Question Tag: Capital

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  • 1 Marks

FA – May 2016 – L1 – SA – Q3 – Elements of Financial Statements

A question about the best description of equity in the statement of financial position.

In the statement of financial position, equity is best described as:
A. Market value of the shares of the owners
B. Issued capital and reserves
C. Issued capital and loan notes
D. Revenue and gains
E. Expenses and losses

Answer:
B. Issued capital and reserves

Explanation:
Equity in the financial statements is primarily represented by issued capital and reserves. This reflects the owners’ interest in the business after liabilities have been subtracted from assets. It does not include loan notes, revenues, or gains, as these are distinct financial elements.
  • 14 Marks

FA – May 2015 – L1 – Q4b – Trial Balance: Usefulness and Limitations

Prepare a trial balance from the extracted balances of Omoba Enterprises and recompute the entity’s capital for the period under review.

The following balances were extracted from the books of Omoba Enterprises as at 31 December 2013:

Details N’000
Accumulated depreciation 85,000
Administrative expenses 775,000
Accounts payables 585,000
Subscription 15,000
Rent and rates 130,000
Accounts receivables 475,000
Postage and stationery 125,000
Newspapers & periodicals 40,000
Utility 35,000
Allowances for Bad debt 85,000
Property, plant and equipment 925,000
Retained earnings 575,000
Audit fees 85,000
Revenue 2,500,000
Cost of sales 800,000
Other income 82,000
Cash and bank balances 882,000
Capital 375,000

Required:
i. Use the information above to extract a trial balance of Omoba Enterprises as at 31 December, 2013. (12 Marks)
ii. Use the information below to recompute the entity’s capital for the period under review:

  • Drawings: N250,000
  • Profit for the period: N315,000

(i) Trial Balance of Omoba Enterprises as at 31 December 2013:

Details Debit (N’000) Credit (N’000)
Accumulated depreciation 85,000
Administrative expenses 775,000
Accounts payables 585,000
Subscription 15,000
Rent and rates 130,000
Accounts receivables 475,000
Postage and stationery 125,000
Newspapers & periodicals 40,000
Utility 35,000
Allowances for Bad debt 85,000
Property, plant, and equipment 925,000
Retained earnings 575,000
Audit fees 85,000
Revenue 2,500,000
Cost of sales 800,000
Other income 82,000
Cash and bank balances 882,000
Capital 375,000
Total 4,287,000 4,287,000

(ii) Recomputed Capital for Omoba Enterprises:

 

  • 1 Marks

FA – MAY 2015 – L1 – SA – Q17 – Partnership Accounts

Identify the interest rate applied to excess capital contributions in the absence of a partnership agreement.

Where there is no partnership agreement, any capital contribution in excess of the agreed amount attracts:
A. No interest
B. Interest at the rate of 2 1/2% per annum
C. Interest at the rate of 5% per annum
D. Interest at the rate of 10% per annum
E. Interest at the rate of 20% per annum

Answer: C
Explanation:
In the absence of a partnership agreement, excess capital contributions typically attract an interest rate of 5% per annum, as per standard partnership accounting principles.

  • 10 Marks

BMIS – April 2022 – L1 – Q1b – The business organisation and its stakeholders

Explain what a public limited liability company is and discuss two features of a private limited liability company.

Nkaagi, your long-time family friend who is an Engineer by profession, recently took over as the Chief Executive Officer of Wakawaka Investment Ltd, a company listed on the Ghana Stock Exchange. He has on several occasions complained about the many legal requirements they have had to contend with and has now approached you for advice on the benefits to be derived from converting a public limited liability company into a private limited liability company.

Required:
i) Explain what a public limited liability company means to Nkaagi. (4 marks)
ii) Explain TWO (2) features of a private limited liability company. (6 marks)

i) Public Limited Liability Company:
A public limited liability company is a company formed by a large number of people, usually called shareholders, with a minimum of seven shareholders. The liability of members is limited to any unpaid amount on shares issued to them. The company is recognized as a separate legal entity from its owners, meaning it is responsible for its own assets and liabilities. Shares of the company can be freely transferred by a shareholder without the consent of other members, and the company can invite the public to buy shares in the entity.
(4 marks)

ii) Features of a Private Limited Liability Company:

  1. Ownership: Shareholders of a private limited liability company range from a minimum of two to a maximum of fifty persons, with the exception of banks where the maximum is ten people.
  2. Legal Status: The company has a separate legal personality from its owners or shareholders, allowing it to acquire and own assets, sue, and be sued in its own name.
  3. Transfer of Shares: The shares of a private limited company cannot be transferred by a shareholder without the express consent of other members.
  4. Source of Capital: Since the company cannot invite the general public to subscribe for shares, additional capital must be raised through contributions from the owners.
  5. Privacy: The financial records of the company are not open to public inspection, and the company is not required to publish its accounts in national newspapers.
  • 20 Marks

FA – Nov 2019 – L1 – Q1 – The IASB’s Conceptual Framework

Explain the fundamental qualitative characteristics of financial information and post transactions into various ledger accounts.

a) The IASB Conceptual Framework describes the fundamental qualitative characteristics of useful financial information.

Required:
State and explain the TWO (2) fundamental qualitative characteristics. (10 marks)

b) Kofi Mensah started a furniture business on January 1, 2018, and undertook the following transactions during the year:

  • On 1/1/18, he paid GH¢150,000 into the business.
  • On 4/1/18, he borrowed GH¢150,000 from Ama.
  • He paid GH¢200,000 on 6/1/18 for one room to be used as a small shop for his furniture business.
  • Kofi Mensah bought furniture costing GH¢80,000 on 8/1/18, which he plans to sell.
  • On 10/1/18, he bought furniture for resale from Kwame for GH¢150,000 agreeing to pay for them within 15 days.
  • Kofi Mensah sold furniture which had cost GH¢60,000 for GH¢90,000 on 12/1/18.
  • Furniture worth GH¢110,000 was sold for GH¢180,000 to AA Ltd on credit on 20/1/18.
  • On 24/1/18 Kwame was paid GH¢90,000.
  • On 28/1/18 AA Ltd paid GH¢80,000 of the amount he owed.

Note: All monies paid and received were through the bank account.

Required:
Post the above transactions to the following ledgers in the books of Kofi Mensah:
i) Bank account (3 marks)
ii) Inventory account (2 marks)
iii) Capital account (1 mark)
iv) Kwame account (2 marks)
v) AA Ltd account (2 marks)

a) Fundamental Qualitative Characteristics

Relevance:
Information must be relevant to the decision-making needs of users. Information is relevant if it can be used for predictive and/or confirmatory purposes. It has predictive value if it helps users to predict what might happen in the future and confirmatory value if it helps users confirm past predictions. Only information that is material can be relevant.
(4 marks)

Faithful Representation:
To be useful, financial information must not only represent relevant phenomena, but it must also faithfully represent the phenomena that it purports to represent in both words and numbers. A perfectly faithful representation would be complete, neutral, and free from error.
(4 marks)

b) Ledger Postings

i) Bank Account

iii) Capital Account

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