Question Tag: Allowance for Receivables

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  • 20 Marks

FA – Nov 2021 – L1 – Q4 – Bad and doubtful debt | Inventory | Non-current assets and depreciation | Preparation of financial statements of a sole trader

Preparation of the Statement of Profit or Loss and Statement of Financial Position for a sole trader, including adjustments for depreciation, inventory, and receivables.

Additional Information:
i) The inventory count on 30 June 2019 showed closing inventory valued at GHȼ34,380.
ii) A review of receivables as at 30 June 2019 showed that a further GHȼ2,300 was to be written off as an irrecoverable debt. Therefore, it was decided that the closing allowance for receivables was 10% of the outstanding receivables balance as at 30 June 2019.
iii) On 30 June 2019, Sintim received a cheque of GHȼ1,680 in relation to an irrecoverable debt previously written off.
iv) A supplier of Sintim has charged an interest of GHȼ1,490 on a payable balance that has been outstanding for over 200 days.
v) GHȼ16,000 of insurance in the trial balance above relates to 1 January 2019 to 31 December 2019.
vi) Allowance to be made for depreciation is as follows:

  • Land: Not depreciated.
  • Delivery van: 10% straight line basis.
    vii) Upon investigation, it was revealed that the balance in the suspense account relates to a cash receipt from a customer of GHȼ800 that was credited to the bank account in error.

Required:
a) Prepare the statement of Profit or Loss for the year ended 30 June 2019.
(12 marks)
b) Prepare the statement of Financial Position as at that date.
(8 marks)

a) Sintim
Statement of Profit or Loss for the year ended 30 June 2019

b) Sintim
Statement of Financial Position as at 30 June 2019

  • 20 Marks

FA – May 2021 – L1 – Q4 – Inventory | Non-current assets and depreciation | Preparation of limited liability company financial statements

Preparation of financial statements for a limited liability company, including adjustments for inventory, prepayments, accruals, depreciation, and allowance for receivables.

The following is the trial balance of Poloo Ltd as at 31 December 2020:

Account Debit (GH¢) Credit (GH¢)
Authorised, issued, and called-up capital:
– 500,000 equity shares of GH¢1 each 500,000
– 60,000 7% redeemable preference shares of 50p each 30,000
Equipment: cost 350,000
Equipment: accumulated depreciation 75,000
Motor vehicle: cost 160,000
Motor vehicle: accumulated depreciation 25,650
Premises 220,000
Inventory as at 1 January 2020 51,980
Bank 10,050
Sales 508,420
Purchases 225,000
Trade receivables 130,010
Trade payables 10,200
Distribution costs 80,400
Administrative expenses 45,240
Irrecoverable debts 1,250
Allowance for receivables 14,360
Rent received 8,500
Income from investments 17,040
Interim dividend on equity shares 7,420
Retained earnings 51,760
General reserve 40,420
Total 1,281,350 1,281,350

Additional information:
i) Inventories as at 31 December 2020 are valued at GH¢85,420.
ii) Insurance includes GH¢840 for one and half years ending 30 June 2021. Insurance is included in administrative expenses.
iii) Rent received includes an amount of GH¢2,400 paid in advance as at 31 December 2020.
iv) Distribution costs of GH¢750 were prepaid, and administrative expenses of GH¢800 were owing as at 31 December 2020.
v) The total trade receivables balance of GH¢130,010 includes a balance of GH¢1,010 which has been outstanding for ten months. Poloo Ltd has decided to write off this balance.
vi) Poloo Ltd’s policy is to allow for receivables on the basis of the length of time the debt has been outstanding. The aged analysis of trade receivables at 31 December 2020 and the required allowance are shown below:

Age of Debt Balance (GH¢) Allowance Required
0 – 30 days 80,000 Nil
31 – 60 days 40,000 20% of balances
Over 60 days 10,010 85% of balances

vii) On 15 January 2020, Poloo Ltd purchased premises at a cost of GH¢105,000. This cost included GH¢3,500 relating to legal costs. The legal costs of GH¢3,500 had been included in administrative expenses and not in the cost of premises. Premises are not depreciated.
viii) On 1 April 2020, Poloo Ltd purchased equipment that cost GH¢50,000. This transaction was entered in the accounts on 1 April 2020.
ix) Depreciation is to be provided as follows:

  • Equipment: 20% per annum on cost
  • Motor vehicles: 20% per annum reducing balance basis
    x) Depreciation on equipment is apportioned 20% to administrative expenses and 80% to distribution costs. Depreciation is charged for each month of use. Depreciation of motor vehicles is treated as a distribution cost.

Required:
Prepare, for Poloo Ltd, the following statements in accordance with International Financial Reporting Standards (IFRS):
a) Statement of Profit or Loss for the year ended 31 December 2020.
(10 marks)
b) Statement of Financial Position as at 31 December 2020.
(10 marks)

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