- 20 Marks
Question
a) The owner of Aspen Enterprise, as part of advice to a newly appointed Accountant, said that she should focus on the preparation of the year-end Financial Statements and not the preparation of Management Accounts.
Required:
Explain to the owner of Aspen Enterprise why Management Accounts is important.
(10 marks)
b) The trial balance of Naana Akyeaa failed to agree. The credit exceeded the debit by GHȼ5,760. The difference was placed in a suspense account. After a review, the following errors were discovered:
- The total of the purchase account was undercast by GHȼ2,000.
- Cash sales of GHȼ2,470 were recorded by debiting sales with GHȼ2,470 and crediting cash with GHȼ6,430.
- Mr. Samson, whose debt was the subject of a specific provision for bad debt, paid his debt of GHȼ1,080 in full. The only entry made for this transaction was to credit receivables with GHȼ1,080.
- An invoice for rates for GHȼ2,250 was found behind the bookkeeper’s desk. The invoice had not been accounted for.
- The total of the sales returns day book was overcast by GHȼ1,280.
- Discounts received of GHȼ840 was recorded by crediting receivables and debiting discounts received.
- A new piece of machinery valued at GHȼ24,300 was written off to repairs in error. The depreciation policy of Naana Akyeaa is to depreciate machinery by 10% on a straight-line basis. The sole trader charges a full year’s depreciation in the year of purchase and none in the year of sale.
Required:
i) Prepare journal entries, with the appropriate narratives, necessary to correct the above errors.
(6 marks)
ii) Prepare a Suspense Account.
(4 marks)
Answer
a)
Importance of Management Accounts
- Relevant Cost Analysis:
Management accounts enable organizations to analyze costs associated with various activities, helping in identifying the most profitable business operations and making informed decisions based on evidence. - Audience Targeting:
By analyzing the value of different customer segments, management accounts help businesses focus on the most lucrative markets, allowing for more efficient allocation of resources. - Make or Buy Evaluations:
Management accounts assist in determining whether to produce goods internally or purchase them from external suppliers by providing data-driven insights. - Budget Definition:
Management accounts provide data to help define budgets for different departments and projects, ensuring that investments are aligned with the company’s financial history and future plans. - Controlling and Performance Evaluation:
Management accounts evaluate the performance of different departments, enabling senior executives to make informed decisions to reduce operational costs or invest in profitable areas.
(Any 5 points @ 2 marks each = 10 marks)
b)
i) Journal Entries
- Tags: Correction of Errors, Journal Entries, Management Accounts, Suspense account
- Level: Level 1
- Topic: Preparation of Partnership accounts
- Series: APR 2022
- Uploader: Theophilus