these were sold in
June 2003 at normal selling price. At 30 November 2003 it was thought that those
remaining were outdated and slightly shop-soiled. They were therefore valued for stock
purposes at 50%of cost. In July and August 2004 they were all sold at a mark-up of 20% on
stock value.
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(h)
Azaglo knows that the gross salaries for the year ended 30 September 2004 were as follows.
GH
Shop assistants
14,000
Casual wages for delivery of magazines paid gross
525
His PAYE records show that for the year under review the amount due to the Internal
Revenue and SSNIT for PAYE and National Insurance contributions was GH5,645,
including 11.4% of gross wages of GH14,000 in respect of employers National Insurance
contributions. Cheques drawn by Amoateng, purporting to be for payment of wages, totalled
GH12,265.
Requirement
Prepare a statement which shows the total amount which appear to have been misappropriated by
Amoateng.
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CHAPTER 3
Kangaroo Carrier Bags plc makes one product which it sells to the wholesale traders. The
following trial balance was extracted from the books of the company at 31 December 2001.
Stocks at 1 January 2001:
GH
GH
Raw materials, at cost
3,500
Work in progress, at factory cost
18,000
Finished goods (3,500 units) at factory cost
35,000
Raw materials purchased
39,500
Sales (12,000 units)
180,000
Manufacturing wages
30,000
Factory rent and rates
14,000
Factory light, heat and power
6,550
Plant, at cost
60,000
Plant depreciation at 1 January 2001
28,000
Work managers salary
2,450
Plant repairs
4,000
Administration overheads
18,000
Factory lease at cost (twenty years duration)
40,000
Amortization at 1 January 2001
12,000
Share capital
75,000
Debtors and bank balance
46,500
Creditors
24,500
Carriage inwards
2,000
319,500
319,500
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(b)
Requirement
Prepare the manufacturing, trading and profit and loss account for the year ended 31
December 2001.
Facts as in part (a) except that it had always been the companys practice to transfer
completed units from the factory to the warehouse at cost plus 25%. Stocks of finished
goods are valued at the transfer price for the trading account but at factory cost for balance
sheet purposes.
Requirement
Prepare the manufacturing, trading and profit and loss account for the year ended 31
December 2001.
Administration expenses
Provision for doubtful debts
Debtors
Creditors
Cash at bank
Cash in hand
2,810
1,000
6,100
3,580
3,610
100
104,390
104,390
Cr
GH000
5,000
13,205
3,000
800
255
1,320
40,000
Manufacturing wages
Production overhead expenses
Distribution costs
Administrative expenses
4,705
7,674
3,715
4,520
63,580
63,580
Bank charges
Rent and rates
Insurance
General expenses
Discounts allowed
Carriage a outwards
Sales
Debtors and creditors
Bank
Cash
Plant and equipment (cost GH84, 000)
Office computer (cost GH6,000)
Drawings
Capital as at 1 April 2007
690
3,600
1,260
4,020
1,440
1,770
42,690
17,040
450
69,000
3,600
6,000
300,000
37,500
89,040
426,540
426,540
Rent, rates, insurance, lighting and heating are to be apportioned: factory 5/6, admin. 1/6.
Depreciation on plant and equipment and the office computer are to be provided at 10% per
annum on the cost at the year-end.
Stock of raw material GH7,200, finished goods (at cost) GH12,000 and work in progress
GH4,500.
It has always been the companys practice to transfer completed units from the factory to the
Warehouse at cost plus 20%. Stocks of finished goods are valued at the transfer price for the
trading account but at factory cost for balance sheet purposes.
Requirement
Prepare a manufacturing and trading and profit and loss account for the year ended 31 March 2008
and a balance sheet at that date.
(3)
(4)
GH
6,500
98,000
2,618
107,118
1,800
4,000
600
2,800
2,750
15,575
7,000
50,618
3,779
785
800
3,025
2,686
4,500
2,400
4,000
107,118
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(5)
Cash details
GH
Collected on account of
Small sales orders
Drawn from bank
2,345
2,400
4,745
GH
1,460
1,500
720
1,040
25
4,745
(6)
(7)
(8)
(9)
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Borllar Waste Ltd is a small company formed on 1 October 2005 to manufacture and sell a
new type of kitchen waste-disposal unit. As an ancillary activity it buys and re-sells to
wholesalers a variety of kitchen accessories.
(2)
The companys authorized capital is GH400,000, and on incorporation 250,000 GH1
shares were issued and paid for at price of GH1.15 per share.
(3)
The companys accountant is away on jury service, and draft accounts have been prepared
for the year ended 30 September 2006 by his young assistant in the form set out in
paragraph (4).
(4)
(i)
Profit and loss account
GH
GH
Purchases: Manufacturing materials
195,785 Sales (9,000 disposal units at
Kitchen accessories for Re-sale 99,642
GH75 each)
675,000
295,427
Kitchen accessories
115,650
Carriage and freight: Inwards on
Discounts received on sales
4,032
Manufacturing materials
5,080
Outwards on sales generally
9,462
Wages and salaries
318,970
Property costs
110,000
Sundry administration costs
10,560
Sundry selling costs
8,705
Formation and issue expenses
15,100
773,304
Net profit for the year
21,378
794,682
(ii)
794,682
Balance sheet
GH
287,500
21,378
43,193
GH
Fixed assets at cost
Manufacturing plant and
equipment
115,000
Sales equipment
90,000
Administrative equipment
60,000
265,000
Current assets
Debtors
Bank
62,755
24,316
87,071
352,071
(5)
352,071
You have been asked to re-draft the accounts and have obtained the information set out in
(6) to (11) below.
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(6)
(7)
(8)
(9)
(10)
(10)
Stocks
No account has been taken of closing stocks at 30 September 2006. These were as follows.
(i)
Manufacturing materials at cost
GH21,335
(ii)
Kitchen accessories at cost
GH18,687
(iii)
Completed waste-disposal units
1,000 units
Note: Stocks of completed units are to be valued at total factory cost, including depreciation
of assets used for production. There were no stocks of partly-completed units and no
completed units have been scrapped, lost or damaged.
Depreciation
No provision has been made in the draft accounts.
Depreciation on all fixed assets is to be calculated at 20% of the cost of assets in use at each
year-end.
Property costs
These comprise rent, rates, insurance, repairs, heat, light and power and can be allocated
80% to manufacturing space
15% to selling space
5% to administrative space
Wages and salaries
GH
Plant operators
183,360
Factory supervisors
26,110
Sales force
60,500
Administrative staff
34,000
Directors fees
15,000
Provision
Provision is to be made for the following.
Bad and doubtful debts
GH1,255
Audit and accountancy charges
GH3,815
Corporation tax
GH21,000
Proposed dividend
8p per share
Advantage is to be taken of the provisions of the companies Act relating to the use of share
premium account.
Requirements
Prepare the following
(a)
Manufacturing account for waste-disposal units.
(b)
Trading account showing the gross profit percentage on sales of
waste-disposal units, and
kitchen accessories.
(c)
Profit and loss account and balance sheet at 30 September 2006.
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(2)
(3)
On 1 July 2007 Jonny Wood started to manufacture under license a type of swinging garden
seat. A process is involved which is covered by patent rights and Wood has agreed to pay a
royalty of 30p per seat sold.
The seat is sold for self-assembly, and the finished product ex-factory consists of the
various parts and fittings packaged in a long carton which also contains a set of assembling
instructions printed in a variety of languages.
Wood has little idea of the preparation of final accounts but he has given you the following
draft profit and loss accounts for the year ended 30 June 2008.
GH
Purchases of materials
Including nuts, bolts and
Springs
Gross wages and salaries
including employers
National Insurance
Property costs
Hire of manufacturing
equipment
Factory cleaning and factory
sundries
Printing, stationery, telephone
and office sundries
Purchases of cartons for
packaging
Delivering goods to customers
Advertising
Sales
Deficiency for year
GH
316,500
10,956
127,825
138,334
37,296
7,750
4,115
6,534
5,783
7,820
2,479
337,936
(10,480)
327,456
(4)
327,456
(ii)
You can agree the figure set out in the draft profit and loss account, subject to the
fact that Wood has not made provision for depreciation of the factory plant
(GH8,000), or of office equipment (GH800), or for royalties payable. In addition
he has not allowed for stocks of finished and partly-finished goods in the factory at
30 June 2009 (see (ii) below).
Stocks of materials etc have been correctly valued at cost and the figure of
GH10,480 is made as follows.
GH
Manufacturing materials
9,640
Cartons for packaging
618
Sets of printed assembling instructions
222
10,480
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(iii)
(iv)
The cost of assembling instructions was GH2,372 and is included in the figure of
GH6,534 for printing, stationery, telephone, etc. Stocks of finished and partlyfinished seats are to be valued at factory cost. During the year 9,000 seats were sold,
all at a fixed selling price of GH35 each. At the year-end 1,000 finished seats were
in stock in the sales department, and in the factory there was a batch of 1,500 seats
which can in all respects be regarded as one-half completed. Seats are transferred
from factory to sales department at cost.
In March 2008, due to flooding, materials included in purchases at a cost of
GH7,250 were severely damaged with no insurance recovery. They were sold for
scrap, and the proceeds are included in the sales figure of GH316,500. Wood
wishes the loss arising to be separately shown in the profit and loss account.
Gross salaries and property costs can be allocated as follows.
Salaries
Machine operators
Factory supervision
Administration
Sales
GH
Property costs:
89,000
Factory space 5/7 of total costs
14,995
Administrative space 1/7 of total costs
15,684
Sales space 1/7 of total costs
18,655
138,334
Requirement
Prepare a manufacturing, trading and profit and loss account for the year ended 30 June 2008 in a
manner which is as informative and concise as possible.
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CHAPTER 4:
PARTNERSHIP ACCOUNTS
Requirements
(a)
Prepare a profit and loss appropriation statement for the year ended 30 April 2001.
(b)
Prepare the partners capital and current accounts for the year ended 30 April 2001.
Capital accounts:
Azi
Nefi
Agoneh
Current accounts:
Azi
Nefi
Agoneh
Debtors and creditors
Depreciation (at 1 October 2002)
Land and buildings
Motor vehicles
Drawings:
Azi
Nefi
Agoneh
Land and buildings at cost
Motor vehicles
Office expenses
Purchases
Rates
Sales
Selling expenses
Stock (at 1 October 2002)
18,000
12,000
6,000
700
500
23,000
300
35,000
12,000
8,000
4,000
3,000
3,000
60,000
20,000
4,000
85,000
4,000
150,000
14,000
20,000
243,000
243,000
(c)
8,060
5,400
4,900
238,636
52, 750
15,210
54,400
61,050
17,650
55,100
35,487
192,930
394,700
4, 000
394,700
Requirements
Prepare:
(a)
a trading and profit and loss account and appropriation statement for the year ended 30
September 2002
(b)
the partner current accounts
(c)
a balance sheet at 30 September 2002
(5)
GH
Suppliers of goods for resale (after deducting)
discount received GH3,752)
184,658
Vehicles hire and expenses
8,752
Rates (year to 31 March 2009)
800
Repairs and renewals
2,754
General administration expenses
3,264
Heating and lighting
1,792
(6)
On 31 December 2008 wages accrued amounted to GH650 and the cash float in hand had
been increased to GH400.
(7)
The business premises are owned by Antie and let to the partnership at an annual rent of
GH5,000; no payment had been made to Antie.
(8)
Depreciation is provided at the rate of 10% per annum on the furniture and fixtures using
the reducing balance method. On 1 January 2008 furniture, costing GH2,000 on 1 January
2006, was sold for GH800 and the proceeds banked.
Requirement
Prepare a trading and profit and loss account for the year ended 31 December 2008 and a balance
sheet at that date.
Sales
96,880
76,200
96,880
Drawings
Mahoganey share of net profit
Debtors and creditors
Stocks at cost
Work in progress
Cash at bank per bank statements
Cost and depreciation:
Plant and equipment
Motor vehicles
12,000
30,390
28,640
15,730
4,330
95,500
30,000
Suspense account
216,590
6,180
37,790
49,100
15,000
210,430
6,160
216,590
The bookkeeper has made the following note on the bank statements at 30 September 2007.
GH
Cash at bank per bank statements
4,330
Add Cheques received and entered in cash book but
not credited by bank
370
4,700
Less Cheques drawn and entered in cash book but not presented
Overdrawn per cash book
(5,660)
(960)
The balance overdrawn per the cash book is in fact GH880, but bank charges totalling
GH80 have not been entered in cash book.
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(4)
A set of chairs has been included in sales and debtors at an invoice value of GH1,800,
representing a mark-up on cost of 50%. In fact, the goods were sent on a sale or return
basis and by 30 September 2007 had not been accepted by the customer.
(5)
In the draft manufacturing account, the closing work in progress of GH15,730 has been
added to cost and the opening work in progress of GH12,940 deducted from cost.
(6)
Furniture supplied without charge to partners has been evaluated at Wawa GH2,460 and
Mahoganey GH1,820 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 GH15,000 on 1 December 2003 was sold for GH4,600.
This figure of GH4,600 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 2006 a bad debt provision of GH1,350 was brought forward in the books. At
30 September 2007 it was decided to increase the provision to GH5,200 and this figure of
GH5,200 has been debited to profit and loss account and deducted from debtors in the list
of closing balances.
(9)
Sales returns of GH850 have been credited to sales, although correctly entered in the
relevant sales ledger accounts.
Legal and accounting charges totalling GH1,240 have not been provided for.
(10)
Requirements
Prepare the following.
(a)
A statement showing the amended profit and appropriation of profit for the year ended 30
September 2007.
(b)
(c)
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CHAPTER 5
COMPANY ACCOUNTS
Requirement
Prepare for internal use the trading and profit and loss account for the period for the period ended
30 September 2007 and a balance sheet at that date.
GH
GH
98,420
(32,760)
65,660
Current assets:
Stocks
Debtors
Prepayments
Bank
32,183
21,072
1,568
13,427
68,250
16,402
14,267
5,000
(35,669)
32,581
98,241
Share capital:
Authorized 80,000 shares of GH1 each
Issued 50,000 shares of GH1 each fully paid
Share premium
Unappropriated profits
10% debentures
50,000
10,000
25,262
15,000
100,262
(3)
(4)
(5)
(6)
(7)
On 31 August 2003 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 to record this issue
have been made.
A debit balance of GH 1,901 on a suppliers ledger account in the purchases ledger has
been carried down as GH1,091 and then inadvertently added to the total of suppliers
credit balances.
A provision of GH5,145 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 2003 . The accountant has, however, overlooked the fact that there was a credit
balance of GH3,171 on doubtful debts account at 1 November 2002.
Accrued rent of GH1,000 at 31 October 2003 has been duly debited to rent account but
carried down as a debit balance and included under prepayments in the balance sheet.
The company wishes to maintain a large balance as possible of unappropriated profits.
It is the companys policy to net off all balances standing on the purchases ledger, and
similarly with the sales ledger.
Requirement
Prepare for review by the Directors of Alluwako Ltd an amended balance sheet at 31 October 2003.
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Additional information
(1)
Stock at 31 March 2008 was valued at GH150,000.
(2)
The following items are already included in the balances listed in above trial balance.
Distribution
Administrative
Costs
expenses
GH000
GH000
Depreciation (for year to 31 March 2008)
27
5
Hire of plant and machinery
20
15
Auditors remuneration
30
(3)
The corporation tax rate is 33%.
(4)
The corporation tax charge based on the profit on ordinary activities is estimated to be
GH54,000.
(5)
The provision for pension costs is to be increased by GH16,000. The increase should be
charged to administrative expenses. No pensions are expected to be paid for the foreseeable
future.
(6)
The companys authorized share capital consists of 1,000,000 ordinary shares of GH1
each.
(7)
There were no purchases or disposals of any fixed assets in the year and corporation tax is
33%.
Requirement
Insofar as the information permits, prepare the companys published profit and loss account for the
year to 31 March 2008 and a balance sheet at that date in a form suitable for publication to
members. Include notes on operating profit, taxation, fixed assets, creditors, share capital and
reserves
An accounting policies note is not required.
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Inspection of the books and records of the company yields the following additional information.
(1)
On 31 December 2004 the company issued bonus shares to the ordinary shareholders on a 1
for 10 basis. No entry relating to this has yet been made in the books.
It is intended that there should be the minimum deduction in distributable reserves.
(2)
The authorized share capital of the company is 200,000 GH1 ordinary shares and 50,000
8% GH1 preference shares.
(3)
Stock at December 2004 was valued at GH41,000.
(4)
The suspense account (GH400) relates to cash received for the sale of some machinery on
1 January 2004. This machinery cost GH2,000 and the depreciation accumulated thereon
amounted to GH1,500.
(5)
The directors, on the advice of an independent valuer, wish to revalue the land and buildings
atGH180,000, thus bringing the value into line with the current prices.
(6)
Wages owing at 31 December 2004 amounts to GH150.
(7)
Depreciation is to be provided on plant and machinery at 10% on cost.
(8)
General expenses (GH11,900) include an insurance premium (GH200) which relates to
the period 1 April 2004 to 31 March 2005.
(9)
The provision for doubtful debts is to be 2.5% of debtors.
(10) The directors wish to provide for
(i)
a final ordinary dividend of 5%
(ii)
a final preference dividend.
Requirement
Prepare a trading and profit and loss account for Alhaji Lankan Ltd for the year ended 31 December
2004 and a balance sheet at that date in a form suitable for internal use.
(a)
(b)
Requirement
Prepare for internal use the appropriation account of the Alfa and Omega Co Ltd for the
year ended 31 December 2005 and a balance sheet at that date. (Ignore taxation).
Write a short response to the following questions based on the above accounts.
(i)
When can the company issue the balance of its share capital?
(ii)
How could the goodwill have arisen?
(iii)
Assuming that the company had the cash, what is the maximum amount which could
be distributed by way of dividend?
(iv)
Why should the market value of the ordinary shares differ from their book value?
(v)
What is significance of the share premium account?
Requirements
(a)
Write up an adjusted profit and loss and appropriation account for the year ended 31
December 2007.
(b)
Prepare an extract of the balance sheet as at that date (suitably classified insofar as the
information permits) to show shareholders funds.
(c)
Draft a note for a director with no technical understanding of accounting explaining:
the nature and purpose of each reserve at the year-end, and
the return on capital employed for the year.
On 1 April 2004 ZoomVultures Ltd was incorporated. A bank account was opened and
GH350 paid for formation expenses.
(b)
Details of the company and of shares issued are as follows.
Directors
Cyril Suleman Garibah, Georgio Ekegey and Mrs Gloria C. Garibah
Secretary
Mrs Doris Ekegey
Business
The takings on of cleaning contracts and the development and sale of cleaning
liquids and polishes
Share
Authorised - GH15,000 in shares of GH1 each; Issued
- see below.
Shareholders
No of shares
Price
Receipts paid into
bank account
GH
C S Garibah
3,000
par
3,000
G Ekegey
3,000
par
3,000
Mrs Garibah
500
par
500
Mrs Ekegey
500
par
500
Various relatives
3,000
GH1, 20
3,600
(c)
On 1 October 2004 the company bought a window-cleaning business for GH8,250. The
tangible assets consisted of ladders and sundry equipment valued at GH1,200 and vehicles
at GH4,050. No liabilities were taken over. The reputation established by the business
purchased is likely to be benefit to ZoomVultures Ltd over the two years to 1 October 2006
(d)
In February 2005 a defective polisher seriously damaged a customers flooring. The claim
for damages (not covered by insurance) was settled in May 2005 for GH2,750.
(e)
Apart from those arising fro the information given in (a) to (d) above, the companys
transactions for the year to 31 March 2005 are set out below.
(i)
Receipts and debtors
Received and
Debtors at 31
Paid into bank
March 2005
GH
GH
Amount received and outstanding under cleaning contracts:
For quarter years ended before and on
31 March 2005
99,000
6,150
For quarter year ending 30 April 2005
8,400
2,400
For quarter year ending 31 May 2005
12,000
5,400
(Note that all contacts provide for
quarterly instalments payable in advance)
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(ii)
(f)
(g)
(h)
(i)
(j)
13,165
21,060
1,385
Paid out
Creditors at 31
of bank
March 2005
GH
GH
Large electrical polishers
20,500
Small items of cleaning equipment
4,750
Wages, PAYE and National Insurance
74,660
2,905
Administrative and property costs
10,075
220
Purchases of liquids and polishes
15,030
910
Secretarys fees
4,000
Accountancy charges
650
250
Audit fee
800
The directors have not drawn any remuneration during the year but it is proposed that
directors fees for the year totalling GH21,000 should be provided.
A dividend of 25p per share is proposed for the year to 31 March 2005.
Corporation tax is to be provided on the basis of 30% of the net trading profit of the year.
At 31 March 2005 there were the following stocks of cleaning liquids and polishes.
Cost
Net realizable Value
GH
GH
Liquids X and Y
1,485
2,125
Liquid Z
750
325
Polish
1,820
3,140
The large electrical polishers are expected to have a four year life and to have a residual
value of GH500. 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 2005,
together with a balance sheet at the date.
Cash
7,063
Liabilities:
Provisions for depreciation at 1 January 2005:
Premises
117,800
Vehicles
472,400
Plant and equipment
51,100
Trade creditors (note 1)
125,607
9% debentures
50,000
Ordinary share capital (note 3 and 4)
800,000
6% preference share capital (note 4)
50,000
General reserves
40,000
Profit and loss account at1 January 2005
46,823
Share premium account
5,000
Revenues: Storage rentals:
Long-term contracts
151,260
Casual
29,752
Haulage charges
1,734,611
Expenses:
Wages, salaries and related charges (note 5)
581,826
Rates
62,500
Power, heat and light
86,330
Repairs:
Vehicles
91,413
Other (note 5)
156,494
Diesel oil, etc
179,809
Postage, stationery, telephone
25,605
Insurance
21,480
Debenture interest
4,500
Sundry expenses
11,273
Other
Suspense account (debit balance) (notes 1, 2 and 3)
82,490
Notes at 31 December 2005
(1)
In September 2005 a consignment of avocados was delayed in transit due to the negligence
of the transport manager. Motorway Jumpers Ltd was transporting these goods for Wayo
Boomboom Farms Ltd. As a result the entire consignment deteriorated to such an extent that
it had to be destroyed on arrival at its destination.
The total cost of this loss, which has been assessed at GH84,680, has been claimed from
the company by Wayo Boomboom Farms Ltd. It has been debited to suspense account and
temporally credited to trade creditors prior to being settled in contra at 31 December 2005.
The claim is not covered by the companys insurance policy.
(2)
In October 2005 one of the vehicles was seriously damaged in an accident. Repairs costing
GH37,810 were carried out in the companys own vehicles workshops. The cost has been
held in suspense account pending the outcome of the claim under the insurance policy. This
has now been agreed in full.
(3)
On 1 September 2005 the company had declared a 1 for 20 bonus issue of ordinary shares
(which do not rank for dividend until 2006). The amount involved has been appropriated out
of general reserve and credited to suspense account.
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(4)
The issued share capital consists of 6% preference shares of GH1.00 per share and
ordinary shares of GH0.50 per share. The directors have recommended payment of the
preference dividend and an ordinary dividend of GH0.075 per share.
(5)
During 2005 the company had extended one of its warehouses and used its own labour and
materials in the construction. The amounts expended are included in the above list under
wages (GH52, 00) and repairs other (GH148,000).
(6)
Depreciation is provided on a straight-line basis on the cost of fixed assets held at the end of
each financial year and assuming no residual value. Assumed asset lives are:
Premises
50 years
Vehicles
5 years
Plant
8 years
(7)
The companys liability for corporation tax for the year 2005 has been estimating at
GH90,000.
(8)
Adjustments, not yet posted to the accounts, should be made for
GH
Storage rentals (long-term contracts) prepaid by customers 13,644
Power charges accrued
5,005
Telephone rentals prepaid
207
Telephone calls accrued
548
Rates prepaid
16,730
Wages accrued
10,834
Insurance prepaid
1,747
Requirement
(a)
Open the suspense account and post the entries needed to eliminate the opening debit
balance.
(b)
Prepare for internal use the profit and loss account for Motorway Jumpers Ltd for the year
ended 31 December 2005 and balance sheet at that date.
Debenture loan
Debenture loan interest
Retained profit at 1 April 2000
Purchases
Rent received
Sales
Share capital
Stocks at 1 April 2000
Corporation tax
94
14
591
2,454
28
3,320
400
112
7
5,674
5,674
170,000
160,000
100,000
80,000
90,000
111,000
12,000
720,000
720,000
1,364,244
1,364,244
1,481,940
1,481,940
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CHAPTER 6
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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-house between the two.
(c)
At the latest year-end, 31 December 2004, he had several large outstanding orders for
prunes, 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 2004 rather than
2005.
(d)
Atongos assistant, Hotman, has left and has opened a cut-price supermarket a few streets
away from his shop. Customers are flocking to Hotman and the bottom is falling out of
Atongos market. Much of his stock has passed its sell-by dates.
(iii)
The identification of costs of stocks where there are large numbers of identical
items.
What are the disclosure requirements of SSAP 9 and the Companies Act 1985 of England in respect
of stocks?
(b)
A shareholder in a limited company is disgusted because the company has paid such a small
dividend.
He shows you the balance sheet, saying Just look at the other balances available for
dividend. He indicates the following items.
(i)
Share premium account
GH200,000
(ii)
Fixed asset replacement reserve
GH50,000
(iii)
Contingencies reserve
GH85,000
Requirement
Advise him concisely on the availability of the above balances for dividend declaration.
(3)
Apparently VAT means value added tax. I cant figure how it works. If our sales are
greater than our purchases, the VAT we charge on sales is greater than the VAT we pay on
purchases. So how come we owe the Internal Revenue instead of them owing us?
Requirement
Write a letter in reply, answering the queries in language which a layman can understand.
(Write as from a firm, using a fictitious name and address.)
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CHAPTER 7
2006
GH
12,000
(1,000)
18,000
Plant & machinery: cost
depreciation
Current Assets:
Stock
Debtors
Bank and cash
5,000
(2,250)
16,000
9,950
-
GH
11,000
5,000
(2,000)
2,750
3,000
20,750
14,000
25,950
11,000
2,700
1,300
15,000
Represented by
Ordinary share capital
Profit and loss account
11,000
8,000
1,800
700
_
11,000
1,000
200
(21,500)
(12,200)
(6,000)
(10,000)
19,200
6,800
GH
GH
3,000
16,200
19,200
3,000
3,800
6,800
2008
GH
15,400
(1,000)
2007
GH
5,900
(1,400)
14,400
(2,000)
4,500
(1,500)
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12,400
3,000
Machinery of net book value GH250 was sold at the beginning of 2007 for GH350. This
machinery had originally cost GH1,000. In recent years, no dividends have been paid.
Requirement
Prepare a cash flow statement, with notes, for the year ended 30 June 2007.
2007
GH000
GH000
2,103
1,296
3,467
Current assts
Stock
Debtors
Cash
3,399
1,292
1,763
197
1,952
2,086
512
3,252
4,550
6,719
7,949
132
257
899
154
312
903
(1,288)
(1,369)
5,431
6,580
4,200
800
431
4,500
900
1,180
5,431
6,580
Profit and loss account for the year ended 31 December 2007
GH000
Profit before taxation
Taxation
Profit after taxation
Less Dividends: Paid
Proposed
GH000
1,381
(310)
1,071
168
154
(322)
Retained profit
Profit and loss account b/f
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749
431
George Ekegey Ekeha
1,180
Plant and machinery with a net book value of GH184,000 was disposed of for
GH203,000, whilst a new item of plant was purchased for GH312,000
Fixtures and fittings with a net book value of GH100,000 were disposed of for
GH95,000; depreciation provided on fixtures and fittings amounted to GH351,000.
Requirement
Prepare a cash flow statement, with notes, for the year ended 31 December 2007.
28,085
(17,581)
22,469
(16,920)
Operating profit
Premium on redemption of debentures
Taxation
5,504
(100)
(2,634)
5,549
_
(1,093)
1,920
3,696
Retained profits
Balance sheets at 30 April
GH000
2007
GH000
30,946
2006
GH000
GH000
25,141
16,487
12,347
7,100
863
15,892
8,104
36,797
(6,767)
24,720
(5,105)
724
30,030
19,615
60,976
(3,250)
44,756
(4,250)
57,726
40,506
13,000
12,500
7,450
10,000
5,000
2,650
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(2)
(3)
(4)
24,776
22,856
57,726
40,506
2007
GH000
25,100
5,846
2006
GH000
19,780
5,361
30,946
25,141
Depreciation has not been provided on freehold land buildings. During the year a
professional revolution taking account of additions during the year has been
incorporated in the books of account. There were no disposals during the year.
Additions to plant and equipment during the year totalled GH1,365,000 at cost. There were
no disposals.
Creditors falling due within one year
2007
2006
GH000
GH000
Trade and other creditors
3,451
3,387
Taxation
2,796
1,238
Dividends
520
480
6,767
(5)
(6)
(7)
5,105
Taxation provided at 30 April 2006 was settled at a figure lower than the amount provided.
Creditors falling due after more than one year relate to 9% deep 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.
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 GH3.50 per share. Pending the purchase of new plant,
part of the proceeds of the issue has been invested.
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 2007.
Retained profit
(b)
35
Balance sheet
At 31 march
2001
GH000
GH000
210
(105)
At 31 March
2002
GH000
GH000
Fixed assets:
Cost
Depreciation
250
(160)
105
90
Current assets
Stocks and debtors
Bank
330
67
397
442
Less Current liabilities
Creditors
Taxation
Dividend
150
35
20
(205)
140
40
25
(205)
192
297
70
177
50
237
Total net assets
327
Representing
Share capital
70,000 GH1 ordinary shares
100,000 GH1 ordinary shares
Share premium
Distributable reserves
Debentures
100
15
212
-
297
(c)
390
52
327
Notes to accounts
(i)
(ii)
The debentures were redeemed during the year at a total premium of GH4,000
which was written off against the premium received on the issue of additional GH1
ordinary shares.
Fixed assets with a cost of GH28,000 were sold during the year for each of
GH6,000. This sale results in an under-provision for depreciation of GH10,000
which was charged against profits.
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An enthusiastic trainee has been asked to prepare a cash flow statement for the year. This he has
done in the form set out below. He says Ive used all the information given in the accounts and my
statement balances it must be right!
Net profit
depreciation
Increase in issued share capital
Sale of fixed assets
Share premium
60
55
30
6
19
170
Cash outflows
6
7
8
9
10
11
12
13
Dividends
Taxation charge
Decrease in books value of fixed assets
Loss on sale of fixed assets
Stocks and debtors
Bank
Creditors
Redemption of debentures
20
40
(15)
10
60
15
(10)
50
170
Requirement
Prepare an amended statement in the form required by FRS 1.
2008
GH
150,000
35,000
41,000
30,000
48,000
33,000
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2007
GH
100,000
15,000
14,000
70,000
34,000
14,000
21,500
George Ekegey Ekeha
Proposed dividends
Depreciation:
Plant and machinery
Fixtures and fittings
15,000
7,500
54,000
15,000
421,000
45,000
13,000
334,000
2008
GH
130,000
151,000
29,000
51,000
44,000
4,600
11,400
2007
GH
110,000
120,000
24,000
37,000
42,800
200
421,000
334,000
(b)
June Sena and July Segbefia are partners in a precision engineering business, trading as
June July and manufacturing a selective range of machine tools. As a result of the general
recession, business had slumped and the partners had to decide whether to retract or whether
to go for expansion by re-equipping with the latest machinery which would give them a
wider range of marketable products. Encouraged by the probability of some new Ministry of
Defence contracts, the partners took the latter course of action and during the year ended 31
December 2002 have injected a further GH50,000 of capital into the partnership business.
A summary of the partnership balance sheet at 31 December 2002, together with
comparative figures at 31 December 2001, is as set out below:
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GH
GH
GH GH
2001
Fixed assets (notes 1 & 2)
2002
Plant, equipment, vehicles, fittings and
84,430
and furniture at cost
110,505
(18,070) Less Aggregate depreciation
(24,262)
66,360
18,000
86,243
14,500
84,360
Current assets
Stocks work in progress at cost
Debtors
Bank
42,655
13,828
7,733
64,216
(23,224)
100,743
40,992
63,798
21,599
4,682
90,079
(27,341)
125,352
62,738
163,481
Partners accounts
100,000
25,352
125,352
(c)
Capital
Current (note 3)
June
July
90,000 60,000
12,439
1,042
102,439 61,042
Total
150,000
13,481
163,481
(33,860)
(68,476)
George Ekegey Ekeha
12,439
1,042
13,481
July Segbefia is not very good with figures. He says During the year 2002 we raised
between us a further GH50,000 of capital. I cant understand what weve done with it: at
the end of the year our bank balance was lower than it was at the previous year-end and we
owed more to creditors. I know weve bought a lot of new equipment but this doesnt seem
to account for GH50,000.
Requirement
(d)
Prepare a cash flow statement for the year ended 31 December 2002. Drawings should be treated as
a return on investment.
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CHAPTER 8
FINANCIAL STATEMENTS ANALYSIS AND
INTERPRETATION
Question 81: Divine Nooque Voluntaries Ltd
Divine Nooque Voluntaries Ltd manufactures brass tubas. You have been asked by a client to
investigate the company with a view to a possible takeover and replacement of the product with
plastic electronic tubes.
You have managed to obtain copies of the last two years accounts (for the years ended 31
December 2007 and 2006). The profit and loss account and balance sheet for these years are set out
below:
Profit and loss accounts
2007
2006
GH000
GH000
GH000
GH000
Turnover
4,500
3,750
Cost of sales
(1,800)
(1,200)
Gross profit
Distribution costs
Administrative expenses
2,700
900
1,350
2,550
900
1,355
(2,250)
(2,235)
Operating profit
Interest payable
450
(300)
315
(150)
150
(75)
75
(36)
165
(81)
84
(60)
39
36
75
24
12
36
2007
GH000
2006
GH000 GH000
2,100
1,500
(180)
(150)
1,920
1,350
(450)
1,350
900
(300)
900
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H000
600
Other equipment
Cost
Depreciation
750
(360)
600
(240)
390
3,210
Current assets
Stocks
Debtors
Cash at bank and in hand
Creditors Amounts falling due within one year:
Bank overdraft
Trade creditors
Taxation payable
Proposed dividends
360
2,310
192
180
45
417
111
120
60
291
138
63
75
36
(312)
78
36
81
60
(255)
105
3,315
36
2,346
(900)
2,415
(450)
1,896
2,100
240
2,340
75
2,415
1,500
360
1,860
36
1,896
Notes
(1)
During 2007 some plant, which had cost GH250,000 and had been depreciated by
GH180,000, was sold for GH100,000.
(2)
Included in trade creditors is closing accruals for interest of GH20,000 (GH10,000 in
2006).
(3)
Included in trade creditors is a creditor for plant purchases of GH10,000.
Requirements
(a)
Prepare a cash flow statement, with notes, for the year ended 31 December 2007.
(b)
Using appropriate accounting ratios, compare the companys profitability and short term
liquidity for the years 2007 and 2006, and indicate what further information you would need
to back up your comments.
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Share capital
Ordinary GH1 shares
Profit and loss account
(100)
(70)
65
175
70
180
120
55
175
100
80
180
Requirement
Calculate for each year the current and quick ratios, and suggest reasons for the changes from 2001
to 2002.
Audit fee
Loan interest
Bad debts
Legal charges
Depreciation
300
100
145
20
600
350
100
2,350
100
650
(18,352)
21,648
(22,157)
15,343
Requirement
Write a short report to the directors commenting on the results shown and the comparison with the
previous year.
Fixed assets
Net current assets
Stock
Debtors
Bank balance/ (overdraft)
Less Creditors
Net capital employed
40
(32)
8
50
(51)
(1)
Balance sheets
At 1 April
2005
GH000
70
At31 March
2006
GH000
70
5
13
(3)
15
85
7
11
2
(5)
15
85
At 31 March
2007
GH000
80
8
24
(4)
(8)
20
100
Brad is keen for his father to increase the capital employed in the business and has drawn his
fathers attention to the following matters revealed in the accounts.
(1)
A GH15,000 increase in net capital employed can be linked with a GH40,000 increase in
the sales during the past year.
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(2)
The rate of stock turnover during the past year has been 12 as compared with 10 in the
previous year.
(3)
The increase in fixed overheads last year is due to the renting of larger premises. However,
these new premises would be adequate for a turnover of GH200,000.
John Doe is not pleased with the results of his sons business. He can easily obtain employment
offering a salary of GH10,000 per annum and Brad Pitt can obtain 10% from a bank deposit
account.
Requirements
(a)
Calculate for each of the years ended 31 March 2006 and 2007 four financial ratios which
draw attention to matters which could give John Doe cause for concern. State clearly the
formula or basis for each ratio used.
(b)
Outline three reasons for closing the business and one reason in favour of its continuance.
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2005
GH000
2006
GH000
10,050
11,350
1,500
1,200
900
3,600
(2,400)
1,200
11,250
2,450
3,800
50
6,300
(2,700)
3,600
14,950
(350)
10,900
(3,350)
11,600
5,900
5,000
10,900
5,700
5,700
11,600
Additional information
During the year to 30 April 2006 the company tried to stimulate sales by reducing the selling price
of its products and by offering more generous credit terms to its customers
Requirements
(a)
Calculate six accounting ratios, specifying the basis of your calculations, for each of the two
years to 30 April 2005 and 2006 which will enable you to examine the company
(b)
From the information available to you, including the ratios calculated in part (a) of the
question, comment upon the companys results for the year to 30 April 2006 under the
heads of profitability and efficiency.
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190
130
240
90
110
40
150
350
80
590
1,360
Trade investment
Trade debtors
Current asset investments
Stock
Balance at bank
70
15
360
60
375
80
1,090
Sales
Trading profit
Surplus on disposal of trade investment
Debenture interest
Dividends paid
Plant replacement
Retained profit
200
5
12
153
20
(212)
13
(185)
15
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Requirements
(a)
Prepare a cash flow statement for the year ended 31 December 2007
(b)
(c)
2006
GH
137,780
6420
97,080
103,500
7,950
GH
Sales
Opening stock
Purchases
7,950
112,910
120,860
17,260
(95,550)
42,230
(30,110)
GH
148,000
(103,600)
Gross profit
Expenses and depreciation
12,120
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44,400
(31,240)
13,160
2006
GH
35,680
(19,340)
16,340
17,260
17,110
2005
GH
29,610
12,120
41,730
(8,360)
33,370
3,830
6,090
-
43,290
50,710
2006
GH
Capital account
Opening balance
Net profit
Drawings
Loan account
Creditors due within
one year:
Trade creditors
Bank overdraft
43,290
33,370
13,160
46,530
(9,090)
37,440
-
8,450
4,820
50,710
Notes
(i)
Closing stock at the end of each year can be regarded as representative of average stock
carried during each year.
(ii)
No fixed assets were sold during the year.
(iii) Trade creditors include an amount of GH700 still outstanding in respect of the purchase of
fixed assets.
(iv)
For both current and previous year, sales accrued more or less evenly over the year.
Kafui gives you the following information.
(1)
For some years one of his main wholesalers supplied him with a substantial volume
of high-class bracelets and rings on a sale or return basis. The wholesalers
business was taken over by a large group in August 2005 with the result that this
practice ceased. Kafui thinks that the loss of this facility has almost doubled the
value of his average stock.
(2)
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.
(3)
In September 2005 Kafuis brother Bibio died. Many years ago Bibio had lent the
business a substantial sum to help it over a bad period and had resisted Kafuis
recent attempts to pay off the balance of the loan as he liked to retain some
interest. However, when Bibio died Kafui was obliged to repay the outstanding
balance to the executors.
(v)
Kafuis shop front had remained unchanged for nearly fifty years. It looked out of place in
the modernized high street and GH4,000 was spent on a new front and showcase in July
2006. Kafui says that this improvement has helped trade, as sales in August 2006 showed a
very good increase over those for August 2005.
(vi)
As from 1 October 2006 Kafui has come to an arrangement with some of his major watch
and clock suppliers that they will guarantee delivery of small numbers of standard lines
within seven days of receipt of order. Kafui estimates that this will reduce his stock level by
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some GH3,500. 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 2006, 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 2006
(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.
3,733
31 October
1905
GH000
2006
GH000
2,700
(748)
3,831
(1,125)
Stock
Debtors
Cash at bank
1,952
203
147
51
2,706
843
184
-
2,353
3,733
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Profit and loss account for the year ended 31 October 2006
GH000
Profit before tax
Corporation tax
Profit after tax
Ordinary dividends:
Paid
Proposed
GH000
1,195
(602)
593
90
170
260
Retained profit
333
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(a)
Cost GH
Depn GH
48,000
36,500
19,600
15,000
11,475
10,920
33,000
25,025
8.680
104,100
37,395
66,705
Current assets
Stocks of stationery, etc
Work in progress
Debtors for fees
Cash at bank
GH
4,730
42,785
19,105
14,060
80,680
26,200
14,200
(40,400)
40,280
106,985
Capital accounts:
Gilbert
Gbelewu
Wagba
10% Loan Account - Gilbert
Current accounts:
Gilbert
Gbelewu
Wagba
30,000
20,000
16,000
66,000
11,500
18,520
8,905
2,060
29,485
106,985
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(b)
GH
68,625
(41,015)
(18,100)
9,510
6,000
(3,500)
2,500
12,010
Operating profit
Depreciation charge
Decrease in debtors
Increase in stocks
Increase in work in progress
Decrease in trade creditors
Increase in fees in advance
68,625
(2)
(3)
GH
2,050
12,010
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(ii)
(iii)
(iv)
Cars and office furniture are depreciated at 20% of the assets in use at the
year-end, and equipment at 15% of cost of the assets in use at the year-end.
The car sold during the year cost GH18,000 and the sale gave rise to an
under provision for depreciation for of GH1,400) which was written off to
profit and loss
Cash drawings by partners were as follows.
GH
Gilbert
16,000
Gbelewu
14,550
Wagba
8,885
39,515
Requirement
Prepare a draft balance sheet at 31 August 2004 in the same format and with the same detail as the
balances sheet at 31 August 2005.
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REVISION QUESTIONS
Question 91: Bamboozer Ltd, Wholesale Groceries
(1)
(2)
(3)
(4)
(5)
Bamboozer Ltd was formed on 1 December 2006 to carry on business as wholesale grocers.
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
computerized nominal ledger.
The balances standing on the companys computer records at 30 November 2007, after
preparation of a draft trading and loss account, are as set out below.
The following fixed assets were bought during the year.
Cost
Depn
GH
GH
GH
Freehold depots
240,000
11,250
Office and warehouse equipment
59,375
11,875
Vehicles
112,000
28,000
411,375
(51,125)
Total Written down value
360,250
Trading profit for the year after depreciation
299,325
Trade debtors
95,000
Creditors
55,675
Stocks at cost
195,444
Audit fee payment on account
2,000
Provisional bad debt provision
1,500
Cash at bank
22,706 Dr
Capital receipts and payments account
319,500 Cr
Depreciation rates are based on the cost of assets in use at the year-end.
The share register has been written up properly and records of GH1 ordinary shares, issued
at a price of GH2 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 GH300,000 in GH1 ordinary shares.
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)
(6)
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computers, which can be classified as office equipment, had a cost excluding credit charges
of GH11,000.
(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 2006 and repayable on 1 January 2009.
(8)
Adjustments are also required for the following matters:
(i)
Directors remuneration of GH55,000 of the year has been fixed but not yet paid or
provided for.
(ii)
The full audit fee for the year is GH4,600.
(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 GH56,850 for corporation tax.
Requirements
Prepare the profit and loss account for the year ended 30 November 2007 and balance sheet at that
date.
John Akuffour Wawaa and John Jrakpata Boom, both former leaders of their various
Universities, are recently-qualified veterinary surgeons. From 1 October 2006 theyve been
in practice separately but sharing the same premises. The premises are rented by JJR
BOOM and it was agreed that JAK WAWAA should pay GH3,000 per annum for the use
of his surgery in JJR BOOMs premises.
(2)
On 30 September 2008 JAK WAWAA and JJR BOOM felt that they enjoyed a good
relationship and would therefore enter into partnership together retrospectively from 1
October 2007. You have been asked to prepare the partnership accounts. For the year ended
30 September 2008 JAK WAWAA and JJR BOOM have each prepared, from their
respective practice 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 WAWAA
JJR BOOM
GH
GH
GH
GH
Capital introduced
4,000
5,000
Fees received
38,265
40,126
Premises
3,000
42,265
Drugs and other medical supplies purchased 5,269
Property costs rent, rates, repairs, heat, etc 3,000
Receptionist net salary (note (i))
3,200
Payments to Internal Revenue for receptionists
PAYE and National insurance
1,000
Surgery equipment, furniture and fittings
4,562
Printing, stationery, tel. and office sundries
1,795
Travelling costs (note (ii))
3,784
Medical books and professional subscriptions
555
Drawings on account of profit
17,000
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48,126
4,978
6,455
3,200
1,000
5,983
1,973
4,128
678
18,500
George Ekegey Ekeha
Closing balance
(40,165)
(46,895)
2,100
1,231
The cost of the receptionist has been shared equally. Her gross salary for the year,
together with the employers national Insurance contributions, totalled GH8,800.
(ii)
(4)
JAK WAWAA feels that 25% of his travelling costs represented private motoring
and JJR BOOM puts his percentage at 331/3 %.
You have now prepared bank reconciliation statements as given below.
JAK WAWAA
GH
2,100
JJR BOOM
GH
1,231
(1,220)
880
163
1043
214
1,445
(642)
401
(398)
(246)
801
1,164
1,565
1,310
2,111
Notes
Interest credited is to be transferred to partners current accounts.
At 30 September 2008 the separate bank accounts were closed off and a new joint
account opened.
At 1 October 2007 JAK WAWAA and JJR BOOM owned cars and equipment which have
been used in their practices. The agreed values at 1 October 2007 were as follows.
JAK WAWAA
JJR BOOM
Equipment
GH2,060
GH3,020
Motor cars
GH7,970
GH9,246
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
The outstanding figures at 30 September 2008, as supplied to you by JAK WAWAA and
JJR BOOM, were as follows.
JAK WAWAA
JJR BOOM
GH
GH
(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 and medical supplies, at cost
495
535
(iv)
Prepaid professional subscriptions
120
131
(i)
(ii)
(5)
(6)
(7)
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(8)
Notes
(1)
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.
(2)
A provision of GH500 in respect of accountancy charges would be appropriate.
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 GH1,220, although it is to be charged in the profit and loss account, is to be
borne 4/5 by JAK WAWAA and 1/5 by JJR BOOM, the necessary adjustment being made
through their current accounts.
(9)
(d)
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GH000
2,055
160
George Ekegey Ekeha
45
(205)
1,850
Trading has been arrived at before charging depreciation and finance charges, and before making
certain provisions.
Provision for fees and tax is to be made as follows.
GH000
Directors fees
40
Auditors fees
29
Corporation tax
128
(iii) Fixed asset details
GH000
Land and buildings at acquisition cost
760
Equipment at acquisition cost
250
Goodwill at acquisition cost
150
1,160
Equipment bought during the year
200
1,360
Land and buildings were revalued on 4 May 2008 at GH1m. The directors have
received the permission of the shareholders and the High Court that goodwill should
be written off immediately against revaluation reserve.
Depreciation is to be provided as follows on the valuation/cost of assets in use at the
year-end.
Land and buildings
at 10% per annum
Equipment
at 20% per annum
Investments must be written down to GH75,000 and shown under current assets.
Stocks at cost include two veteran cars.
Cost
Net realizable value
GH000
GH000
Car 1
75
126
Car 2
50
40
Debtors include GH65,000 for a Rolls Royce sold to a customer as a veteran car but
which has now proved to be a clever reproduction put together in 2001. The customer
wishes to keep the car but claims that the cars market value is GH25,000, and it is clear
that the company will have to accept this valuation. The customer has paid a deposit of
GH10,000.
The directors proposed a final dividend of 2.5p per share. The directors wish to maintain the
maximum permissible fund of distributable profits,
Requirement
Prepare a balance sheet of Suame Magazine International Garages at 30 November 2009.
Logba Angry Lions plc trades as a wholesaler of wines, sprits, soft drinks, etc. for the year
ended 29 February 2008 a draft trading and profit and loss account has been prepared,
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subject to adjustment and a list of balances has been extracted from the books as shown in
(b) below.
(b)
GH000
1,000
246
404
40
949
322
229
91
87
20
100
178
310
1,988
(c)
GH000
1,988
Fixed assets
(i)
GH000
450
330
480
100
211
1,260
(311)
311
949
(ii)
(iii)
(d)
The land valued at 29 February 2008 by Paabobo & Co, a chartered valuer, at GH420,000.
The decrease in value, thought to be permanent, is due to the adverse effect of planning
developments in the area.
Warehouse equipment costing GH50,000 was scrapped in January 2008 with a nil realised
value. The equipment still stands in the books at a nominal written down value of
GH2,000.
Debtors
The following are the details of debtors.
Trade debtors
Loans to managers - GH6,000 repayable on 1 January 2008,
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GH000
200
26
3
229
(e)
No 2 bank account
This account is maintained for what are regarded as special items. An analysis is given below.
GH000
GH000
Payments
In final settlement of taxation for the year ended 28 February 2007
89
Audit fee for the year ended 28 February 2007
20
Debentures redeemed in full on 2 February 2008 at 12.5% premium
45
Directors fees for the year ended 29 February 2008
112
Dividend for the year ended 28 February 2007 (see (f))
50
(316)
Receipts
Transfers from no 1 bank account
320
Loans repaid by managers
6
326
10
(f)
(g)
(h)
Requirement
Prepare a computation of the final figure of retained profits at 29 February 2008 and a balance sheet
of the company at that date. Work to the nearest thousand cedis.
Note that the company wishes to maintain the maximum balance of distributable reserves.
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15,600
100,000
(iii)
(iv)
(2)
(3)
the fact that residents in our trading areas seem to have become more garden
conscious
the obtaining of certain municipal contracts.
We do not understand, however, the apparent drop in gross profit percentage which
is shown by the management accounts and which will presumably be reflected also
in the financial accounts. We do not think that there has been any material change in
the type of goods sold. I know that in July 2007 the prices throughout the range of
goods we buy increased by 15%, and prices then remained relatively stable during
2007/08. However, this should not have affected gross profit percentage as
immediately the increases came into force we increased selling prices by the
additional cost. For example, when the cost of a garden table increased from
GH200 to GH230, I ensured that the selling price of the table was also increased
by GH30. I suppose the decrease in profit percentage is due partly to the
considerable increase in the volume of sales, and partly to the increase in the
inventories of stock held at the year-end. However, the management accounts show
that the net profit percentage has apparently not decreased as substantially as the
gross profit percentage.
We are worried, despite the increase in sales, by the rise in the figure of debtors at 31
July 2008 as compared with the end of the previous year, and in view of the
considerable increase in the value of stock inventories we are also concerned about
our rate of stock turnover.
The fact that our bank balance at 31 July 2008 is larger than it was at 31 July 2007 is
due presumably to the fact that the cash flowing from profit was more than sufficient
to cover the increase in stock and debtor inventories, to finance the substantial
purchases of showroom and distributive equipment, and to allow for increased
drawings by partners.
Requirement
Write a report to Mr Gee which incorporates a summarized trading and profit and loss account for
the year ended 31 July 2008 and a balance sheet at that date, together with comparative figures for
the year ended 31 July 2007. The report should comment, with percentages, ratios and figures as
necessary, on the validity of the three observations made by Mr Gee and should also include any
other comments together with requests for further information which you feel to be essential.
(ii)
(iii)
(iv)
(e)
You are acting for Desmond and are now required to complete his accounts for the year 30
September 2008. The relevant information is set out below:
(i)
Initial property costs
GH
Renovations
16,000
Architects fees
1,880
Furniture for reception office and waiting room
4,500
Rates to 1 April 2008
2,870
25,250
(ii)
(iii)
GH
16,000
55,190
16,500
87,690
Details of salaries
Gross salary
Per annum
Receptionists
GH
6,250
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Employers
National
Insurance
Per annum
GH
762
George Ekegey Ekeha
7,500
915
Equipment bought by Desmond for his surgery details of hire purchase agreement
dated 30 September 2007
GH
Cost of equipment
7,800
Deposit paid
(3,000)
4,800
Financing charges
960
Balance
5,760
Balance to be settled by twenty-four equal monthly instalments of GH240.
(v)
GH
Heat, light and telephones total amount
510
Medical supplies
1,875
Accountancy charges total bill
600
Internal Revenue for PAYE and National Insurance
to be calculated
(vi)
Work in progress
Desmond has computed the cost of work performed for patients but not yet billed at
GH3,760.
(vii) Depreciation, etc
Surgery equipment - to be depreciation at 25% per annum
Furniture
- to be depreciation at 20% per annum
Desmond feels that his share of renovations (including architects fees) should be spread
over the first three of his practice.
Requirement
Prepare Desmonds profit and loss account for the year ended 30 September 2008 together with a
balance sheet at the date.
The pairs are generous supporters of the National Football and in June 2007 they donated to a CAN
2008 Tournament bazaar, as raffle prizes, 100 vouchers entitling each winner to a free meal at the
restaurant of a retail value of GH40 per voucher if vouchers were presented by 31 December 2007.
It is estimated that the cost of the meal offered to voucher holders is GH20. By 31 October 2007
60% of the vouchers had been redeemed. From past experience the pairs know that in all 90% of
the vouchers are likely to be presented. The cost of this gift should be shown in the accounts as a
transfer from cost of sale to donations.
The partnership agreement does not provide for interest on capital or partners salaries but, as chef,
Regina is entitled to a partners bonus of 3% of gross profit (sales less direct cost of food and
drink sold) and Reynold, who manages the dining room, is entitled to a bonus of 5% of net profit
after charging Reginas bonus, but before charging any hygiene and fire items listed below/ the
balance of profits is shared: Regina 40%, Reynold 60%.
Stocks of foodstuffs and alcohol at 31 October 2007, at cost, totalled GH22,955.
Alterations to the premises costing GH5,800 have been carried out to meet recommendations
made by visiting fire and hygiene inspectors. This cost, not yet paid or provided for, is to be written
off over two years in equal instalments and borne by the partners equally.
Current accounts for partners are not maintained. Depreciation is provided on cost of assets at the
following rates, time apportioned for period of ownership
Kitchen equipment 20%
Furniture and fittings 15%
No depreciation has yet been charged for the current year.
The trial balance extracted from the books at 31 October 2007 is set out below.
GH
Foodstuffs and alcohol
Stocks at cost at 1 Nov 2006
Purchasers during the year
Wages paid net
Payments to Internal Revenue for
PAYE and SSNIT
Distribution (net) made out of
Gratuities pool
Property costs rent, rates, heat,
light, repairs, etc
Advertising
Laundry
Credit card charges
Secretarial agency charges and
Office expenses
Sundry restaurant expenses
Debtors at 31 Oct 2007
Kitchen equipment
Cost at 1 Nov 2006
19,493
325,982
72,199
32,604
45,666
55,781
5,687
4,198
2,795
GH
Takings inclusive of gratuities
649,440
Due to Internal Revenue at
1 Nov 2006 for PAYE and SSNIT 3,865
Creditors at 31 Oct. 2007
22,191
Accumulated depreciation at
I Nov 2006
Kitchen equipment
13,918
Furniture and fittings
8,364
Partners accounts at 1 Nov 2006
Regina Confidence
19,640
Reynolds Confidence
21,190
5,777
2,110
3,900
45,600
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6,500
25,400
20,100
4,622
3,250
15,250
17,750
23,944
738,608
738,608
Requirements
(a)
(b)
Prepare the trading and profit and loss account for the year ended 31 October 2007.
Prepare the balance sheet at 31 October 2007.
Depn
GH
25,000
142,000
21,405
24,690
27,500
11,214
18,690
25,000
114,500
10,191
6,000
213,095
57,404
155,691
Current assets:
Stock
Debtors
Balance at bank
Cash in hand
237,423
195,115
7,048
2,150
441,736
247,903
12,050
Fixed assets
Land
Buildings
Fixtures and fittings
Motor vehicles
259,953
GH
181,783
337,474
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(100,000)
237,474
Share capital
Ordinary shares of 50p
10% preference shares
150,000
10,000
160,000
77,474
237,474
(2)
During the year ended 31 December 2003 the following trading transactions took place.
Cash sales
Receipts from debtors
Payment for purchases of goods
Overhead expenses paid
Wages and salaries paid
Debenture interest paid 29 June 2003
(3)
(4)
(5)
GH
427,042
1,007,401
928,213
207,410
204,111
5,000
(6)
On 30 June 2003, following payment of the half-years interest, the debenture stock was
redeemed at a discount of 14%.
(7)
The dividend on the preference shares was paid during the year, and a final dividend of 12p
per ordinary share is to be provided.
Requirements
(a)
Prepare cash and bank accounts for the year ended 31 December 2003.
(b)
Prepare the trading and profit and loss account for internal use for the year ended 31
December 2003 giving as much information as possible to management.
Notes are not required although a reserves movement note should be included.
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Turnover
Less Cost of sales
Gross profit
Administrative expenses
Sales and distribution expenses
Debenture interest
Net profit
Fixed assets
Current assets
Stock
Debtors
Balance at bank
Glazing
GH000
90
(48)
42
12
15
(27)
15
Class
Glass
Ltd
GH000
150
(80)
70
37
25
3
(65)
5
Class
Glass
GH000
50
28
22
6
56
56
69
10
135
(16)
(25)
40
110
100
160
Capital account
Ordinary share capital
Retained earnings
10% debenture stock
100
100
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80
50
160
Requirement
Write a letter to Alongay in which you
(a)
Calculate five appropriate ratios comprising the financial position and results of Longs
Amazing Glazing with those of Class Glass Ltd and briefly comment on each ratio
(b)
Outline three distinct reasons why a comparison of the amount of profit earned by different
business should be approached with great care.
Use fictitious names and addresses if possible.
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