Question Tag: Profit and Loss

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  • 15 Marks

MA – Nov 2018 – L2 – Q2b – Budgetary control

Preparation of a budgeted profit and loss account for Uswa Ltd and explanation of the term "budget manual."

Uswa Ltd is engaged in manufacturing and sale of footwear. The company maintains one central factory and warehouse and sells its products through company-operated retail outlets as well as through distributors. Management is in the process of preparing the budget for the year 2018 on the basis of the following information:

  • The marketing director has provided the following annual sales projections:
Category No. of Units Retail Price Range (GH¢)
Men 1,200,000 100 – 400
Women 500,000 85 – 250
  • It has been estimated that 30% of the units would be sold through distributors who paid GH¢95 and GH¢70 per footwear for men and women respectively.
  • The remaining 70% will be sold through company-operated retail outlets.
  • The previous pattern of sales indicates that 60% of these units are sold at the minimum price; 10% units are sold at the maximum price and remaining 30% at a price of GH¢200 and GH¢120 per footwear for men and women respectively.
  • The company incurs a variable cost of GH¢45 per footwear regardless of whether sales are through company-operated retail outlet or distributors.
  • The company operates 22 outlets all over the country. The fixed costs per outlet are GH¢12,000 per month and include rent, electricity, maintenance, etc.
  • Fixed costs for the factory and head office are GH¢4.5 million and GH¢1.5 million per month respectively.

Required:

i) Prepare a budgeted profit and loss account for the year 2018 for Uswa Ltd. (13 marks)

ii) Explain the term “budget manual.” (2 marks)

i) Budgeted Profit and Loss Account for the Year Ending 2018

Item Amount (GH¢)
Revenue
Distributor:
Men – (30% x 1,200,000) x GH¢95 34,200,000
Women – (30% x 500,000) x GH¢70 10,500,000
Outlets:
Men
Minimum Price – 60% x 840,000 x GH¢100 50,400,000
Maximum Price – 10% x 840,000 x GH¢400 33,600,000
Average Price – 30% x 840,000 x GH¢200 50,400,000
Women
Minimum Price – 60% x 350,000 x GH¢85 17,850,000
Maximum Price – 10% x 350,000 x GH¢250 8,750,000
Average Price – 30% x 350,000 x GH¢120 12,680,000
Total Revenue 218,300,000
Less: Cost
Variable Cost GH¢45 (1,200,000 + 500,000) 76,500,000
Less: Factory Overheads 4,500,000 x 12 54,000,000
Gross Profit 87,800,000
Less: Administrative overhead 12 x 1,500,000 18,000,000
Cost of retail outlets 12 x 22 x 12,000 3,168,000
Net Profit 66,632,000

ii) Budget Manual: The budget manual is a collection of instructions governing the responsibilities of persons and the procedures, forms, and records relating to the preparation and use of budgetary data.

  • 20 Marks

FA – Mar 2023 – L1 – Q4 – Preparation of limited liability company financial statements

Prepares the Statement of Profit or Loss and Statement of Financial Position for a limited liability company, including depreciation and adjustments.

Vemso Oil Ltd has been in business for the past ten years. The following trial balance was extracted from the books of Vemso Oil Ltd for the year ended 31 December 2021:

Account GH¢’000 GH¢’000
Bank 46,200
Trade Payable 25,000
Petty Cash 4,000
Directors’ Current Account 320,000
Computer and Accessories 8,370
Computer and Accessories: Accumulated Depreciation 3,348
Furniture and Fittings 10,255
Furniture and Fittings: Accumulated Depreciation 2,050
Land and Building 214,000
Land and Building: Accumulated Depreciation 8,560
Office Equipment 12,250
Office Equipment: Accumulated Depreciation 2,450
Plant and Machinery 239,400
Plant and Machinery: Accumulated Depreciation 47,880
Inventory 1,900
Staff Loan 5,088
Payroll Liabilities 550
Taxation 3,003
Retained Earnings 49,282
Share Capital 10,000
Sales 574,145
Purchases 355,000
Bank Service Charges 1,300
Business Promotion 1,500
Communication 1,900
Insurance 1,660
Licenses and Permits 6,650
Medical expenses 155
Printing and Stationery 300
Professional Fees: Legal Fees 500
Repairs: Equipment Repairs 2,600
Salaries 23,050
Electricity 780
Water 280
Vehicle Running Expense 4,560
Totals 993,983 993,983

Additional information:
i) Closing inventory as at December 2021 amounts to GH¢48,500,000.
ii) The following assets were bought during the year 2021. However, this transaction was not recorded in the above trial balance:

  • Computer and Accessories: GH¢8,000,000
  • Fixtures and Fittings: GH¢5,000,000
  • Plant and Machinery: GH¢25,000,000
    iii) The following are the rates of depreciation being used by the company, however, depreciation for 2021 is yet to be charged:
  • Land and Building: 1%
  • Computer and Accessories: 20%
  • Furniture and Fittings: 10%
  • Plant and Machinery: 20%
  • Office Equipment: 20%
    iv) Electricity stated in the trial balance includes January 2022 electricity bill, while that of water represents six months’ payment for the year 2021.
    v) Staff bonus amounting to GH¢15,000,000 was agreed on 31 December 2021 for staff. However, it was paid after the year-end.

Required:

a) Prepare the Statement of Profit or Loss for the year ended 31 December 2021. (10 marks)
b) Prepare the Statement of Financial Position as at 31 December 2021. (10 marks)



  • 20 Marks

FA – Dec 2023 – L1 – Q4 – Inventory | Preparation of limited liability company financial statements

Prepares the Statement of Profit and Loss and the Statement of Financial Position for a limited liability company based on a trial balance and additional information.

The trial balance for Odum Ltd. as at 31 December 2021 is as follows:

Account Dr (GHȼ) Cr (GHȼ)
Sales revenue 377,615
Purchases 130,006
Inventory as at 1 January 2021 60,890
Insurances 5,678
Salaries 61,600
Electricity 4,250
General expenses 8,663
Allowance for receivables 540
Land and Buildings at cost 80,000
Buildings accumulated depreciation 21,500
Machinery at cost 65,000
Machinery accumulated depreciation 12,400
Fixtures and fittings at cost 24,000
Fixtures and fittings accumulated depreciation 9,600
Trade receivables 64,500
Trade payables 14,062
Bank 20,110
Ordinary shares 50,000
Retained earnings as at 1 January 2021 15,480
10% Loan 25,000
Loan interest 1,500

(Dr Total: 526,197 GH¢ / Cr Total: 526,197 GH¢)

Additional Information:

  1. Inventory at 31 December 2021 amounted to GHȼ80,000. Some goods sent out on a sale or return basis have been treated as credit sales. These goods cost GHȼ6,000 and had been invoiced to the customer for GHȼ7,500. The customer has informed the company that it now intends to return these goods.
  2. The balance shown for salaries covers the 11 months to 30 November 2021. Salaries for December 2021 are due and unpaid. There have been no salary increases over the previous 12 months, and an equal amount is paid each month.
  3. Insurances include GHȼ660 for the half-year ended on 31 March 2022.
  4. Dividends paid during the year of GHȼ2,700 have been credited to bank and debited to General expenses.
  5. The loan was obtained in August 2018 and is repayable in full during the financial year ended 31 December 2023.
  6. Depreciation is to be provided on all machinery at 15% per annum using the reducing balance method. Machinery costing GHȼ15,000 was purchased on 1 July 2021, and this is included in the balance shown for machinery. Depreciation is calculated for each proportion of the year for which machinery is held. There were no disposals of machinery during the year.
  7. All the fixtures and fittings were purchased for GHȼ24,000 on 1 January 2019. Depreciation is to be charged using the straight-line method.
  8. Buildings are to be depreciated by GHȼ3,500 for the year. Land is not depreciated.
  9. Allowance for receivables is to be provided as GHȼ2,400 for a specific debt, plus 4% on the remainder of receivables.
  10. Taxation for the year is estimated as GHȼ42,012.

(Note: Revenue and expenses are deemed to accrue evenly throughout the year)

Required:
Prepare, for Odum Ltd, the following statements in accordance with International Financial Reporting Standards (IFRS).

a) The Statement of Profit and Loss for the year ended 31 December 2021. (10 marks)
b) The Statement of Financial Position as at 31 December 2021. (10 marks)

a) Odum Ltd. – Statement of Profit and Loss for the year ended 31 December 2021

 

  • 20 Marks

FA – Nov 2015 – L1 – Q7 – Capital structure and finance costs | Preparation of financial statements of a sole trader

Differentiate between capital and revenue expenditure and prepare financial statements for Danfo Enterprise.

a) Distinguish between Capital Expenditure and Revenue Expenditure. (5 marks)

(b) The following Trial Balance was extracted from the books of Danfo Enterprise, a second-hand bags dealer, as at 31st December 2014:

Description DR (GH¢) CR (GH¢)
Stock in Trade 120,000
Vehicle (Cost) 150,000
Trade Receivables 80,000
Accumulated Depreciation: Vehicle 30,000
Accumulated Depreciation: Furniture & Fittings 10,120
Trade Payables 100,000
Drawings 120,000
General Expenses 65,000
Provision for Doubtful Debts 2,500
Rate & Rent 14,000
Insurance 5,000
Bad Debt 7,000
Discount Received 25,150
Discount Allowed 15,160
Bank Balance 165,240
Wages & Salaries 250,000
Sundry Expenses 6,150
Vehicle Running Expenses 15,650
Furniture & Fittings 50,600
Repairs to the Shop 6,500
Purchases 650,120
Sales 1,079,130
Capital 473,520
Total 1,720,420 1,720,420

Additional Information:
i. Provision for doubtful debts is to be reduced by 10%.
ii. Rate and Rent has been paid in advance by two (2) months. Note that Danfo Enterprise pays GH¢1,000 each month.
iii. Stock in trade as at 31st December, 2014 GH¢80,150.
iv. A bill of GH¢6,150 for vehicle running was outstanding as at 31st December, 2014.
v. The Enterprise provides depreciation as follows:

  • Vehicle: 20% per annum on straight line basis.
  • Furniture and Fittings: 20% per annum on straight line basis.

You are required to:
i. Prepare Income statement for the year ending 31st December 2014. (8 marks)
ii. Prepare Statement of Financial Position as at 31st December 2014. (7 marks)

(a) Capital Expenditure:

  • Capital expenditure results in the acquisition of fixed assets or an improvement in their earning capacity.
  • It is not charged as an expense in the income statement in one go; instead, a depreciation or amortization charge is usually made to write off the capital expenditure gradually over time.
  • Capital expenditure on fixed assets is the recognition of a fixed asset (e.g., vehicles, land, and buildings) in the statement of financial position of the business.

Revenue Expenditure:

  • Revenue expenditure is incurred for the purpose of trade/service of the business, including selling & distribution expenses, administration expenses, and finance charges.
  • It is also for maintaining the existing earning capacity of fixed assets, such as repair expenses.
  • It ensures the smooth running of the day-to-day activities of the company/business.

(b) i. Danfo Enterprise Income Statement for the year ended 31st December, 2014

ii. Danfo Enterprise Statement of Financial Position as at 31st December 2014

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