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- 20 Marks
Question
a) Explain why each of the following would be interested in the published financial statements of a company.
i) Shareholders
ii) Lenders
iii) Customers
iv) Suppliers
v) Financial analysts and advisers
(10 marks)
b) The following details were taken from the books of Suban Ltd for the year ended 31 July 2020.
i) Tangible non-current assets at cost as at 1 August 2019 were:
| Item | Amount (GH¢) |
|---|---|
| Land and Buildings (Land GH¢120,000) | 520,000 |
| Motor Vehicles | 310,000 |
| Equipment | 115,000 |
ii) Accumulated depreciation as at 1 August 2019:
| Item | Amount (GH¢) |
|---|---|
| Land and Buildings | 75,000 |
| Motor Vehicles | 110,000 |
| Equipment | 40,000 |
Suban Ltd depreciates non-current assets as follows:
- Buildings: 3% per annum on cost.
- Motor vehicles: 20% per annum reducing balance basis.
- Equipment: 10% per annum on cost.
Depreciation is charged for each month of ownership.
iii) On 1 October 2019, Land was revalued at GH¢200,000.
iv) A Motor Vehicle purchased on 1 May 2018 for GH¢40,000 was sold on 1 February 2020.
v) All equipment as at 1 August 2019 had been purchased after 1 February 2013, except for one equipment which cost GH¢10,000 purchased on 1 August 2008.
vi) During the year, the following assets were purchased:
- Motor vehicles GH¢35,000 on 1 November 2019.
- Equipment GH¢20,000 on 1 February 2020.
Required:
Prepare the Schedule of Non-Current Assets for the year ended 31 July 2020.
(10 marks)
Answer
a)
i) Shareholders
Shareholders, the business owners, will want to assess how effectively management is performing its stewardship function. In addition, they will want to know how profitably management is running the business and how much profit they can afford to withdraw as dividends.
ii) Lenders
These consist of debenture holders, banks, and other financial institutions. They are interested in information that enables them to determine whether their loans and the interest attached to them will be paid when due.
iii) Customers
Customers are interested in information about the continuance of the business, especially if they have bought goods with guarantees etc. If the business is a major supplier of goods, they will wish to know that it will continue into the future.
iv) Suppliers
These are people the business owes money to. They are interested in information that enables them to determine whether amounts owing to them will be paid when due. Many suppliers will also be interested in the long-term survival of the business if the business is their major customer.
v) Financial Analysts and Advisers
They need information for their clients or audience. For example, stockbrokers will need the information to advise investors in stocks and shares; credit agencies will want the information to advise potential suppliers of goods to the business, and journalists need information for their reading public.
(Each point @ 2 marks = 10 marks)
b)
Suban Ltd
Schedule of Non-Current Assets for the year ended 31 July 2020
| Item | Land and Buildings (GH¢) | Motor Vehicles (GH¢) | Equipment (GH¢) |
|---|---|---|---|
| Cost as at 1 August 2019 | 520,000 | 310,000 | 115,000 |
| Additions | – | 35,000 | 20,000 |
| Disposals | – | (40,000) | – |
| Revaluations | 80,000 | – | – |
| Cost as at 31 July 2020 | 600,000 | 305,000 | 135,000 |
| Accumulated Depreciation as at 1 August 2019 | 75,000 | 110,000 | 40,000 |
| Profit and Loss (W1, W3, W4) | 12,000 | 42,210 | 11,500 |
| Disposals (W2) | – | (12,640) | – |
| Accumulated Depreciation as at 31 July 2020 | 87,000 | 139,570 | 51,500 |
| Net Book Value as at 31 July 2020 | 513,000 | 165,430 | 83,500 |
Workings:
- (520,000 – 120,000) x 3% = 12,000
- Accumulated depreciation of motor vehicle disposed of:
a. 40,000 x 20% x 3/12 + (40,000 – 2,000) x 20% + (40,000 – 2,000 – 7,600) x 20% x 6/12
= 2,000 + 7,600 + 3,040 = 12,640. - (270,000 – (110,000 – 9,600)) x 20% + (40,000 – 9,600) x 20% x 6/12 + 35,000 x 20% x 9/12 = 33,920 + 3,040 + 5,250 = 42,210.
- (115,000 – 10,000) x 10% + 20,000 x 10% x 6/12 = 10,500 + 1,000 = 11,500
(10 marks evenly spread using ticks)
- Tags: Depreciation, Non-current Assets, Revaluation, Users of financial statements
- Level: Level 1
- Uploader: Theophilus