Question Tag: Ledger Accounts

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  • 20 Marks

FA – July 2023 – L1 – Q2 – Preparation of Partnership accounts

Prepare a ledger account for rental income and a partnership's profit and loss appropriation account with related partners' current accounts.

a) A company owns a number of properties which are rented to tenants. The following information is available for the year ended 30 June 2021:

Date Rent in advance (GHȼ) Rent in arrears (GHȼ)
30 June 2020 140,500 5,200
30 June 2021 148,200 9,200

Cash received from tenants for the year ended 30 June 2021 was GHȼ820,400. All rent in arrears was subsequently received.

Required:

Prepare the ledger account for rental income showing the transfer to the Statement of Profit and Loss, for the year ended 30 June 2021. (5 marks)

b) Awuni, Adjetey, and Kwame are in partnership, running an evening school, and sharing residual profits and losses in the ratio 4:3:3 respectively. At 1 October 2021 their capital and current account balances were:

By formal agreement, the partners are entitled to receive interest at 5% on capital. In addition, Adjetey is paid an annual salary of GHȼ5,455 for his part in running the business.

On 1 April 2022, by mutual agreement, Kwame increased his capital by paying a further GHȼ4,000 into the partnership bank account. Awuni reduced his capital by GHȼ5,000, but kept this in the partnership as a loan bearing interest at 10% per annum. Interest on the loans, by agreement, is credited to Awuni’s current account.

The partners are allowed to take out drawings at any time during the year, but they have agreed to charge interest on such drawings. The date of taking out the drawings, the amount drawn out by each partner, and the interest payable, were as follows during the year to 30 September 2022:

Required:

i) Prepare the profit and loss appropriation account for the year ended 30 September 2022. (8 marks)
ii) Prepare the partners’ current accounts for the year ended 30 September 2022. (7 marks)

  • 20 Marks

FA – Dec 2023 – L1 – Q1 – Bad and doubtful debt | Double entry bookkeeping | The IASB’s Conceptual Framework

Explains the purpose and differences between Financial and Management Accounting, prepares ledger accounts, and links prudence concept to allowance for receivables.

a) Financial Accounting and Management Accounting are similar with regard to the determination of costs, their assignment to different accounting periods, and allocation of costs to different departments and segments. This implies that the concepts and principles that are used in Financial Accounting may be suitable for Management Accounting.

Required:
i) Explain the purpose and scope of financial accounting. (4 marks)
ii) Explain THREE (3) differences between Financial Accounting and Management Accounting. (6 marks)

b) On 1 January 2021, Mankessim Traders had the following entries in its ledger accounts:

  • Insurance: GHȼ600 owing
  • Commission receivable: GHȼ500 owing to Mankessim Traders
  • Allowance for receivables: GHȼ1,600 credit balance

The following information is available for the financial year ended 31 December 2021:

  • Insurance was paid as follows:
    • 26 February 2021 GHȼ2,000
    • 15 October 2021 GHȼ2,600
    • The payment on 15 October 2021 relates to the period 1 October 2021 to 31 March 2022.
  • Commission receivable was as follows:
    • 10 January 2021 GHȼ400
    • 18 January 2021 GHȼ200
    • 13 November 2021 GHȼ3,000
  • On 31 December 2021, GHȼ600 was owing in commission to Mankessim Traders.
  • The trade receivables balance at 31 December 2021 was GHȼ38,400. The allowance for receivables is to be provided as GHȼ600 for a specific debt, plus 2% on the remainder of receivables.

Required:
Prepare the following ledger accounts, including in each case the transfer to the Statement of Profit and Loss, for the year ended 31 December 2021, and the balance carried down to the next financial year.
i) Insurance. (2 marks)
ii) Commission receivable. (2 marks)
iii) Allowance for receivables. (2 marks)

c) Explain why maintaining an allowance for receivables is an application of the prudence concept. (4 marks)

a)
i) The purpose and scope of financial accounting are as follows:

  • Financial Accounting information is prepared by enterprises for external users. It provides information to meet their needs, such as shareholders, potential investors, banks, and suppliers. It is used to inform about the financial performance and position of the company, and it helps in preparing tax accounts.
  • Financial Accounting information is normally regulated by law and accounting standards and is often audited. It requires the presentation of financial statements, including a Statement of Comprehensive Income, Statement of Financial Position, Statement of Cash Flows, Statement of Changes in Equity, and the necessary notes. (2 marks)

ii) Differences between Financial Accounting and Management Accounting:

  • Financial statements from Financial Accounting are intended mainly for external users, while Management Accounting information is for internal use by management.
  • Financial accounts describe the performance of a business over a specific period, whereas Management Accounting helps management record, plan, and control activities and assists in decision-making.
  • Financial Accounting deals mainly with historical data, while Management Accounting can include future information, such as budgets. (6 marks)

b) i) Insurance Account

c) The prudence concept states that profits should be understated rather than overstated, and assets should be understated rather than overstated. Creating an allowance for receivables increases the expenses and reduces the profit, which is a prudent approach. It also reduces the assets, as the allowance is subtracted from receivables, making this an application of the prudence concept.
(4 marks)

  • 20 Marks

FA – Aug 2022 – L1 – Q1 – Accruals and prepayments | The IASB’s Conceptual Framework

Explanation of the IASB’s enhancing qualitative characteristics of financial information and preparation of ledger accounts for commission received, stationery, and rates, including adjustments for accruals and prepayments.

a) IASB Conceptual Framework underpins what IFRS say and why they identify a particular accounting treatment. Another important aspect of the conceptual framework is an attempt to define “high quality” information or in other words, what makes financial information useful.

Required:
Explain in accordance with the IASB’s Conceptual Framework the enhancing qualitative characteristics of useful financial accounting information.
(10 marks)

b) On 1 January 2021, Koo Nimo, a trader, had the following entries in his ledger:

Account Amount (GHȼ)
Commission received (owing) 900
Stationery (owing) 400
Rates (prepaid) 600

The following information relates to the financial year ended 31 December 2021. All transactions were by cheque.

i) Commission received was as follows:

Date Amount (GHȼ)
14 January 850
16 November 3,200

On 31 December 2021 GHȼ800 was still owing in commission to Koo Nimo for the 2021 financial year.

ii) Stationery was paid as follows:

Date Amount (GHȼ)
19 January 800
13 November 4,200

On 1 January 2021 there was no stock of stationery, while at 31 December 2021 stock of stationery was GHȼ200. There were no outstanding invoices for stationery at 31 December 2021.

iii) Rates were paid as follows:

Date Amount (GHȼ)
9 April 2,600
24 November 2,800

A refund for rates of GHȼ800 was received on 15 December 2021. At 31 December 2021 rates were overpaid by GHȼ250.

Required:
Prepare the commission received, stationery and rates ledger accounts, including in each case the transfer to the Statement of Profit and Loss, for the year ended 31 December 2021, and the balance carried down to the next financial year.
(6 marks)

c) Explain TWO (2) reasons why a business entity will make adjustments for accruals and prepayments in the final accounts.
(4 marks)

a)
Enhancing Qualitative Characteristics:

  1. Comparability:
    Comparability allows users to identify similarities and differences between two sets of economic phenomena. Information is more useful if it can be compared with similar information about other entities or the same entity over different periods. Consistency in application helps in achieving comparability.
  2. Verifiability:
    Verifiability ensures that different knowledgeable and independent observers could reach consensus that a particular depiction is a faithful representation. It helps to assure users that information faithfully represents the economic phenomena it purports to represent.
  3. Timeliness:
    Timeliness means having information available to decision-makers in time to be capable of influencing their decisions. Information that is available after the decision-making process is less useful.
  4. Understandability:
    Information is understandable if it is classified, characterized, and presented clearly and concisely. Financial reports should be prepared for users who have a reasonable knowledge of business and economic activities.

(4 points @ 2.5 marks each = 10 marks)

b)

c)
Reasons for Adjustments for Accruals and Prepayments:

  1. Accurate Reflection of Financial Position:
    Adjusting for accruals and prepayments ensures that expenses and revenues are matched to the correct accounting period, providing an accurate reflection of the company’s financial position.
  2. Compliance with Accounting Standards:
    Making these adjustments ensures compliance with the accruals concept under accounting standards, which mandates that transactions be recorded in the period in which they occur, not when cash is received or paid.
  • 20 Marks

FA – May 2020 – L1 – Q1 – Double entry bookkeeping | Non-current assets and depreciation | Preparation of financial statements of a sole trader

This question requires preparing ledger accounts related to depreciation, disposal, and asset balances for Tansah Ltd.

a) Write a short note to a client explaining the following issues:

i) Outline the differences between Cost and Management Accounting and Financial Accounting. (3 marks)

ii) Explain FOUR (4) roles of an Accountant in an organization. (4 marks)

iii) Outline SIX (6) key information provided by a Statement of Profit or Loss and Other Comprehensive Income and the Statement of Financial Position. (3 marks)

b) At 1 July 2017, the following information was extracted from the books of Tansah Ltd:
Non-current assets at cost:

Reference Description Amount (GH¢)
M1 Machinery 25,000
E1 & E2 Equipment 15,400
MV1 Motor Vehicle 18,500

Provision for depreciation:

Reference Description Amount (GH¢)
M1 Machinery 18,500
E1 & E2 Equipment 8,600
MV1 Motor Vehicle 6,500

During the financial year ended 30 June 2018, the following transactions took place:
Purchases:

Date Description Reference Amount (GH¢)
1 April 2018 Machinery M2 M2 10,800
1 January 2018 Equipment E3 E3 6,800

Disposals:

Reference Description Purchase Date Disposal Date Original Cost (GH¢) Sale Proceeds (GH¢)
E2 Equipment 1 January 2015 31 March 2018 7,200 6,400

All transactions took place through the bank account.

Depreciation rates per annum:

  • Machinery: 10% straight line on cost
  • Equipment: 12.5% straight line on cost
  • Motor Vehicle: 15% reducing balance

Depreciation for new assets commences in the month in which the asset is acquired.

Required:
For Tansah Ltd, prepare the following ledger accounts for the year ended 30 June 2018:

i) Provision for Depreciation of Machinery (2 marks)
ii) Provision for Depreciation of Equipment (4 marks)
iii) Disposal of Equipment (3 marks)
iv) Motor vehicle (1 mark)

a) i) Cost and Management Accounting
This is the process of providing detailed information to management on current and
planned events. This information assists managers in their roles of planning,
controlling and making decisions. Usually management accounts are only available
to internal users of accounting information. Management accounting will contain
information such as department budgets, product profitability, information on
production costs etc.
Financial Accounting
This is the process of summarising financial information in order to prepare the
company’s financial statements. The financial statements of an organisation are the
Income Statement, Statement of Financial Position, Statement of Cash Flow and
Explanatory Notes. These statements are primarily of interest to external users of
accounting information. Financial statements are historical in nature in that they are
prepared on a semi-annual/annual basis and are concerned primarily with the
financial performance of the company in the income statement and the financial
position of the company reported in the statement of financial position. Therefore
from the perspective of management the information contained therein is not timely
being six months or a year out of date by the time it is reported. Financial accounting
is thus the manner in which an organisation communicates financial information,
namely performance, position and cash flow to the outside world. It represents a
report on the directors’ stewardship of the funds entrusted to them by the
shareholders. The financial statements are public documents they are easily
accessible. A copy of the financial statements must also be filed with the Registrar
General where they can be publicly accessed. Therefore they would not reveal
details about, for example, an individual products’ profitability. That information
would be contained in the management accounts of the business. (3 marks)
ii) The accountant’s role in the organisation can be analysed as follows:
 Preparation and presentation of timely accurate financial/management accounts to
management to help management interpret the financial information.
 Identification of areas of inefficiency and wastages of resources in the business.
 Treasury functions: The accountant also plays the role of treasury functions in such
a way that they raise finance, cash management, etc.
 Setting up an effective system of internal and accounting controls.
 Preparation of feasibility reports: These reports assist management in assessing the
viability/profitability or otherwise proposed capital expenditure such as the
opening of a new factory or branch.
 Investigation of the performance/operations of competing business organisations to
assist management in policy formulation.
 Investigation of fraud within the organisation, this is a key role of the accountant in
preparation of an audit at year-end.

iii) Information provided by the Income Statement
 The income statement is fundamentally a listing of all income and all expenses for
the year. Taking expenses from income gives the profit that the business earned for
the year. Therefore the income statement is year specific – just looking at the
accounting year or period in question.
 By examining income statements year on year a business can gain information about
whether sales and expenses are increasing or decreasing and how they are moving
in relation to each other. For example in any year if sales were to fall while at the
same time expenses increase – the information would be captured in the income
statement and action could be taken.
 Also the income statement divides the cost of producing/purchasing a good/service
from the cost of administration and selling expenses within the business. The
information can be useful when businesses are examining costs. (3 marks)
Information provided by the Statement of Financial Position
 The statement of financial position is fundamentally a listing of all the assets of a
business and all the liabilities of a business. By subtracting these assets from
liabilities we arrive at the net worth of the business. The statement of financial
position is a snap shot pictures of a business at a point in time – usually the end of
the financial year. It is different to the income statement in this regard – the income
statement spans the full financial year.
(3 marks)

Depreciation workings:

  • Disposal:
    • E2: 7,200 @ 12.5% x 3 = 2,700
    • E2: 7,200 @ 12.5% x 3/12 = 225
    • Total Disposal Depreciation = 2,925
  • Profit & Loss:
    • E1: 8,200 @ 12.5% = 1,025
    • E2: 7,200 @ 12.5% x 9/12 = 675
    • E3: 6,800 @ 12.5% x 6/12 = 425
    • Total Profit & Loss Depreciation = 2,125

 

  • 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

  • 20 Marks

FA – May 2018 – L1 – Q2 – Non-current assets and depreciation

Record and depreciate non-current asset transactions over a 15-month period.

Asasepa Ltd prepares its financial statements to 31 December each year until 31 December 2016, when the business changed its accounting date. The company prepared its next financial statements for 15 months to 31 March 2018.

At 1 January 2017, the following balances existed in the business’s accounting records:

  • Plant and machinery: cost GH¢819,000; accumulated depreciation GH¢360,000.
  • Motor vehicles: cost GH¢148,000; accumulated depreciation GH¢60,000.

Depreciation policy
The business’ policy on depreciation is to charge proportionate depreciation in the periods of purchase and sale of its non-current assets, charging depreciation as from the first day of the month in which assets are acquired, and up to the last day of the month before any disposal.
Annual rates of depreciation taken are:

  • Plant and machinery: 15% straight line
  • Motor vehicles: 25% straight line

Transactions during the year
During the 15 months ended 31 March 2018, the following transactions took place:

  • 10 January 2017: An item of plant was purchased. The cost was made up as follows:
    • Cost ex-factory: GH¢41,200
    • Delivery: GH¢300
    • Installation costs: GH¢800
    • Construction of foundations: GH¢3,600
    • Spare parts for repairs: GH¢4,000
    • Cost of one-year maintenance agreement: GH¢2,000
    • Total: GH¢51,900
  • 18 April 2017: A new motor vehicle was purchased for GH¢18,000. An existing vehicle which had cost GH¢12,000, and which had a book value at 1 January 2017 of GH¢6,000, was given in part exchange at an agreed value of GH¢5,000. The balance of GH¢13,000 was paid in cash.

Required:
a) Prepare the ledger accounts to show the balances at 1 January 2017.
b) Record the non-current asset transactions for the 15 months period ending 31 March 2018.

Plant & Machinery – Cost

Motor Vehicles – Disposal

Working:
Depreciation:

  • (154,000 – 18,000) × 25% × 15/12 = 42,500
  • 18,000 × 25% × 12/12 = 4,500
  • 12,000 × 25% × 3/12 = 750
  • Total = 47,750

 

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