Series: MAY 2020

Search 500 + past questions and counting.

CR – May 2020 – L3 – Q1 – Consolidated Statement of Financial Position

Prepare the consolidated statement of financial position for Phato Ltd and its subsidiaries as at 30 September 2019, including relevant calculations for goodwill, non-controlling interest, and asset impairments.

Question

Phato Ltd, is a Public Limited Liability Company which operates in the service sector in Ghana. Phato Ltd has a business relationship with two other Ghanaian companies, Sakara Ltd and Saadi Ltd, which are public limited liability companies too. The draft statements of financial position of these three companies are as below as at 30 September 2019.

Phato Ltd GH¢ million	Sakara Ltd GH¢ million	Saadi Ltd GH¢ million
Assets:
Non-current assets
Property, plant, and equipment	460.0	150.0
Investment in subsidiaries
Sakara Ltd	365.0
Saadi Ltd	160.0
Investment in Azuri Ltd	24.0
Intangible assets	99.0	15.0
Total Non-current assets	948.0	325.0
Current assets	447.5	240.0
Total assets	1,395.5	565.0
Equity and liabilities:
Equity:
Share capital	460.0	200.0
Other components of equity	36.5	18.5
Retained earnings	447.5	221.0
Total equity	944.0	439.5
Non-current liabilities	247.5	61.5
Current liabilities	204.0	64.0
Total liabilities	451.5	125.5
Total equity and liabilities	1,395.5	565.0

Additional relevant information:

Phato Ltd, on 1 October 2017, acquired 60% of the equity interests of Sakara Ltd. The cost of the investment comprised cash of GH¢360 million. At acquisition, the fair value of the non-controlling interest in Sakara Ltd was estimated at GH¢146 million. The fair value of the identifiable net assets acquired totaled GH¢417.5 million, including retained earnings of GH¢159.5 million and other components of equity at GH¢13.5 million. The excess in fair value results from non-depreciable land.
Sakara Ltd, on 1 October 2018, acquired 70% of Saadi Ltd for GH¢160 million. The fair value of non-controlling interest was estimated at GH¢36 million. The fair value of the identifiable net assets of Saadi Ltd at acquisition was GH¢181 million, retained earnings GH¢53 million, and other components of equity GH¢10 million.
Phato Ltd acquired a 14% interest in Azuri Ltd for GH¢9 million on 1 October 2017. On 1 April 2019, Phato Ltd acquired an additional 16% interest in Azuri Ltd for GH¢13.5 million, achieving significant influence.
Phato Ltd purchased patents for GH¢5 million and incurred other development costs for product development.
Impairment tests were conducted on Sakara Ltd and Saadi Ltd.

Required:
Prepare the consolidated statement of financial position for the Phato Ltd Group as at 30 September 2019.

Answer

Phato Ltd Group
Consolidated Statement of Financial Position as at 30 September 2019

Assets	GH¢ million
Non-current assets
Property, plant, and equipment (460 + 150 + 155 + 44.5 + 18)	827.5
Goodwill (W3)	93.5
Intangible assets (99 + 15 + 17.5 – 4.5 -13.5)	113.5
Investment in Azuri (W7)	25.25
Total non-current assets	1,059.75
Current assets	812.5
Total assets	1,872.25

Equity and Liabilities	GH¢ million

Equity attributable to owners of parent

Share capital

460

Retained earnings (W5)

489.41

Other components of equity (W5)

38.05

Total Equity attributable to owners

987.46

Non-controlling interest (W4)

192.29

Total Equity

1,179.75

Non-current liabilities

355.5

Current liabilities

337.0

Total Liabilities

692.5

Total Equity and Liabilities

1,872.25

Complete your registration to see answers

Find Related Questions by Tags, levels, etc.

Tags: Business Combinations, Consolidation, Goodwill, IFRS, Impairment, Investment
Level: Level 3

Topic: Business combinations and consolidation, Consolidated Financial Statements
Series: MAY 2020

Tags: Business Combinations, Consolidation, Goodwill, IFRS, Impairment, Investment
Level: Level 3

Topic: Business combinations and consolidation, Consolidated Financial Statements
Series: MAY 2020

Uploader: Kwame Aikins

CR – May 2020 – L3 – Q1 – Consolidated Statement of Financial Position

Prepare the consolidated statement of financial position for Phato Ltd and its subsidiaries as at 30 September 2019, including relevant calculations for goodwill, non-controlling interest, and asset impairments.

Question

Phato Ltd GH¢ million	Sakara Ltd GH¢ million	Saadi Ltd GH¢ million
Assets:
Non-current assets
Property, plant, and equipment	460.0	150.0
Investment in subsidiaries
Sakara Ltd	365.0
Saadi Ltd	160.0
Investment in Azuri Ltd	24.0
Intangible assets	99.0	15.0
Total Non-current assets	948.0	325.0
Current assets	447.5	240.0
Total assets	1,395.5	565.0
Equity and liabilities:
Equity:
Share capital	460.0	200.0
Other components of equity	36.5	18.5
Retained earnings	447.5	221.0
Total equity	944.0	439.5
Non-current liabilities	247.5	61.5
Current liabilities	204.0	64.0
Total liabilities	451.5	125.5
Total equity and liabilities	1,395.5	565.0

Additional relevant information:

Phato Ltd, on 1 October 2017, acquired 60% of the equity interests of Sakara Ltd. The cost of the investment comprised cash of GH¢360 million. At acquisition, the fair value of the non-controlling interest in Sakara Ltd was estimated at GH¢146 million. The fair value of the identifiable net assets acquired totaled GH¢417.5 million, including retained earnings of GH¢159.5 million and other components of equity at GH¢13.5 million. The excess in fair value results from non-depreciable land.
Sakara Ltd, on 1 October 2018, acquired 70% of Saadi Ltd for GH¢160 million. The fair value of non-controlling interest was estimated at GH¢36 million. The fair value of the identifiable net assets of Saadi Ltd at acquisition was GH¢181 million, retained earnings GH¢53 million, and other components of equity GH¢10 million.
Phato Ltd acquired a 14% interest in Azuri Ltd for GH¢9 million on 1 October 2017. On 1 April 2019, Phato Ltd acquired an additional 16% interest in Azuri Ltd for GH¢13.5 million, achieving significant influence.
Phato Ltd purchased patents for GH¢5 million and incurred other development costs for product development.
Impairment tests were conducted on Sakara Ltd and Saadi Ltd.

Required:
Prepare the consolidated statement of financial position for the Phato Ltd Group as at 30 September 2019.

Answer

Phato Ltd Group
Consolidated Statement of Financial Position as at 30 September 2019

Assets	GH¢ million
Non-current assets
Property, plant, and equipment (460 + 150 + 155 + 44.5 + 18)	827.5
Goodwill (W3)	93.5
Intangible assets (99 + 15 + 17.5 – 4.5 -13.5)	113.5
Investment in Azuri (W7)	25.25
Total non-current assets	1,059.75
Current assets	812.5
Total assets	1,872.25

Equity and Liabilities	GH¢ million

Equity attributable to owners of parent

Share capital

460

Retained earnings (W5)

489.41

Other components of equity (W5)

38.05

Total Equity attributable to owners

987.46

Non-controlling interest (W4)

192.29

Total Equity

1,179.75

Non-current liabilities

355.5

Current liabilities

337.0

Total Liabilities

692.5

Total Equity and Liabilities

1,872.25

Complete your registration to see answers

Find Related Questions by Tags, levels, etc.

Tags: Business Combinations, Consolidation, Goodwill, IFRS, Impairment, Investment
Level: Level 3

Topic: Business combinations and consolidation, Consolidated Financial Statements
Series: MAY 2020

Tags: Business Combinations, Consolidation, Goodwill, IFRS, Impairment, Investment
Level: Level 3

Topic: Business combinations and consolidation, Consolidated Financial Statements
Series: MAY 2020

Uploader: Kwame Aikins

CR – May 2020 – L3 – Q2a – Government Grants for Factory Construction

Discuss the accounting treatment for a government grant received for the construction of a factory, showing calculations and relevant entries.

Question

On 1 January 2018, Asankragua Ltd (Asankragua) applied to a government agency for a grant to assist with the construction of a factory in Enchi. The proposed construction cost of the factory was GH¢52 million and the company projected that 350 people would be employed after completion. The land was already owned by Asankragua.

On 1 March 2018, the government agency offered to grant a sum amounting to 25% of the factory’s construction cost to a maximum of GH¢13 million. The grant aid was to be advanced on completion and would be repayable on demand if total employment at the factory fell below 300 people within 5 years of completion.

At the financial year end, 31 March 2018, Asankragua had accepted the offer of grant aid and had signed contracts for the construction of the factory at a total cost of GH¢52 million. Construction work was due to commence on 1 April 2018.

By 31 March 2019, the factory had been completed on budget, 400 people were employed ready to commence manufacturing activities, and the government agency agreed that the conditions necessary for the drawdown of the grant had been met.

On 1 April 2019, the factory was brought into use. It was estimated that it would have a ten-year useful economic life. On 1 June 2019, the government agency paid over the agreed GH¢13 million. In addition, the company sought and was paid an employment grant of GH¢1.2 million as employment exceeded original projections. This is expected to be payable annually for 5 years in total, at a rate of GH¢12,000 per additional person employed over 300 in each year. There are no repayment provisions attached to the employment grant.

The directors of Asankragua expect employment levels to exceed 350 people for at least 4 further years from 31 March 2020.

Required:
Demonstrate, showing calculations and relevant entries, how Asankragua Ltd should record the above transactions and events in its financial statements for years ended 31 March 2018, 2019, and 2020.

Answer

Year ended 31 March 2018:
No accounting entry is made in this financial year, as no transaction has yet been entered into. A capital commitment exists and should be disclosed in the notes. The grant approval should be disclosed also.

Year ended 31 March 2019:
At this date, the factory should be recorded at its cost of GH¢52 million. As all conditions for the payment of the grant have been met, recognition should be made of this amount receivable also. As the factory has not yet been brought into use, no depreciation will be charged for the year. Similarly, no amortisation of the grant will take place in the period.

Recognition of factory:
Dr Property, plant & equipment: GH¢52 million
Cr Cash: GH¢52 million (New factory constructed at a cost of GH¢52 million)

Recognition of grant:
Option 1:
Dr Government grant receivable (current asset): GH¢13 million
Cr Property, plant & equipment: GH¢13 million (Government grant approved, not received yet)

Option 2:
Dr Government grant receivable (current asset): GH¢13 million
Cr Deferred income – current liability: GH¢1.3 million
Cr Deferred income – non-current liability: GH¢11.7 million (Government grant approved, not received yet)

Year ended 31 March 2020:
There are several transactions to record based on the new factory. These are (1) depreciation and (2) amortisation of the grant. In addition, the cash was received from the government agency.

Receipt of grant:
Dr Cash: GH¢13 million
Cr Government grant receivable: GH¢13 million (Receipt of cash grant from government agency)

Option 1 (Depreciation of factory):
Dr Profit or loss: GH¢3.9 million
Cr Accumulated Depreciation – PPE: GH¢3.9 million (Depreciation of the cost of factory net of grant over 10 years)

Option 2 (Depreciation of factory):
Dr Profit or loss: GH¢5.2 million
Cr Accumulated Depreciation – PPE: GH¢5.2 million (Depreciation of gross factory cost over 10 years)

Amortisation of grant:
Dr Deferred income: GH¢1.3 million
Cr Profit or loss: GH¢1.3 million (Amortization of grant over 10 years, reflecting the proportional expensing of the factory to which the grant relates)

The employment grant relates entirely to the cost of employing staff in that year. Hence it should be entirely recognized as income in the year ended 31 March 2020.

Recognition of employment grant:
Dr Cash: GH¢1.2 million
Cr Profit or loss: GH¢1.2 million (Recognition of employment grant as income as received)

Initial recognition of the factory in 2019: 1 mark
Page 19 of 28
Recognition of the grant in 2019: 2 marks
Treatment of receipt of grant in 2020: 2 marks
Depreciation of factory in 2020: 1 mark
Treatment of amortization of grant: 1.5 marks
Recognition of employment grant: 1.5 marks

Complete your registration to see answers

Find Related Questions by Tags, levels, etc.

Tags: Capital Commitment, Deferred Income, Factory Construction, Government Grants, IAS 20
Level: Level 3

Topic: IAS 20 and IAS 40)
Series: MAY 2020

Tags: Capital Commitment, Deferred Income, Factory Construction, Government Grants, IAS 20
Level: Level 3

Topic: IAS 20 and IAS 40)
Series: MAY 2020

Uploader: Kwame Aikins

CR – May 2020 – L3 – Q2a – Government Grants for Factory Construction

Discuss the accounting treatment for a government grant received for the construction of a factory, showing calculations and relevant entries.

Question

The directors of Asankragua expect employment levels to exceed 350 people for at least 4 further years from 31 March 2020.

Answer

Recognition of factory:
Dr Property, plant & equipment: GH¢52 million
Cr Cash: GH¢52 million (New factory constructed at a cost of GH¢52 million)

Recognition of grant:
Option 1:
Dr Government grant receivable (current asset): GH¢13 million
Cr Property, plant & equipment: GH¢13 million (Government grant approved, not received yet)

Receipt of grant:
Dr Cash: GH¢13 million
Cr Government grant receivable: GH¢13 million (Receipt of cash grant from government agency)

Option 1 (Depreciation of factory):
Dr Profit or loss: GH¢3.9 million
Cr Accumulated Depreciation – PPE: GH¢3.9 million (Depreciation of the cost of factory net of grant over 10 years)

Option 2 (Depreciation of factory):
Dr Profit or loss: GH¢5.2 million
Cr Accumulated Depreciation – PPE: GH¢5.2 million (Depreciation of gross factory cost over 10 years)

The employment grant relates entirely to the cost of employing staff in that year. Hence it should be entirely recognized as income in the year ended 31 March 2020.

Recognition of employment grant:
Dr Cash: GH¢1.2 million
Cr Profit or loss: GH¢1.2 million (Recognition of employment grant as income as received)

Complete your registration to see answers

Find Related Questions by Tags, levels, etc.

Tags: Capital Commitment, Deferred Income, Factory Construction, Government Grants, IAS 20
Level: Level 3

Topic: IAS 20 and IAS 40)
Series: MAY 2020

Tags: Capital Commitment, Deferred Income, Factory Construction, Government Grants, IAS 20
Level: Level 3

Topic: IAS 20 and IAS 40)
Series: MAY 2020

Uploader: Kwame Aikins

CR – May 2020 – L3 – Q2b – Capitalization of Borrowing Costs

Question

Dompoase Ltd incurred the following borrowing costs during the financial year 2018:

GH¢’000
Overdraft interest	12
Foreign currency loan interest (correctly translated into GH¢)	84
Foreign currency loan exchange differences on capital	140

In addition, a three-year fixed-rate GH¢2 million loan was taken out on 1 January 2018 at 6.5%. A loan set-up fee was charged at GH¢20,000. This increased the effective interest rate on the loan to 6.88%.

Required:
Determine the maximum amount that could potentially be capitalized as borrowing costs during the period (assuming an asset was being financed using all available finance).

Answer

GH¢’000
Overdraft	12
Foreign currency loan interest	84
Foreign currency loan exchange differences on capital	–
Effective interest on loan ((2,000 – 20) x 6.88%)	136.2

The maximum amount to capitalize is GH¢232.2k.

Complete your registration to see answers

Find Related Questions by Tags, levels, etc.

Tags: Borrowing Costs, Capitalization, Foreign Currency Loan, Interest, Overdraft
Level: Level 3

Series: MAY 2020

Tags: Borrowing Costs, Capitalization, Foreign Currency Loan, Interest, Overdraft
Level: Level 3

Series: MAY 2020

Uploader: Kwame Aikins

CR – May 2020 – L3 – Q2b – Capitalization of Borrowing Costs

Question

Dompoase Ltd incurred the following borrowing costs during the financial year 2018:

GH¢’000
Overdraft interest	12
Foreign currency loan interest (correctly translated into GH¢)	84
Foreign currency loan exchange differences on capital	140

Required:
Determine the maximum amount that could potentially be capitalized as borrowing costs during the period (assuming an asset was being financed using all available finance).

Answer

GH¢’000
Overdraft	12
Foreign currency loan interest	84
Foreign currency loan exchange differences on capital	–
Effective interest on loan ((2,000 – 20) x 6.88%)	136.2

The maximum amount to capitalize is GH¢232.2k.

Complete your registration to see answers

Find Related Questions by Tags, levels, etc.

Tags: Borrowing Costs, Capitalization, Foreign Currency Loan, Interest, Overdraft
Level: Level 3

Series: MAY 2020

Tags: Borrowing Costs, Capitalization, Foreign Currency Loan, Interest, Overdraft
Level: Level 3

Series: MAY 2020

Uploader: Kwame Aikins

CR – May 2020 – L3 – Q2c – Defined Benefit Pension Plan

Recommend the accounting treatment for a defined benefit pension plan with supporting calculations.

Question

Nzema prepares its financial statements in accordance with International Financial Reporting Standards (IFRS) with a financial year end of 31 December 2018. On 1 January 2018, Nzema commenced a defined benefit pension plan for a number of head office employees. Under the pension scheme, Nzema has an obligation to provide these staff with agreed post-employment benefits. Nzema carries the actuarial and investment risk associated with the pension scheme.

The following information has been compiled from workings by Nzema’s accounting staff and actuarial reports for the 2018 financial year:

GH¢
Interest income on plan assets	16,500
Employer contributions to plan	550,000
Current service cost	600,000
Interest on plan liability	18,000
Fair value of plan assets at 31/12/2018	580,000
Present value of plan obligation at 31/12/2018	620,000

The Accountant was not sure which accounting standard to apply when accounting for the pension scheme. The only adjustment made to account for the scheme was to expense the company’s contributions of GH¢550,000 for the 2018 financial year in the Statement of Profit or Loss and Other Comprehensive Income and to credit the ‘Cash’ account.

Required:
Recommend, with appropriate calculations, the necessary accounting treatment for this accounting issue.

Answer

The applicable accounting standard is IAS 19: Employee Benefits. Nzema’s pension plan is a defined benefit plan since Nzema has an obligation to provide agreed post-employment benefits and carries the actuarial and investment risk.

The employer contributions were accounted for incorrectly. Under IAS 19, a defined benefit liability (or asset) is recognized on the balance sheet as the present value of the defined benefit obligation minus the fair value of plan assets.

Workings – Calculation of Actuarial Gain/Loss:

Pension Asset:

Description	GH¢
Opening balance	0
Return on assets	16,500
Employer contributions	550,000
Remeasurement – Actuarial Gain	13,500
Closing balance (31/12/2018)	580,000

Pension Liability:

Description	GH¢
Opening balance	0
Interest Cost	18,000
Current Service Cost	600,000
Remeasurement – Actuarial Loss	2,000
Closing balance (31/12/2018)	620,000

Net Actuarial Gain:
GH¢13,500 (gain on pension assets) – GH¢2,000 (loss on pension liabilities) = GH¢11,500

Journal Entries:

Net Interest Expense (Profit or Loss):
Dr Net Interest Expense (Profit or Loss) GH¢1,500
Cr Pension Liability GH¢1,500
(Net interest expense: 18,000 – 16,500)
Current Service Cost (Profit or Loss):
Dr Current Service Cost GH¢600,000
Cr Pension Liability GH¢600,000
(Recognition of current service cost)
Actuarial Gain (Other Comprehensive Income):
Dr Pension Liability GH¢11,500
Cr Remeasurement – Actuarial Gain (Other Comprehensive Income) GH¢11,500
(Recognition of actuarial gain)
Correction of Previous Accounting Treatment:
Dr Pension Liability GH¢550,000
Cr Pension Contribution Expense (Profit or Loss) GH¢550,000
(Correcting previous entry where contributions were expensed)
Identification of the appropriate standard to be applied: 1 mark
Net interest expense to Profit or Loss: 1 mark
Actuarial gain on pension asset: 1 mark
Actuarial loss on pension liability: 1 mark
Net actuarial gain to OCI: 1 mark
Currents service cost: 1 mark
(Total: 20 marks)

Complete your registration to see answers

Find Related Questions by Tags, levels, etc.

Tags: Actuarial Gains/Losses, Defined Benefit Plan, Employee Benefits, Interest on Plan Liability, Pension Liability
Level: Level 3

Topic: IAS 19: Employee Benefits
Series: MAY 2020

Topic: IAS 19: Employee Benefits
Series: MAY 2020

Uploader: Kwame Aikins

CR – May 2020 – L3 – Q2c – Defined Benefit Pension Plan

Recommend the accounting treatment for a defined benefit pension plan with supporting calculations.

Question

The following information has been compiled from workings by Nzema’s accounting staff and actuarial reports for the 2018 financial year:

GH¢
Interest income on plan assets	16,500
Employer contributions to plan	550,000
Current service cost	600,000
Interest on plan liability	18,000
Fair value of plan assets at 31/12/2018	580,000
Present value of plan obligation at 31/12/2018	620,000

Required:
Recommend, with appropriate calculations, the necessary accounting treatment for this accounting issue.

Answer

Workings – Calculation of Actuarial Gain/Loss:

Pension Asset:

Description	GH¢
Opening balance	0
Return on assets	16,500
Employer contributions	550,000
Remeasurement – Actuarial Gain	13,500
Closing balance (31/12/2018)	580,000

Pension Liability:

Description	GH¢
Opening balance	0
Interest Cost	18,000
Current Service Cost	600,000
Remeasurement – Actuarial Loss	2,000
Closing balance (31/12/2018)	620,000

Net Actuarial Gain:
GH¢13,500 (gain on pension assets) – GH¢2,000 (loss on pension liabilities) = GH¢11,500

Journal Entries:

Net Interest Expense (Profit or Loss):
Dr Net Interest Expense (Profit or Loss) GH¢1,500
Cr Pension Liability GH¢1,500
(Net interest expense: 18,000 – 16,500)
Current Service Cost (Profit or Loss):
Dr Current Service Cost GH¢600,000
Cr Pension Liability GH¢600,000
(Recognition of current service cost)
Actuarial Gain (Other Comprehensive Income):
Dr Pension Liability GH¢11,500
Cr Remeasurement – Actuarial Gain (Other Comprehensive Income) GH¢11,500
(Recognition of actuarial gain)
Correction of Previous Accounting Treatment:
Dr Pension Liability GH¢550,000
Cr Pension Contribution Expense (Profit or Loss) GH¢550,000
(Correcting previous entry where contributions were expensed)
Identification of the appropriate standard to be applied: 1 mark
Net interest expense to Profit or Loss: 1 mark
Actuarial gain on pension asset: 1 mark
Actuarial loss on pension liability: 1 mark
Net actuarial gain to OCI: 1 mark
Currents service cost: 1 mark
(Total: 20 marks)

Complete your registration to see answers

Find Related Questions by Tags, levels, etc.

Tags: Actuarial Gains/Losses, Defined Benefit Plan, Employee Benefits, Interest on Plan Liability, Pension Liability
Level: Level 3

Topic: IAS 19: Employee Benefits
Series: MAY 2020

Topic: IAS 19: Employee Benefits
Series: MAY 2020

Uploader: Kwame Aikins

CR – May 2020 – L3 – Q3a – Foreign Currency Transactions

Foreign currency transactions related to purchases, sales, and investment property with exchange rate variations and reporting implications.

Question

Medina Power Ltd has carried out certain transactions denominated in foreign currency during its financial year ended 31 October 2019 and has also conducted foreign operations through a foreign entity. Medina Power Ltd.’s functional and presentation currency is the cedi.

On 31 July 2019, Medina Power Ltd purchased goods from a foreign supplier for 16 million dinars. At 31 October 2019, the supplier had not yet been paid and the goods were still held in inventory by Medina Power Ltd.

On 31 July, Medina Power Ltd sold goods to a foreign customer for 8 million dinars, and it received payment for the goods in dinars on 31 October 2019.

Medina Power Ltd had also purchased an investment property on 1 November 2018 for 56 million dinars. At 31 October 2019, the investment property had a fair value of 48 million dinars. The company uses the fair value model in accounting for investment properties.

Medina Power Ltd wants advice on how to treat these transactions in the financial statements for the year ended 31 October 2019.

Required:
Discuss the accounting treatment of the above transactions in accordance with the advice required by the directors. (You should show detailed workings as well as a discussion of the accounting treatment used.)

Answer

Inventory and payable

The inventory and trade payable would be recorded initially at GH¢10 million (16 million dinars x GH¢0.6250).
At the year-end on 31 October 2019, the amount payable is still outstanding. It should be re-translated at the closing rate to GH¢12.3 million (16 million dinars x GH¢0.7692).
This creates an exchange loss of GH¢2.3 million (12.3 – 10) which should be recognized in profit or loss.
Unless it has been impaired, the inventory (a non-monetary asset) should be recorded at GH¢10 million at the year-end.

Sale of goods

The sale of goods should be recorded at GH¢5 million (8 million dinars x GH¢0.6250) as revenue and as a trade receivable.
Payment in dinars was received on 31 October 2019 and the actual cedi value of the dinars received was GH¢6.2 million (8 million dinars x GH¢0.7692).
This creates a gain on exchange of GH¢1.2 million (6.2 – 5) which should be recognized in profit or loss.

Investment property

The investment property should be recognized on 1 November 2018 at GH¢40 million (56 million dinars x GH¢0.7143).
At the year-end on 31 October 2019, the property should be recognized at its fair value of GH¢36.9 million (48 million dinars x GH¢0.7692).
The fall in fair value (40 – 36.9 = 3.1) should be recognized in profit and loss as a loss on investment property.
The property is a non-monetary asset and when a gain or loss on a non-monetary item is recognized in profit or loss, the element of the gain or loss relating to exchange rates is also recognized in profit or loss.

Complete your registration to see answers

Find Related Questions by Tags, levels, etc.

Tags: Foreign Exchange, Investment properties, Monetary and non-monetary transactions, Revenue Recognition
Level: Level 3

Topic: Foreign currency
Series: MAY 2020

Topic: Foreign currency
Series: MAY 2020

Uploader: Kwame Aikins

CR – May 2020 – L3 – Q3a – Foreign Currency Transactions

Foreign currency transactions related to purchases, sales, and investment property with exchange rate variations and reporting implications.

Question

On 31 July, Medina Power Ltd sold goods to a foreign customer for 8 million dinars, and it received payment for the goods in dinars on 31 October 2019.

Medina Power Ltd wants advice on how to treat these transactions in the financial statements for the year ended 31 October 2019.

Answer

Inventory and payable

The inventory and trade payable would be recorded initially at GH¢10 million (16 million dinars x GH¢0.6250).
At the year-end on 31 October 2019, the amount payable is still outstanding. It should be re-translated at the closing rate to GH¢12.3 million (16 million dinars x GH¢0.7692).
This creates an exchange loss of GH¢2.3 million (12.3 – 10) which should be recognized in profit or loss.
Unless it has been impaired, the inventory (a non-monetary asset) should be recorded at GH¢10 million at the year-end.

Sale of goods

The sale of goods should be recorded at GH¢5 million (8 million dinars x GH¢0.6250) as revenue and as a trade receivable.
Payment in dinars was received on 31 October 2019 and the actual cedi value of the dinars received was GH¢6.2 million (8 million dinars x GH¢0.7692).
This creates a gain on exchange of GH¢1.2 million (6.2 – 5) which should be recognized in profit or loss.

Investment property

The investment property should be recognized on 1 November 2018 at GH¢40 million (56 million dinars x GH¢0.7143).
At the year-end on 31 October 2019, the property should be recognized at its fair value of GH¢36.9 million (48 million dinars x GH¢0.7692).
The fall in fair value (40 – 36.9 = 3.1) should be recognized in profit and loss as a loss on investment property.
The property is a non-monetary asset and when a gain or loss on a non-monetary item is recognized in profit or loss, the element of the gain or loss relating to exchange rates is also recognized in profit or loss.

Complete your registration to see answers

Find Related Questions by Tags, levels, etc.

Tags: Foreign Exchange, Investment properties, Monetary and non-monetary transactions, Revenue Recognition
Level: Level 3

Topic: Foreign currency
Series: MAY 2020

Topic: Foreign currency
Series: MAY 2020

Uploader: Kwame Aikins

CR – May 2020 – Q3b(i) – Ethical Issues in Contract Bidding

This question requires a discussion on the ethical issues related to conflict of interest, confidentiality, and professional behavior in a contract bidding scenario.

Question

You have just obtained your full membership with the Institute of Chartered Accountants (Ghana). Following this successful achievement, you have been appointed as the Head of Finance at Asasiyemedeh Company Limited, a Ghanaian company, which provides catering services. Your former employer, Akwaba Limited, is a large public sector organization operating in Accra, where, as the Financial Accountant, you had the opportunity to work on areas relating to financial accounting, procurement, contracts, and bids. One of Asasiyemedeh Company Limited’s major contracts is with Akwaba Limited, your former employer. The contract is now due for renewal, and Asasiyemedeh Company Limited is preparing a competitive bid for this contract.

You have been tasked to lead the team responsible for bidding for this contract, but you are concerned as a professional that you might breach confidentiality if you accept this role. You also suspect that your knowledge and experience of Akwaba Limited were seen as good reasons for appointing you to the position of Head of Finance at Asasiyemedeh Company Limited. You do not in any way want to let your new employer down as you are aware that the loss of such a major contract would have a significant effect on the financial performance of Asasiyemedeh Company Limited, and its performance-related bonus scheme for management members.

Required:
Discuss the ethical issues raised in the above scenario.

Answer

The ethical issues raised in the scenario include:

Objectivity:
There is a self-interest threat that arises due to the impact that losing Akwaba Limited’s contract would have on Asasiyemedeh Company Limited’s financial performance and reward policy. There is also an intimidation threat because other employees in the company may be affected by the financial implications of the contract not being renewed. Additionally, you may feel a strong desire to impress your new employer by helping to secure the renewal of the contract. The key question is whether you can safeguard against the self-interest threat posed by Asasiyemedeh Company Limited’s performance-related bonus scheme.
Confidentiality:
Clearly, there is a confidentiality threat here as you have worked with Akwaba Ltd in the past. Your previous employment with Akwaba Ltd has provided you with information which may be of value to Asasiyemedeh Company Limited. The principle of confidentiality prohibits the use of confidential information acquired as a result of your previous employment for your advantage or that of your current employer. While you have a responsibility to advance the legitimate aims of your employing organization, this should not extend to a breach of confidentiality. In this case, you (because of Asasiyemedeh Company Limited’s performance-related bonus) and Asasiyemedeh Company Limited stand to benefit from the confidential information about how bids are assessed at Akwaba Ltd. The principle would not be breached if you were in possession of information that was in the public domain, or if you were simply to use experience gained in your previous employment, so long as you do not use confidential knowledge that you acquired as a result of that employment. If you accept this role, can you ensure that you do not use confidential information relating to your former employer to your advantage or to the advantage of your current employer? You must be careful and professional as winning that contracts may leads to confidential breaches against you or your current employers perhaps from those bidders of the same contracts who might lose the bids
Professional Behavior:
You must demonstrate professionalism here. For example, what can you do to safeguard your reputation as a professional, the reputation of your employer, and the accountancy profession to which you belong? You must consider the Institute of Chartered Accountants (Ghana) code of ethics, applicable laws (procurement Act 914), and regulations, your current and previous contracts of employment, and your employer’s policies and procedures.

Complete your registration to see answers

Find Related Questions by Tags, levels, etc.

Tags: Confidentiality, Conflict of Interest, Ethics, Professional Behavior
Level: Level 3

Topic: Regulatory Framework and Ethics
Series: MAY 2020

Tags: Confidentiality, Conflict of Interest, Ethics, Professional Behavior
Level: Level 3

Topic: Regulatory Framework and Ethics
Series: MAY 2020

Uploader: Kwame Aikins

CR – May 2020 – Q3b(i) – Ethical Issues in Contract Bidding

This question requires a discussion on the ethical issues related to conflict of interest, confidentiality, and professional behavior in a contract bidding scenario.

Question

Required:
Discuss the ethical issues raised in the above scenario.

Answer

The ethical issues raised in the scenario include:

Objectivity:
There is a self-interest threat that arises due to the impact that losing Akwaba Limited’s contract would have on Asasiyemedeh Company Limited’s financial performance and reward policy. There is also an intimidation threat because other employees in the company may be affected by the financial implications of the contract not being renewed. Additionally, you may feel a strong desire to impress your new employer by helping to secure the renewal of the contract. The key question is whether you can safeguard against the self-interest threat posed by Asasiyemedeh Company Limited’s performance-related bonus scheme.
Confidentiality:
Clearly, there is a confidentiality threat here as you have worked with Akwaba Ltd in the past. Your previous employment with Akwaba Ltd has provided you with information which may be of value to Asasiyemedeh Company Limited. The principle of confidentiality prohibits the use of confidential information acquired as a result of your previous employment for your advantage or that of your current employer. While you have a responsibility to advance the legitimate aims of your employing organization, this should not extend to a breach of confidentiality. In this case, you (because of Asasiyemedeh Company Limited’s performance-related bonus) and Asasiyemedeh Company Limited stand to benefit from the confidential information about how bids are assessed at Akwaba Ltd. The principle would not be breached if you were in possession of information that was in the public domain, or if you were simply to use experience gained in your previous employment, so long as you do not use confidential knowledge that you acquired as a result of that employment. If you accept this role, can you ensure that you do not use confidential information relating to your former employer to your advantage or to the advantage of your current employer? You must be careful and professional as winning that contracts may leads to confidential breaches against you or your current employers perhaps from those bidders of the same contracts who might lose the bids
Professional Behavior:
You must demonstrate professionalism here. For example, what can you do to safeguard your reputation as a professional, the reputation of your employer, and the accountancy profession to which you belong? You must consider the Institute of Chartered Accountants (Ghana) code of ethics, applicable laws (procurement Act 914), and regulations, your current and previous contracts of employment, and your employer’s policies and procedures.

Complete your registration to see answers

Find Related Questions by Tags, levels, etc.

Tags: Confidentiality, Conflict of Interest, Ethics, Professional Behavior
Level: Level 3

Topic: Regulatory Framework and Ethics
Series: MAY 2020

Tags: Confidentiality, Conflict of Interest, Ethics, Professional Behavior
Level: Level 3

Topic: Regulatory Framework and Ethics
Series: MAY 2020

Uploader: Kwame Aikins

CR – May 2020 – Q3b(ii) – Ethical Actions in Contract Bidding

This question requires recommendations for maintaining ethical standards in a contract bidding situation involving a conflict of interest.

Question

Recommend the possible courses of action that you will take in order to be ethically responsible as expected from a Professional Accountant.

Answer

Possible courses of action

You should discuss the situation and your obligations with your managing director in the first place and, ask for your involvement in the preparation of the contract bid to be limited. For example, you may be able to contribute to aspects of the bid that do not in any way require you to refer to confidential knowledge about your previous employment with Akwaba Ltd.
If the managing director fails to understand the conflict that you are facing, probably he is not in your profession, you should request that you both discuss the matter with the board chairman or another member of staff. During these discussions, you should refer to the company’s ethical code, if it has one, as well as that of the Institute of Chartered Accountants (Ghana).
If there are no other formal channels available, you should make the entire board aware of your dilemma by writing formally to them. If necessary, you must refuse to take part in the bid without necessary safeguards being implemented.
Ultimately, disassociating yourself from Asasiyemedeh Company Limited may be the only solution. However, before taking such a step, you should seek legal advice on your employment.
Rights and responsibilities (subject to the rules and guidance of the Institute of Chartered Accountants, (Ghana)).
You should document, in detail, the steps that you take in resolving your dilemma, in case your ethical judgment is challenged in future periods.
Looking at this issue from Asasiyemedeh Company Limited’s perspective, it may be appropriate to suggest to the managing director or the board of your employer that a policy on conflicts of interest be developed and that the remuneration and bonus policy be reviewed in light of this contract bid with Akwaba Ltd.

Complete your registration to see answers

Find Related Questions by Tags, levels, etc.

Tags: Confidentiality, Conflict of Interest, Ethics, Professional Responsibility
Level: Level 3

Topic: Regulatory Framework and Ethics
Series: MAY 2020

Tags: Confidentiality, Conflict of Interest, Ethics, Professional Responsibility
Level: Level 3

Topic: Regulatory Framework and Ethics
Series: MAY 2020

Uploader: Kwame Aikins

CR – May 2020 – Q3b(ii) – Ethical Actions in Contract Bidding

This question requires recommendations for maintaining ethical standards in a contract bidding situation involving a conflict of interest.

Question

Recommend the possible courses of action that you will take in order to be ethically responsible as expected from a Professional Accountant.

Answer

Possible courses of action

You should discuss the situation and your obligations with your managing director in the first place and, ask for your involvement in the preparation of the contract bid to be limited. For example, you may be able to contribute to aspects of the bid that do not in any way require you to refer to confidential knowledge about your previous employment with Akwaba Ltd.
If the managing director fails to understand the conflict that you are facing, probably he is not in your profession, you should request that you both discuss the matter with the board chairman or another member of staff. During these discussions, you should refer to the company’s ethical code, if it has one, as well as that of the Institute of Chartered Accountants (Ghana).
If there are no other formal channels available, you should make the entire board aware of your dilemma by writing formally to them. If necessary, you must refuse to take part in the bid without necessary safeguards being implemented.
Ultimately, disassociating yourself from Asasiyemedeh Company Limited may be the only solution. However, before taking such a step, you should seek legal advice on your employment.
Rights and responsibilities (subject to the rules and guidance of the Institute of Chartered Accountants, (Ghana)).
You should document, in detail, the steps that you take in resolving your dilemma, in case your ethical judgment is challenged in future periods.
Looking at this issue from Asasiyemedeh Company Limited’s perspective, it may be appropriate to suggest to the managing director or the board of your employer that a policy on conflicts of interest be developed and that the remuneration and bonus policy be reviewed in light of this contract bid with Akwaba Ltd.

Complete your registration to see answers

Find Related Questions by Tags, levels, etc.

Tags: Confidentiality, Conflict of Interest, Ethics, Professional Responsibility
Level: Level 3

Topic: Regulatory Framework and Ethics
Series: MAY 2020

Tags: Confidentiality, Conflict of Interest, Ethics, Professional Responsibility
Level: Level 3

Topic: Regulatory Framework and Ethics
Series: MAY 2020

Uploader: Kwame Aikins

CR – May 2020 – Q4b – Statement of Financial Position for Sasasila Ltd

This question requires the preparation of a statement of financial position for Sasasila Ltd following its restructuring.

Question

Prepare the statement of financial position as at 31 December 2019 for Sasasila Ltd.

Answer

Complete your registration to see answers

Find Related Questions by Tags, levels, etc.

Tags: Assets and liabilities, Corporate reorganization, Financial restructuring, Statement of Financial Position
Level: Level 3

Topic: Corporate reconstruction and reorganisation
Series: MAY 2020

Topic: Corporate reconstruction and reorganisation
Series: MAY 2020

Uploader: Kwame Aikins

CR – May 2020 – Q4b – Statement of Financial Position for Sasasila Ltd

This question requires the preparation of a statement of financial position for Sasasila Ltd following its restructuring.

Question

Prepare the statement of financial position as at 31 December 2019 for Sasasila Ltd.

Answer

Complete your registration to see answers

Find Related Questions by Tags, levels, etc.

Tags: Assets and liabilities, Corporate reorganization, Financial restructuring, Statement of Financial Position
Level: Level 3

Topic: Corporate reconstruction and reorganisation
Series: MAY 2020

Topic: Corporate reconstruction and reorganisation
Series: MAY 2020

Uploader: Kwame Aikins

CR – May 2020 – Q5 – Financial Performance and Position of Bossman Ltd

This question involves analyzing the financial performance and position of Bossman Ltd over three years using ratio analysis.

Question

Answer

To: Managing Director, Gamashie Ltd
From: An Accountant
Date: 01/01/19
Subject: The Financial Position and Performance of Bossman Ltd

Introduction:

This report is based on the financial statements of Bossman Ltd for the years 2016, 2017, and 2018. It includes an analysis of the financial performance and position, with attention to key financial ratios calculated from the attached statements.

Financial Performance:

Revenue Growth: Bossman Ltd has experienced consistent revenue growth at approximately 5% per annum from GH¢18,000,000 in 2016 to GH¢19,845,000 in 2018.
Gross Profit Margin: The gross profit margin improved in 2017 but fell in 2018, indicating fluctuations in cost management. The margins were:
- 2016: 42%
- 2017: 45%
- 2018: 40%
Operating Profit: Operating profit as a percentage of sales showed a similar trend to the gross profit margin. It increased from 25.5% in 2016 to 28.5% in 2017, before falling back to 25% in 2018. The decline in 2018 needs to be investigated to understand the reasons for the reduction.
Profit Before Tax (PBT): PBT decreased from GH¢3,882,000 in 2017 to GH¢3,909,000 in 2018, primarily due to increased finance costs. This indicates an increase in borrowing costs, which requires further investigation.

Financial Position:

Liquidity:
- Current Ratio: The current ratio improved from 0.78 in 2016 to 1.05 in 2018, indicating better liquidity. However, it was below 1 in 2016 and 2017, suggesting that the company may have struggled to meet its short-term obligations during those years.
- Quick Ratio: The quick ratio remained below 0.5 across all three years, highlighting potential issues with converting current assets (excluding inventory) into liquid assets. This indicates the company may be heavily reliant on inventory for liquidity.
Solvency:
- Debt Ratio: The debt ratio increased steadily over the three years from 38.9% in 2016 to 43.2% in 2018, suggesting the company’s reliance on debt financing is increasing. This should be monitored, as it may impact the company’s financial flexibility.
Efficiency:
- Receivables Collection Period: The collection period increased from 29.2 days in 2016 to 58.2 days in 2018. This could indicate deteriorating credit control or extended payment terms.
- Inventory Turnover: Inventory turnover worsened, increasing from 62 days in 2016 to 122.6 days in 2018. This may indicate overstocking or slow-moving inventory, which ties up working capital.

Conclusion:

Bossman Ltd has shown consistent revenue growth but declining profitability. Liquidity has improved, but the quick ratio is concerning. The company’s growing reliance on debt and the extended receivables and inventory turnover periods should be investigated further to identify potential risks to financial stability.

Appendix – Ratio Analysis:

Ratios	2016	2017	2018
Gross Profit Margin	42%	45%	40%
Operating Profit Margin	25.5%	28.5%	25%
Return on Capital Employed	23.6%	27%	24.1%
Debt Ratio	38.9%	41.4%	43.2%
Current Ratio	0.78	0.86	1.05
Quick Ratio	0.36	0.40	0.47
Receivables Collection Period (days)	29.2	43.6	58.2
Inventory Turnover Period (days)	62	94	122.6

Complete your registration to see answers

Find Related Questions by Tags, levels, etc.

Tags: Financial Analysis, Liquidity, Performance Analysis, Profitability, Solvency
Level: Level 3

Topic: Analysis and Interpretation of Financial Statements
Series: MAY 2020

Tags: Financial Analysis, Liquidity, Performance Analysis, Profitability, Solvency
Level: Level 3

Topic: Analysis and Interpretation of Financial Statements
Series: MAY 2020

Uploader: Kwame Aikins

CR – May 2020 – Q5 – Financial Performance and Position of Bossman Ltd

This question involves analyzing the financial performance and position of Bossman Ltd over three years using ratio analysis.

Question

Answer

To: Managing Director, Gamashie Ltd
From: An Accountant
Date: 01/01/19
Subject: The Financial Position and Performance of Bossman Ltd

Introduction:

Financial Performance:

Revenue Growth: Bossman Ltd has experienced consistent revenue growth at approximately 5% per annum from GH¢18,000,000 in 2016 to GH¢19,845,000 in 2018.
Gross Profit Margin: The gross profit margin improved in 2017 but fell in 2018, indicating fluctuations in cost management. The margins were:
- 2016: 42%
- 2017: 45%
- 2018: 40%
Operating Profit: Operating profit as a percentage of sales showed a similar trend to the gross profit margin. It increased from 25.5% in 2016 to 28.5% in 2017, before falling back to 25% in 2018. The decline in 2018 needs to be investigated to understand the reasons for the reduction.
Profit Before Tax (PBT): PBT decreased from GH¢3,882,000 in 2017 to GH¢3,909,000 in 2018, primarily due to increased finance costs. This indicates an increase in borrowing costs, which requires further investigation.

Financial Position:

Liquidity:
- Current Ratio: The current ratio improved from 0.78 in 2016 to 1.05 in 2018, indicating better liquidity. However, it was below 1 in 2016 and 2017, suggesting that the company may have struggled to meet its short-term obligations during those years.
- Quick Ratio: The quick ratio remained below 0.5 across all three years, highlighting potential issues with converting current assets (excluding inventory) into liquid assets. This indicates the company may be heavily reliant on inventory for liquidity.
Solvency:
- Debt Ratio: The debt ratio increased steadily over the three years from 38.9% in 2016 to 43.2% in 2018, suggesting the company’s reliance on debt financing is increasing. This should be monitored, as it may impact the company’s financial flexibility.
Efficiency:
- Receivables Collection Period: The collection period increased from 29.2 days in 2016 to 58.2 days in 2018. This could indicate deteriorating credit control or extended payment terms.
- Inventory Turnover: Inventory turnover worsened, increasing from 62 days in 2016 to 122.6 days in 2018. This may indicate overstocking or slow-moving inventory, which ties up working capital.

Conclusion:

Appendix – Ratio Analysis:

Ratios	2016	2017	2018
Gross Profit Margin	42%	45%	40%
Operating Profit Margin	25.5%	28.5%	25%
Return on Capital Employed	23.6%	27%	24.1%
Debt Ratio	38.9%	41.4%	43.2%
Current Ratio	0.78	0.86	1.05
Quick Ratio	0.36	0.40	0.47
Receivables Collection Period (days)	29.2	43.6	58.2
Inventory Turnover Period (days)	62	94	122.6

Complete your registration to see answers

Find Related Questions by Tags, levels, etc.

Tags: Financial Analysis, Liquidity, Performance Analysis, Profitability, Solvency
Level: Level 3

Topic: Analysis and Interpretation of Financial Statements
Series: MAY 2020

Tags: Financial Analysis, Liquidity, Performance Analysis, Profitability, Solvency
Level: Level 3

Topic: Analysis and Interpretation of Financial Statements
Series: MAY 2020

Uploader: Kwame Aikins

CR – May 2020 – Q4a – Capital Reduction Account

This question requires the preparation of a Capital Reduction Account for Sasasila Ltd following a reorganization.

Question

Sasasila Ltd has been operating profitably for a number of years. However, in recent times, the company has been making losses. Below is the statement of financial position as at 30 June 2019:

Assets	GH¢000
Non-Current Assets
Patents and copyrights	75,000
Land and buildings (net)	200,000
Plant and machinery (net)	150,000
Current Assets
Inventories	125,000
Trade receivables	125,000
Bank	37,500
Investments (cost)	100,000
Total Assets	812,500

Equity and liabilities:
Equity
Ordinary share capital (issued at GH¢10 each)	375,000
20% cumulative preference shares (issued at GH¢10 each)	175,000
Retained earnings	(75,000)
Non-current Liabilities
15% Debentures	125,000
Current Liabilities
Interest on debentures	18,750
Trade payables	93,750
Provision for business restructuring	50,000
Provision for legal damages & claims	12,500
Provision for warranties	37,500
Total Equity and Liabilities	812,500

Additional relevant information: The following scheme of reconstruction was approved by all parties as well as the High Court with the exception of only one ordinary shareholder:

The ordinary shares were to be reduced to GH¢5 per share.
The preference shares were to be reduced to GH¢7.5 per share and arrears in dividends for three years were to be canceled from the company’s books.
The fair values of the assets were agreed at the following values:
- Patents and copyrights: Nil
- Land and buildings: GH¢225,000
- Plant and machinery: GH¢75,000
- Investments: GH¢75,000
- Inventories: GH¢105,000
- Trade receivables: GH¢70,000
The balance on retained earnings is to be eliminated in full.
The liability for legal damages and claims was to be settled for GH¢10 million, and the provision for warranties reduced to GH¢27.5 million.
The accrued debenture interest was to be paid in cash.
Investments with a carrying amount of GH¢52.5 million were to be sold for cash at that value to strengthen the working capital position.
The amount set aside for business restructuring was to be eliminated as well.
The High Court directed a payment of GH¢0.2 million to a member who opposed the scheme for 50 ordinary shares held by him.

Prepare the Capital Reduction Account as at 30 June 2019.

Answer

Complete your registration to see answers

Find Related Questions by Tags, levels, etc.

Tags: Capital Reduction, Corporate reorganization, Equity, Liabilities
Level: Level 3

Topic: Corporate reconstruction and reorganisation
Series: MAY 2020

Tags: Capital Reduction, Corporate reorganization, Equity, Liabilities
Level: Level 3

Topic: Corporate reconstruction and reorganisation
Series: MAY 2020

Uploader: Kwame Aikins

CR – May 2020 – Q4a – Capital Reduction Account

This question requires the preparation of a Capital Reduction Account for Sasasila Ltd following a reorganization.

Question

Sasasila Ltd has been operating profitably for a number of years. However, in recent times, the company has been making losses. Below is the statement of financial position as at 30 June 2019:

Assets	GH¢000
Non-Current Assets
Patents and copyrights	75,000
Land and buildings (net)	200,000
Plant and machinery (net)	150,000
Current Assets
Inventories	125,000
Trade receivables	125,000
Bank	37,500
Investments (cost)	100,000
Total Assets	812,500

Equity and liabilities:
Equity
Ordinary share capital (issued at GH¢10 each)	375,000
20% cumulative preference shares (issued at GH¢10 each)	175,000
Retained earnings	(75,000)
Non-current Liabilities
15% Debentures	125,000
Current Liabilities
Interest on debentures	18,750
Trade payables	93,750
Provision for business restructuring	50,000
Provision for legal damages & claims	12,500
Provision for warranties	37,500
Total Equity and Liabilities	812,500

Additional relevant information: The following scheme of reconstruction was approved by all parties as well as the High Court with the exception of only one ordinary shareholder:

The ordinary shares were to be reduced to GH¢5 per share.
The preference shares were to be reduced to GH¢7.5 per share and arrears in dividends for three years were to be canceled from the company’s books.
The fair values of the assets were agreed at the following values:
- Patents and copyrights: Nil
- Land and buildings: GH¢225,000
- Plant and machinery: GH¢75,000
- Investments: GH¢75,000
- Inventories: GH¢105,000
- Trade receivables: GH¢70,000
The balance on retained earnings is to be eliminated in full.
The liability for legal damages and claims was to be settled for GH¢10 million, and the provision for warranties reduced to GH¢27.5 million.
The accrued debenture interest was to be paid in cash.
Investments with a carrying amount of GH¢52.5 million were to be sold for cash at that value to strengthen the working capital position.
The amount set aside for business restructuring was to be eliminated as well.
The High Court directed a payment of GH¢0.2 million to a member who opposed the scheme for 50 ordinary shares held by him.

Prepare the Capital Reduction Account as at 30 June 2019.

Answer

Complete your registration to see answers

Find Related Questions by Tags, levels, etc.

Tags: Capital Reduction, Corporate reorganization, Equity, Liabilities
Level: Level 3

Topic: Corporate reconstruction and reorganisation
Series: MAY 2020

Tags: Capital Reduction, Corporate reorganization, Equity, Liabilities
Level: Level 3

Topic: Corporate reconstruction and reorganisation
Series: MAY 2020

Uploader: Kwame Aikins

FA – May 2020 – L1 – Q4 – Preparations of accounts from Incomplete Records | Preparation of financial statements of a sole trader

This question involves preparing a statement of profit or loss and a statement of financial position for a sole trader from incomplete records.

Question

On 30 June 2019, the accounting records of Kofi, a sole trader, were partly destroyed by fire. The following list of assets, liabilities, and equity as at 30 June 2018 is available:

Assets, Liabilities, and Equity	Amount (GH¢)
Plant and equipment – cost	200,000
– Accumulated depreciation	72,000
Office fixtures– cost	50,000
– Accumulated depreciation	5,000
Inventory	30,500
Trade receivables and prepayments – Note (iv)	35,000
Trade payables and accrued expenses – Note (iv)	17,600
Bank overdraft	8,850
Loan (10% interest per annum)	95,000
Capital	117,050

The following summary of receipts and payments for the year to 30 June 2019 has been extracted from the bank statements:

Receipts	Amount (GH¢)
Capital introduced	22,000
From credit customers	427,500

Payments	Amount (GH¢)
Cash drawings – Note (v)	22,450
Loan repayments – Note (vii)	20,000
To credit suppliers	175,600
Rent	22,000
Wages	90,000
Office expenses	12,500

In preparing the statement of profit or loss and statement of financial position at 30 June 2019, the following further information is relevant:

Notes
i) Inventory at 30 June 2019 was GH¢27,850.
ii) Depreciation is to be provided as follows:

Plant and equipment 20% per annum, reducing balance basis
Office equipment 10% per annum on cost
iii) During the year, Kofi introduced a motor vehicle valued at GH¢5,000 into the business. It is to be depreciated over 4 years on the straight-line basis with a full year’s depreciation charge in the year of acquisition.
iv) Prepayments and accrued expenses as at 30 June 2018 were:
Rent paid in advance GH¢2,500
Accrued wages GH¢4,300
v) Cash drawings during the year included GH¢6,750 for wages, GH¢4,200 for cash payments to suppliers, and GH¢2,600 for advertising leaflets (of which half are yet to be distributed). The remainder was Kofi’s personal expenditure.
vi) The bank balance per the bank statement as at 30 June 2019 after adjusting for unpresented cheques was GH¢106,700. Any difference is assumed to be cash takings (i.e., in respect of cash sales).
vii) Loan repayments include interest amounting to GH¢9,500.
viii) At 30 June 2019 the following assets and liabilities existed:
Rent paid in advance GH¢2,700
Accrued wages GH¢5,250
Amounts due to suppliers GH¢12,200
Amounts due from customers GH¢22,300
ix) On 3 July 2019, Kofi’s major customer, Yaw, went into liquidation owing GH¢16,000. A statement from the customer’s liquidator indicates that Kofi should expect to recover 20 pesewas for every GH¢1 owing.

Required:
Prepare Kofi’s statement of profit or loss for the year ended 30 June 2019 and a statement of financial position as at that date. Ignore taxation. (20 marks)

Answer

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

Complete your registration to see answers

Find Related Questions by Tags, levels, etc.

Tags: Financial Statements, Incomplete Records, Profit or Loss Statement, Statement of Financial Position
Level: Level 1

Uploader: Kwame Aikins

FA – May 2020 – L1 – Q4 – Preparations of accounts from Incomplete Records | Preparation of financial statements of a sole trader

This question involves preparing a statement of profit or loss and a statement of financial position for a sole trader from incomplete records.

Question

On 30 June 2019, the accounting records of Kofi, a sole trader, were partly destroyed by fire. The following list of assets, liabilities, and equity as at 30 June 2018 is available:

Assets, Liabilities, and Equity	Amount (GH¢)
Plant and equipment – cost	200,000
– Accumulated depreciation	72,000
Office fixtures– cost	50,000
– Accumulated depreciation	5,000
Inventory	30,500
Trade receivables and prepayments – Note (iv)	35,000
Trade payables and accrued expenses – Note (iv)	17,600
Bank overdraft	8,850
Loan (10% interest per annum)	95,000
Capital	117,050

The following summary of receipts and payments for the year to 30 June 2019 has been extracted from the bank statements:

Receipts	Amount (GH¢)
Capital introduced	22,000
From credit customers	427,500

Payments	Amount (GH¢)
Cash drawings – Note (v)	22,450
Loan repayments – Note (vii)	20,000
To credit suppliers	175,600
Rent	22,000
Wages	90,000
Office expenses	12,500

In preparing the statement of profit or loss and statement of financial position at 30 June 2019, the following further information is relevant:

Notes
i) Inventory at 30 June 2019 was GH¢27,850.
ii) Depreciation is to be provided as follows:

Plant and equipment 20% per annum, reducing balance basis
Office equipment 10% per annum on cost
iii) During the year, Kofi introduced a motor vehicle valued at GH¢5,000 into the business. It is to be depreciated over 4 years on the straight-line basis with a full year’s depreciation charge in the year of acquisition.
iv) Prepayments and accrued expenses as at 30 June 2018 were:
Rent paid in advance GH¢2,500
Accrued wages GH¢4,300
v) Cash drawings during the year included GH¢6,750 for wages, GH¢4,200 for cash payments to suppliers, and GH¢2,600 for advertising leaflets (of which half are yet to be distributed). The remainder was Kofi’s personal expenditure.
vi) The bank balance per the bank statement as at 30 June 2019 after adjusting for unpresented cheques was GH¢106,700. Any difference is assumed to be cash takings (i.e., in respect of cash sales).
vii) Loan repayments include interest amounting to GH¢9,500.
viii) At 30 June 2019 the following assets and liabilities existed:
Rent paid in advance GH¢2,700
Accrued wages GH¢5,250
Amounts due to suppliers GH¢12,200
Amounts due from customers GH¢22,300
ix) On 3 July 2019, Kofi’s major customer, Yaw, went into liquidation owing GH¢16,000. A statement from the customer’s liquidator indicates that Kofi should expect to recover 20 pesewas for every GH¢1 owing.

Required:
Prepare Kofi’s statement of profit or loss for the year ended 30 June 2019 and a statement of financial position as at that date. Ignore taxation. (20 marks)

Answer

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

Complete your registration to see answers

Find Related Questions by Tags, levels, etc.

Tags: Financial Statements, Incomplete Records, Profit or Loss Statement, Statement of Financial Position
Level: Level 1

Uploader: Kwame Aikins

FA – May 2020 – L1 – Q3 – Bank reconciliations | Correction of errors

This question involves preparing an adjusted cash book, reconciling it with the bank statement, and explaining the reasons for regular bank reconciliation.

Question

a) On 15 October 2019, Mr. Ladzagla received his bank statement for the month ended 30 September 2019. The statement showed a balance of GH¢208,700 (overdraft) as at 30 September, while the cash book showed a balance of GH¢262,995 (credit) as at that date.

On examination of the cash book and the bank statement, the following were discovered:

i) Mr. Ladzagla exceeded his overdraft limit during the month of September. The bank had therefore charged him a penalty of GH¢1,250. This has not been effected in the cash book.
ii) A sum of GH¢6,250 had been credited to Ladzagla’s bank account in error by the bank.
iii) Bank charges of GH¢1,005 had not been recorded in the cash book.
iv) A cheque for GH¢6,150 had been returned by the bank as dishonoured. Due to the dishonoured cheque, the bank charged Ladzagla GH¢75. Both the dishonoured cheque and the fee charged have not been effected in the cash book.
v) Cash receipts of GH¢18,700 were posted as cash payment of GH¢23,650 in the cash book.
vi) On 21 September, Mr. Ladzagla lodged cash of GH¢3,250 to his personal bank account. This was lodged into the business bank account in error by the bank.
vii) Standing order and direct debits of GH¢5,575 had not been posted to the cash book.
viii) Payment of GH¢10,850 received from customers had been lodged in the bank account but is yet to be posted to the cash book.
ix) Lodgements of GH¢25,600 to bank on 30 September 2019 had not been credited by the bank.
x) The following cheques drawn on the bank accounts had not been presented to the bank for payment as at 30 September 2019:

Cheque Number	Date cheque was written	Amount (GH¢)
No. 3528	11 September 2019	4,200
No. 3535	28 September 2019	8,700
No. 3557	30 September 2019	18,350

Required:
i) Prepare the adjusted cash book for the month of September 2019. (8 marks)
ii) Prepare a statement on 30 September 2019 reconciling the adjusted cash book with the bank statement balance. (8 marks)
iii) State TWO (2) reasons for preparing bank reconciliation on a regular basis. (4 marks)

Answer

c) Reasons for Preparing Bank Reconciliation on a Regular Basis

Identification of Errors: Preparing bank reconciliations regularly helps in identifying errors made by the bank, the company, or both. For example, a business may have omitted to post receipts from receivables.
Account for Unrecorded Transactions: Items such as bank interest, charges, standing orders, direct debits, and dishonoured cheques are often known by the bank but not identified by a business until it receives the bank statement and prepares the bank reconciliation.

(2 points well explained for 4 marks)

Complete your registration to see answers

Find Related Questions by Tags, levels, etc.

Tags: Bank Reconciliation, Cash Book, Errors, Financial Statements
Level: Level 1

Topic: Bank reconciliations, Correction of errors
Series: MAY 2020

Tags: Bank Reconciliation, Cash Book, Errors, Financial Statements
Level: Level 1

Topic: Bank reconciliations, Correction of errors
Series: MAY 2020

Uploader: Kwame Aikins

FA – May 2020 – L1 – Q3 – Bank reconciliations | Correction of errors

This question involves preparing an adjusted cash book, reconciling it with the bank statement, and explaining the reasons for regular bank reconciliation.

Question

On examination of the cash book and the bank statement, the following were discovered:

Cheque Number	Date cheque was written	Amount (GH¢)
No. 3528	11 September 2019	4,200
No. 3535	28 September 2019	8,700
No. 3557	30 September 2019	18,350

Answer

c) Reasons for Preparing Bank Reconciliation on a Regular Basis

Identification of Errors: Preparing bank reconciliations regularly helps in identifying errors made by the bank, the company, or both. For example, a business may have omitted to post receipts from receivables.
Account for Unrecorded Transactions: Items such as bank interest, charges, standing orders, direct debits, and dishonoured cheques are often known by the bank but not identified by a business until it receives the bank statement and prepares the bank reconciliation.

(2 points well explained for 4 marks)

Complete your registration to see answers

Find Related Questions by Tags, levels, etc.

Tags: Bank Reconciliation, Cash Book, Errors, Financial Statements
Level: Level 1

Topic: Bank reconciliations, Correction of errors
Series: MAY 2020

Tags: Bank Reconciliation, Cash Book, Errors, Financial Statements
Level: Level 1

Topic: Bank reconciliations, Correction of errors
Series: MAY 2020

Uploader: Kwame Aikins

FA – May 2020 – L1 – Q2 – Preparation of Partnership accounts

This question involves preparing a trial balance, correcting errors through a suspense account, and preparing partnership capital and appropriation accounts.

Question

Sodzedo is sole proprietor with a small business. Below is a list of balances of the trial
balance extracted as at 30 June 2019 which failed to agree:
GH¢
Purchases 66,450
Payables 44,520
Sales 213,390
Discount allowed 2,220
Receivables 158,550
Sales Returns 6,300
Expenses 32,130
Non-Current Assets 68,250
Bank Overdraft 9,420
Capital 37,500
VAT Liabilities 18,960

a) Prepare the trial balance for Sodzedo as at 30 June 2019 and derive the balance in suspense account as at 30 June 2019. (5 marks)

b) A detailed examination of the books was undertaken, and the following matters were uncovered:

i) The total in the purchases day book was GH¢126,450, but the figure used when posting to the purchases account was GH¢66,450.
ii) An invoice from a supplier for goods amounting to GH¢25,500 plus VAT at 10% was not recorded in the books and records of Sodzedo.
iii) During the bank reconciliation process, it came to light that GH¢525.70 was earned in interest during the year and has not been accounted for.
iv) A review of the ledgers revealed that receivables were overcast by GH¢75,720.
v) Cash drawings by Sodzedo of GH¢5,610 were treated as cash sales in error.

Required:
Prepare a suspense account to clear the difference. (5 marks)

c) Ansah and Boakye have been in partnership for a number of years. The partners did not have a partnership agreement. The following balances have been extracted from the books as at 1 January 2018:

Capital Accounts:

Partner	Amount (GH¢)
Ansah	160,000
Boakye	240,000

Current Accounts:

Partner	Amount (GH¢)
Ansah	10,400 Dr
Boakye	8,200 Dr

On 1 July 2018, they decided to admit Owusu to the partnership. On this date:
Owusu introduced capital of GH¢150,000 into the partnership. The amount was paid into the bank account.

Non-current assets were revalued from GH¢280,000 to GH¢420,000. Inventory was revalued from GH¢70,000 to GH¢30,000. Goodwill was valued at GH¢150,000. It was decided that goodwill would not remain in the books of the new partnership.

The three partners agreed that:

Profits and losses would be shared equally.
Under the new partnership agreement, 10% interest per annum on capital is allowed. The interest on capital is calculated on the adjusted balances after admission of Owusu.
Each partner would receive a salary of GH¢27,000 per annum. No interest on drawings would be paid.

The net profit before appropriation for the year ended 31 December 2018 was calculated at GH¢471,800. Profits earned accrued evenly throughout the year.

The partners’ drawings were:

Partner	Amount (GH¢)
Ansah	85,000
Boakye	62,000
Owusu	38,000

Required:

i) Prepare the Capital Accounts for Ansah, Boakye, and Owusu for the year ended 31 December 2018. (8 marks)
ii) Prepare the Appropriation Account for Ansah and Boakye for the half year ended 30 June 2018. (2 marks)

Answer

Revaluation Surplus Calculation:

Non-current assets revaluation: GH¢140,000
Inventory revaluation: GH¢(40,000)
Net Revaluation Surplus: GH¢100,000

Goodwill in Old Ratio:

Ansah 150,000 x 1/2 = 75,000
Boakye 150,000 x 1/2 = 75,000

Goodwill in New Ratio:

Ansah 150,000 x 1/3 = 50,000
Boakye 150,000 x 1/3 = 50,000
Owusu 150,000 x 1/3 = 50,000

(8 marks evenly spread using ticks)

d) Appropriation Account for Ansah and Boakye for the half year ended 30 June 2018

Particulars	GH¢
Net Profit	235,900
Share of Profits:
– Ansah	117,950
– Boakye	117,950
Total	235,900

(2 marks)

Complete your registration to see answers

Find Related Questions by Tags, levels, etc.

Tags: Errors Correction, Partnership Accounting, Suspense account, Trial Balance
Level: Level 1

Topic: Preparation of Partnership accounts
Series: MAY 2020

Tags: Errors Correction, Partnership Accounting, Suspense account, Trial Balance
Level: Level 1

Topic: Preparation of Partnership accounts
Series: MAY 2020

Uploader: Kwame Aikins

FA – May 2020 – L1 – Q2 – Preparation of Partnership accounts

This question involves preparing a trial balance, correcting errors through a suspense account, and preparing partnership capital and appropriation accounts.

Question

a) Prepare the trial balance for Sodzedo as at 30 June 2019 and derive the balance in suspense account as at 30 June 2019. (5 marks)

b) A detailed examination of the books was undertaken, and the following matters were uncovered:

Required:
Prepare a suspense account to clear the difference. (5 marks)

Capital Accounts:

Partner	Amount (GH¢)
Ansah	160,000
Boakye	240,000

Current Accounts:

Partner	Amount (GH¢)
Ansah	10,400 Dr
Boakye	8,200 Dr

On 1 July 2018, they decided to admit Owusu to the partnership. On this date:
Owusu introduced capital of GH¢150,000 into the partnership. The amount was paid into the bank account.

The three partners agreed that:

Profits and losses would be shared equally.
Under the new partnership agreement, 10% interest per annum on capital is allowed. The interest on capital is calculated on the adjusted balances after admission of Owusu.
Each partner would receive a salary of GH¢27,000 per annum. No interest on drawings would be paid.

The net profit before appropriation for the year ended 31 December 2018 was calculated at GH¢471,800. Profits earned accrued evenly throughout the year.

The partners’ drawings were:

Partner	Amount (GH¢)
Ansah	85,000
Boakye	62,000
Owusu	38,000

Required:

Answer

Revaluation Surplus Calculation:

Non-current assets revaluation: GH¢140,000
Inventory revaluation: GH¢(40,000)
Net Revaluation Surplus: GH¢100,000

Goodwill in Old Ratio:

Ansah 150,000 x 1/2 = 75,000
Boakye 150,000 x 1/2 = 75,000

Goodwill in New Ratio:

Ansah 150,000 x 1/3 = 50,000
Boakye 150,000 x 1/3 = 50,000
Owusu 150,000 x 1/3 = 50,000

(8 marks evenly spread using ticks)

d) Appropriation Account for Ansah and Boakye for the half year ended 30 June 2018

Particulars	GH¢
Net Profit	235,900
Share of Profits:
– Ansah	117,950
– Boakye	117,950
Total	235,900

(2 marks)

Complete your registration to see answers

Find Related Questions by Tags, levels, etc.

Tags: Errors Correction, Partnership Accounting, Suspense account, Trial Balance
Level: Level 1

Topic: Preparation of Partnership accounts
Series: MAY 2020

Tags: Errors Correction, Partnership Accounting, Suspense account, Trial Balance
Level: Level 1

Topic: Preparation of Partnership accounts
Series: MAY 2020

Uploader: Kwame Aikins

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.

Question

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)

Answer

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

Complete your registration to see answers

Find Related Questions by Tags, levels, etc.

Tags: Depreciation, Disposal of assets, Financial Statements, Ledger Accounts
Level: Level 1

Topic: Double entry bookkeeping, Non-current assets and depreciation, Preparation of financial statements of a sole trader
Series: MAY 2020

Tags: Depreciation, Disposal of assets, Financial Statements, Ledger Accounts
Level: Level 1

Topic: Double entry bookkeeping, Non-current assets and depreciation, Preparation of financial statements of a sole trader
Series: MAY 2020

Uploader: Kwame Aikins

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.

Question

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)

Answer

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

Complete your registration to see answers

Find Related Questions by Tags, levels, etc.

Tags: Depreciation, Disposal of assets, Financial Statements, Ledger Accounts
Level: Level 1

Topic: Double entry bookkeeping, Non-current assets and depreciation, Preparation of financial statements of a sole trader
Series: MAY 2020

Tags: Depreciation, Disposal of assets, Financial Statements, Ledger Accounts
Level: Level 1

Topic: Double entry bookkeeping, Non-current assets and depreciation, Preparation of financial statements of a sole trader
Series: MAY 2020

Uploader: Kwame Aikins

IMAC – MAY 2020 – L1 – Q5 – Forecasting | Standard Costing and Variance Analysis

Calculate sales trend using moving average and line of best fit; identify sources of information for standard prices.

Question

a) The monthly sales of Danamo Company Limited have been given as follows:

Monthly Sales (GH¢’000)	Moving Total (GH¢’000)
April	150
May	140
June	160
July	180
August	200
September	190
October	220
November	230
December	250

Required:
i) Using the three-month moving average, calculate the trend. (3 marks)

ii) Using the line of best fit, estimate the sales of January, February, and March of the following year. (12 marks)

b) State and explain FIVE (5) sources of information that may be considered in setting standard prices for materials in Management Accounting. (5 marks)

Answer

a)
i) Three-Month Moving Average

Month	Sales (GH¢’000)	Moving Total (GH¢’000)	Moving Average (GH¢’000)
April	150	–	–
May	140	450	150
June	160	480	160
July	180	540	180
August	200	570	190
September	190	610	203.33
October	220	640	213.33
November	230	700	233.33
December	250	–	–
(3 marks evenly spread using ticks)

ii) Line of Best Fit

Month (X)	Sales (Y)	XY	X²
1	150	150	1
2	160	320	4
3	180	540	9
4	190	760	16
5	203	1015	25
6	213	1278	36
7	233	1631	49
Total	1329	5730	140

b) Sources of Information for Setting Standard Prices

Quotations and Estimates from Potential Suppliers: Price quotations or estimates provided by suppliers.
Trend Information from Past Data: Historical data on material prices and trends.
Bulk Discounts: Information on discounts for bulk purchases.
Packaging and Carriage Inwards: Charges for packaging and transportation costs.
Quality of Material: The expected quality may influence the price.
Internally Manufactured Components: The predetermined standard cost for components.

(Any 5 points at 1 mark = 5 marks)

Complete your registration to see answers

Find Related Questions by Tags, levels, etc.

Tags: Forecasting, Moving Average, Standard Prices, Trend Analysis
Level: Level 1

Topic: Forecasting, Standard Costing and Variance Analysis
Series: MAY 2020

Tags: Forecasting, Moving Average, Standard Prices, Trend Analysis
Level: Level 1

Topic: Forecasting, Standard Costing and Variance Analysis
Series: MAY 2020

Uploader: Kwame Aikins

IMAC – MAY 2020 – L1 – Q5 – Forecasting | Standard Costing and Variance Analysis

Calculate sales trend using moving average and line of best fit; identify sources of information for standard prices.

Question

a) The monthly sales of Danamo Company Limited have been given as follows:

Monthly Sales (GH¢’000)	Moving Total (GH¢’000)
April	150
May	140
June	160
July	180
August	200
September	190
October	220
November	230
December	250

Required:
i) Using the three-month moving average, calculate the trend. (3 marks)

ii) Using the line of best fit, estimate the sales of January, February, and March of the following year. (12 marks)

b) State and explain FIVE (5) sources of information that may be considered in setting standard prices for materials in Management Accounting. (5 marks)

Answer

a)
i) Three-Month Moving Average

Month	Sales (GH¢’000)	Moving Total (GH¢’000)	Moving Average (GH¢’000)
April	150	–	–
May	140	450	150
June	160	480	160
July	180	540	180
August	200	570	190
September	190	610	203.33
October	220	640	213.33
November	230	700	233.33
December	250	–	–
(3 marks evenly spread using ticks)

ii) Line of Best Fit

Month (X)	Sales (Y)	XY	X²
1	150	150	1
2	160	320	4
3	180	540	9
4	190	760	16
5	203	1015	25
6	213	1278	36
7	233	1631	49
Total	1329	5730	140

b) Sources of Information for Setting Standard Prices

Quotations and Estimates from Potential Suppliers: Price quotations or estimates provided by suppliers.
Trend Information from Past Data: Historical data on material prices and trends.
Bulk Discounts: Information on discounts for bulk purchases.
Packaging and Carriage Inwards: Charges for packaging and transportation costs.
Quality of Material: The expected quality may influence the price.
Internally Manufactured Components: The predetermined standard cost for components.

(Any 5 points at 1 mark = 5 marks)

Complete your registration to see answers

Find Related Questions by Tags, levels, etc.

Tags: Forecasting, Moving Average, Standard Prices, Trend Analysis
Level: Level 1

Topic: Forecasting, Standard Costing and Variance Analysis
Series: MAY 2020

Tags: Forecasting, Moving Average, Standard Prices, Trend Analysis
Level: Level 1

Topic: Forecasting, Standard Costing and Variance Analysis
Series: MAY 2020

Uploader: Kwame Aikins

IMAC – MAY 2020 – L1 – Q4 – Accounting for Inventory and Labour | Standard Costing and Variance Analysis

Compare FIFO and weighted average inventory valuation, compute profit, and explain standard costing concepts.

Question

a) Grains Dealers Ltd is in the business of buying farm produce in bulk from out-growers for onward sale to manufacturers. In view of the huge volumes of receipt and sale transactions, the company is unable to use the specific pricing method for valuing inventories. The company needs advice on the impact on profit of using the FIFO or Weighted Average methods of inventory valuation. The following data has been extracted for the month of October 2019 for use:

Inventory balance as at 01/10/19 was 800 units at GH¢4 per unit.

Date	Purchases	Sales
	Quantity	Price (GH¢)
05/10/2019	1,200	5.00
10/10/2019
12/10/2019	1,500	6.00
15/10/2019	1,800	7.25
18/10/2019
25/10/2019	2,400	8.00
28/10/2019

Additional information:
A physical inventory count on 31 October 2019 revealed a shortage of 200 units.

Required:
i) Prepare the inventory ledger showing the value of costs of inventory sold, and the closing inventory on the basis of the perpetual inventory valuation system under:

FIFO Method (6 marks)
Weighted Average Method (6 marks)

ii) Compute the profit for the month for each method in columnar form. (3 marks)

b) Explain the following as used in standard costing and variance analysis:
i) Ideal standard;
ii) Attainable standard; (5 marks)

Answer

a)
i) FIFO METHOD – INVENTORY LEDGER

Date	Receipts	Issues	Balance
	Qty	GH¢	Qty
01/10/19	800	4.00
05/10/19	1,200	5.00
			800

10/10/19			800
			700
12/10/19	1,500	6.00

15/10/19	1,800	7.25


18/10/19			500
			1,500
			1,400
25/10/19	2,400	8.00


28/10/19			400
			1,600
31/10/19	Shortage		200

Total

(6 marks evenly spread using ticks)

WEIGHTED AVERAGE METHOD – INVENTORY LEDGER

Date	Receipts	Issues	Balance
	Qty	GH¢	Qty
01/10/19	800	4.00
05/10/19	1,200	5.00
10/10/19			1,500

12/10/19	1,500	6.00

15/10/19	1,800	7.25

18/10/19			3,400
25/10/19	2,400	8.00


28/10/19			2,000

31/10/19	Shortage		200

Total

(6 marks evenly spread using ticks)

ii) Computation of Profit for the Month

	FIFO	Weighted Average
GH¢	GH¢	GH¢
Sales	74,000	74,000
Cost of Sales
Opening inventory	3,200	3,200
Purchases	47,250	47,250
Closing inventory	(4,800)	(4,662)
Total	45,650	45,788
Gross Profit	28,350	28,212
(3 marks)

b)
i) Ideal Standard

An ideal standard is a standard set under the most favorable conditions with no allowances for inefficiencies such as waste, spoilage, or machine downtime. These standards are achievable only under perfect conditions and serve to highlight and monitor the full cost of factors such as waste.

ii) Attainable Standard

An attainable standard is set at levels that assume efficient levels of operation but includes allowances for factors like losses, waste, and machine downtime. This type of standard is more realistic and motivational, as it provides some allowance for unavoidable inefficiencies.

Complete your registration to see answers

Find Related Questions by Tags, levels, etc.

Tags: FIFO Method, Inventory Valuation, Standard Costing, Weighted Average Method
Level: Level 1

Topic: Accounting for Inventory and Labour, Standard Costing and Variance Analysis
Series: MAY 2020

Tags: FIFO Method, Inventory Valuation, Standard Costing, Weighted Average Method
Level: Level 1

Topic: Accounting for Inventory and Labour, Standard Costing and Variance Analysis
Series: MAY 2020

Uploader: Kwame Aikins

IMAC – MAY 2020 – L1 – Q4 – Accounting for Inventory and Labour | Standard Costing and Variance Analysis

Compare FIFO and weighted average inventory valuation, compute profit, and explain standard costing concepts.

Question

Inventory balance as at 01/10/19 was 800 units at GH¢4 per unit.

Date	Purchases	Sales
	Quantity	Price (GH¢)
05/10/2019	1,200	5.00
10/10/2019
12/10/2019	1,500	6.00
15/10/2019	1,800	7.25
18/10/2019
25/10/2019	2,400	8.00
28/10/2019

Additional information:
A physical inventory count on 31 October 2019 revealed a shortage of 200 units.

Required:
i) Prepare the inventory ledger showing the value of costs of inventory sold, and the closing inventory on the basis of the perpetual inventory valuation system under:

FIFO Method (6 marks)
Weighted Average Method (6 marks)

ii) Compute the profit for the month for each method in columnar form. (3 marks)

b) Explain the following as used in standard costing and variance analysis:
i) Ideal standard;
ii) Attainable standard; (5 marks)

Answer

a)
i) FIFO METHOD – INVENTORY LEDGER

Date	Receipts	Issues	Balance
	Qty	GH¢	Qty
01/10/19	800	4.00
05/10/19	1,200	5.00
			800

10/10/19			800
			700
12/10/19	1,500	6.00

15/10/19	1,800	7.25


18/10/19			500
			1,500
			1,400
25/10/19	2,400	8.00


28/10/19			400
			1,600
31/10/19	Shortage		200

Total

(6 marks evenly spread using ticks)

WEIGHTED AVERAGE METHOD – INVENTORY LEDGER

Date	Receipts	Issues	Balance
	Qty	GH¢	Qty
01/10/19	800	4.00
05/10/19	1,200	5.00
10/10/19			1,500

12/10/19	1,500	6.00

15/10/19	1,800	7.25

18/10/19			3,400
25/10/19	2,400	8.00


28/10/19			2,000

31/10/19	Shortage		200

Total

(6 marks evenly spread using ticks)

ii) Computation of Profit for the Month

	FIFO	Weighted Average
GH¢	GH¢	GH¢
Sales	74,000	74,000
Cost of Sales
Opening inventory	3,200	3,200
Purchases	47,250	47,250
Closing inventory	(4,800)	(4,662)
Total	45,650	45,788
Gross Profit	28,350	28,212
(3 marks)

b)
i) Ideal Standard

An ideal standard is a standard set under the most favorable conditions with no allowances for inefficiencies such as waste, spoilage, or machine downtime. These standards are achievable only under perfect conditions and serve to highlight and monitor the full cost of factors such as waste.

ii) Attainable Standard

An attainable standard is set at levels that assume efficient levels of operation but includes allowances for factors like losses, waste, and machine downtime. This type of standard is more realistic and motivational, as it provides some allowance for unavoidable inefficiencies.

Complete your registration to see answers

Find Related Questions by Tags, levels, etc.

Tags: FIFO Method, Inventory Valuation, Standard Costing, Weighted Average Method
Level: Level 1

Topic: Accounting for Inventory and Labour, Standard Costing and Variance Analysis
Series: MAY 2020

Tags: FIFO Method, Inventory Valuation, Standard Costing, Weighted Average Method
Level: Level 1

Topic: Accounting for Inventory and Labour, Standard Costing and Variance Analysis
Series: MAY 2020

Uploader: Kwame Aikins

IMAC – MAY 2020 – L1 – Q3 – Cost-Volume-Profit (CVP) Analysis | Decision-making techniques

Identify public sector decision areas for management accounting, suggest improvement techniques, and state CVP analysis assumptions.

Question

) Management Accounting provides information for planning, control, and decision-making. It has been argued that Public Sector entities can even benefit more from Management Accounting than profit-making entities.

Required:
i) Identify FOUR (4) decision areas of the Public Sector where Management Accounting can be applied. (6 marks)
ii) Suggest an appropriate technique that can be used to improve decision-making in such areas. (9 marks)

b) State FIVE (5) assumptions underlying cost-volume-profit analysis in managerial accounting. (5 marks)

Answer

a)
i) Decision Areas in Public Sector

Outsourcing of services: e.g., cleaning, ICT
Capital investment: e.g., construction of buildings, purchase of vehicles
Budgeting
Evaluation of MMDAs (Metropolitan, Municipal, and District Assemblies)
Procurement and utilization of supplies: e.g., stationary
(Any 4 points for 1.5 marks = 6 marks)

ii) Techniques to Improve Decision-making

Relevant Costing: Use of relevant costs for decision-making in outsourcing decisions.
Investment Appraisal Techniques: e.g., Net Present Value (NPV), Internal Rate of Return (IRR) for evaluating capital investments.
Budgetary Control: Implementing budgets to monitor and control expenditures.
Balanced Scorecard: A tool to assess the performance of public sector entities across various dimensions.
Economic Order Quantity (EOQ) and control levels: To manage inventory efficiently.
(9 marks)

b) Critical Assumptions of CVP Analysis

Cost Classification: All costs can be segregated into fixed and variable elements.
Constant Fixed Costs: Fixed costs will remain constant, while variable costs vary proportionately with the level of activity.
Sales Assumptions: All that is produced can be sold.
Single Cost and Revenue Driver: The only factor affecting costs and revenues is the volume of activity.
Unchanging Conditions: Technology, production methods, and efficiency remain unchanged.
No Inventory Changes: There are no inventory level changes, or inventories are valued at marginal cost.
No Uncertainty: There is no uncertainty in costs and revenues.
Product Mix: A single product or a constant product mix is produced and sold.
(Any 5 points for 5 marks)

Complete your registration to see answers

Find Related Questions by Tags, levels, etc.

Tags: CVP Analysis Assumptions, Investment Appraisal, Public Sector Decision Areas, Relevant Costing
Level: Level 1

Topic: Cost-Volume-Profit (CVP) Analysis, Decision-making techniques
Series: MAY 2020

Topic: Cost-Volume-Profit (CVP) Analysis, Decision-making techniques
Series: MAY 2020

Uploader: Kwame Aikins

IMAC – MAY 2020 – L1 – Q3 – Cost-Volume-Profit (CVP) Analysis | Decision-making techniques

Identify public sector decision areas for management accounting, suggest improvement techniques, and state CVP analysis assumptions.

Question

b) State FIVE (5) assumptions underlying cost-volume-profit analysis in managerial accounting. (5 marks)

Answer

a)
i) Decision Areas in Public Sector

Outsourcing of services: e.g., cleaning, ICT
Capital investment: e.g., construction of buildings, purchase of vehicles
Budgeting
Evaluation of MMDAs (Metropolitan, Municipal, and District Assemblies)
Procurement and utilization of supplies: e.g., stationary
(Any 4 points for 1.5 marks = 6 marks)

ii) Techniques to Improve Decision-making

Relevant Costing: Use of relevant costs for decision-making in outsourcing decisions.
Investment Appraisal Techniques: e.g., Net Present Value (NPV), Internal Rate of Return (IRR) for evaluating capital investments.
Budgetary Control: Implementing budgets to monitor and control expenditures.
Balanced Scorecard: A tool to assess the performance of public sector entities across various dimensions.
Economic Order Quantity (EOQ) and control levels: To manage inventory efficiently.
(9 marks)

b) Critical Assumptions of CVP Analysis

Cost Classification: All costs can be segregated into fixed and variable elements.
Constant Fixed Costs: Fixed costs will remain constant, while variable costs vary proportionately with the level of activity.
Sales Assumptions: All that is produced can be sold.
Single Cost and Revenue Driver: The only factor affecting costs and revenues is the volume of activity.
Unchanging Conditions: Technology, production methods, and efficiency remain unchanged.
No Inventory Changes: There are no inventory level changes, or inventories are valued at marginal cost.
No Uncertainty: There is no uncertainty in costs and revenues.
Product Mix: A single product or a constant product mix is produced and sold.
(Any 5 points for 5 marks)

Complete your registration to see answers

Find Related Questions by Tags, levels, etc.

Tags: CVP Analysis Assumptions, Investment Appraisal, Public Sector Decision Areas, Relevant Costing
Level: Level 1

Topic: Cost-Volume-Profit (CVP) Analysis, Decision-making techniques
Series: MAY 2020

Topic: Cost-Volume-Profit (CVP) Analysis, Decision-making techniques
Series: MAY 2020

Uploader: Kwame Aikins

IMAC – MAY 2020 – L1 – Q2 – Budgeting

Explain objectives of budgeting, prepare production and material budgets, and describe principal budget factor.

Question

a) Budgeting has several objectives:
i) Planning;
ii) Control;
iii) Performance evaluation;
iv) Motivation.

Required:
Explain TWO (2) of the above objectives of budgeting and how the TWO (2) objectives explained could conflict with each other. (4 marks)

b) A company produces two products, A1 and A2, that are sold to retailers. The budgeted sales volumes for the products are as follows:

Product	Units
A1	32,000
A2	56,000

The inventory of finished goods is budgeted to increase by 1,000 units of A1 and decrease by 2,000 units of A2 by the end of the quarter.

Materials B3 and B4 are used in the production of both products.
The quantities required of each material to produce one unit of the finished product and the purchase prices are shown in the table below:

Material	B3	B4
A1	8kg	4kg
A2	4kg	3kg
Purchase price per kg	GH¢1.25	GH¢1.80
Budgeted opening inventory	30,000kg	20,000kg

The company plans to hold inventory of raw materials, at the end of the quarter, of 5% of the quarter’s material usage budget.

Required:
Prepare the following budgets for the quarter:
i) The production budget (in units) (2 marks)
ii) The material usage budget (in kg) (4 marks)
iii) The material purchases budget (in kg and GH¢) (6 marks)

c) Explain the term “Principal Budget Factor” as used in budgeting control and give TWO (2) examples from a financial institution. (4 marks)

Answer

a) Objectives of Budgeting
i) Planning:

Budgeting forces an organization’s management to look ahead and set performance targets. It ensures that management anticipates future problems and gives the organization direction. It also makes managers aware of their targets and responsibilities and how they relate to other managers within the organization.

ii) Control:

The budget acts as a control mechanism, with actual results being compared with the budget. Appropriate actions can then be taken to correct any deviations from the plan.

Conflict between Objectives:

The planning and motivational roles may conflict, as demanding budgets that may not be achieved may be appropriate to motivate managers to achieve maximum performance but are unsuitable for planning purposes.
There is also a conflict between the planning and performance evaluation roles. Budgets set in advance may not reflect actual circumstances, leading to potential unfair evaluations.
The performance evaluation and motivation roles may also conflict, as imposed targets may act as threats rather than challenges, reducing motivation.

(2 points well explained @ 2 marks each = 4 marks)

b)
i) Production Budget (units)

Product	A1	A2
Sales (units)	32,000	56,000
Increase/(decrease) in inventory	1,000	(2,000)
Production budget (units)	33,000	54,000
(2 marks)

ii) Material Usage Budget (in kg)

Material	B3	B4
A1	264,000	132,000
A2	216,000	162,000
Total	480,000	294,000
(4 marks)

iii) Material Purchases Budget (in kg and GH¢)

Material	B3	B4
Material usage (kg)	480,000	294,000
Less: opening inventory	(30,000)	(20,000)
Plus: closing inventory (5% of usage)	24,000	14,700
Material purchases (kg)	474,000	288,700
Price per kg	GH¢1.25	GH¢1.80
Material purchase (GH¢)	GH¢592,500	GH¢519,660
(6 marks)

c) Principal Budget Factor
The Principal Budget Factor, also known as the limiting factor or key factor, is the factor that, at a particular time or over a period, will limit the activities of an undertaking. The limiting factor is usually the level of demand for productive resources.

Examples from a financial institution:

Skilled Labour
Customer Base
Level of ICT
Interest Rate
Deposit Mobilization
(Any 2 points for 2 marks)

Complete your registration to see answers

Find Related Questions by Tags, levels, etc.

Tags: Budgeting Objectives, Material Purchases, Material Usage, Principal Budget Factor, Production Budget
Level: Level 1

Topic: Budgeting
Series: MAY 2020

Topic: Budgeting
Series: MAY 2020

Uploader: Kwame Aikins

IMAC – MAY 2020 – L1 – Q2 – Budgeting

Explain objectives of budgeting, prepare production and material budgets, and describe principal budget factor.

Question

a) Budgeting has several objectives:
i) Planning;
ii) Control;
iii) Performance evaluation;
iv) Motivation.

Required:
Explain TWO (2) of the above objectives of budgeting and how the TWO (2) objectives explained could conflict with each other. (4 marks)

b) A company produces two products, A1 and A2, that are sold to retailers. The budgeted sales volumes for the products are as follows:

Product	Units
A1	32,000
A2	56,000

The inventory of finished goods is budgeted to increase by 1,000 units of A1 and decrease by 2,000 units of A2 by the end of the quarter.

Material	B3	B4
A1	8kg	4kg
A2	4kg	3kg
Purchase price per kg	GH¢1.25	GH¢1.80
Budgeted opening inventory	30,000kg	20,000kg

The company plans to hold inventory of raw materials, at the end of the quarter, of 5% of the quarter’s material usage budget.

c) Explain the term “Principal Budget Factor” as used in budgeting control and give TWO (2) examples from a financial institution. (4 marks)

Answer

a) Objectives of Budgeting
i) Planning:

Budgeting forces an organization’s management to look ahead and set performance targets. It ensures that management anticipates future problems and gives the organization direction. It also makes managers aware of their targets and responsibilities and how they relate to other managers within the organization.

ii) Control:

The budget acts as a control mechanism, with actual results being compared with the budget. Appropriate actions can then be taken to correct any deviations from the plan.

Conflict between Objectives:

The planning and motivational roles may conflict, as demanding budgets that may not be achieved may be appropriate to motivate managers to achieve maximum performance but are unsuitable for planning purposes.
There is also a conflict between the planning and performance evaluation roles. Budgets set in advance may not reflect actual circumstances, leading to potential unfair evaluations.
The performance evaluation and motivation roles may also conflict, as imposed targets may act as threats rather than challenges, reducing motivation.

(2 points well explained @ 2 marks each = 4 marks)

b)
i) Production Budget (units)

Product	A1	A2
Sales (units)	32,000	56,000
Increase/(decrease) in inventory	1,000	(2,000)
Production budget (units)	33,000	54,000
(2 marks)

ii) Material Usage Budget (in kg)

Material	B3	B4
A1	264,000	132,000
A2	216,000	162,000
Total	480,000	294,000
(4 marks)

iii) Material Purchases Budget (in kg and GH¢)

Material	B3	B4
Material usage (kg)	480,000	294,000
Less: opening inventory	(30,000)	(20,000)
Plus: closing inventory (5% of usage)	24,000	14,700
Material purchases (kg)	474,000	288,700
Price per kg	GH¢1.25	GH¢1.80
Material purchase (GH¢)	GH¢592,500	GH¢519,660
(6 marks)

Examples from a financial institution:

Skilled Labour
Customer Base
Level of ICT
Interest Rate
Deposit Mobilization
(Any 2 points for 2 marks)

Complete your registration to see answers

Find Related Questions by Tags, levels, etc.

Tags: Budgeting Objectives, Material Purchases, Material Usage, Principal Budget Factor, Production Budget
Level: Level 1

Topic: Budgeting
Series: MAY 2020

Topic: Budgeting
Series: MAY 2020

Uploader: Kwame Aikins

IMAC – MAY 2020 – L1 – Q1 – Marginal Costing and Absorption Costing

Prepare profit or loss statements using marginal and absorption costing for Smooth Sailing Ltd.

Question

Additional information:
Fixed production overheads are budgeted to be GH¢40,000 per month for a budgeted monthly
production of 20,000 units. Production overheads are absorbed on a unit of production basis.
Required:
a) Using marginal costing principles, prepare a statement of profit or loss for the THREE (3)
months to September 2019. (10 marks)
b) Using absorption costing principles, prepare a statement of profit or loss for the THREE (3)
months to September 2019. (10 marks)

Answer

Workings (W):
W1. Computation of product cost per unit

	Marginal Costing	Absorption Costing
Direct material	GH¢14	GH¢14
Direct labour	GH¢4	GH¢4
Variable overheads	GH¢2	GH¢2
Fixed overheads (W2)	–	GH¢2
Total cost per unit	GH¢20	GH¢22

W3. Over/ (Under) Absorption

Month	July	August	September
GH¢’000	GH¢’000	GH¢’000
Overheads absorbed	30,000	32,000	24,000
Overheads incurred	40,000	40,000	40,000
Over/(under) absorption	(10,000)	(8,000)	(16,000)
(All marks evenly spread for 10 marks using ticks)

Complete your registration to see answers

Find Related Questions by Tags, levels, etc.

Tags: Absorption Costing, Marginal Costing, Profit or Loss Statement
Level: Level 1

Topic: Marginal Costing and Absorption Costing
Series: MAY 2020

Tags: Absorption Costing, Marginal Costing, Profit or Loss Statement
Level: Level 1

Topic: Marginal Costing and Absorption Costing
Series: MAY 2020

Uploader: Kwame Aikins

IMAC – MAY 2020 – L1 – Q1 – Marginal Costing and Absorption Costing

Prepare profit or loss statements using marginal and absorption costing for Smooth Sailing Ltd.

Question

Answer

Workings (W):
W1. Computation of product cost per unit

	Marginal Costing	Absorption Costing
Direct material	GH¢14	GH¢14
Direct labour	GH¢4	GH¢4
Variable overheads	GH¢2	GH¢2
Fixed overheads (W2)	–	GH¢2
Total cost per unit	GH¢20	GH¢22

W3. Over/ (Under) Absorption

Month	July	August	September
GH¢’000	GH¢’000	GH¢’000
Overheads absorbed	30,000	32,000	24,000
Overheads incurred	40,000	40,000	40,000
Over/(under) absorption	(10,000)	(8,000)	(16,000)
(All marks evenly spread for 10 marks using ticks)

Complete your registration to see answers

Find Related Questions by Tags, levels, etc.

Tags: Absorption Costing, Marginal Costing, Profit or Loss Statement
Level: Level 1

Topic: Marginal Costing and Absorption Costing
Series: MAY 2020

Tags: Absorption Costing, Marginal Costing, Profit or Loss Statement
Level: Level 1

Topic: Marginal Costing and Absorption Costing
Series: MAY 2020

Uploader: Kwame Aikins

Series: MAY 2020

Filter by Professional Bodies

Filter by Subject

Filter by Series

Filter by Topics

Filter by Levels

Filter by Professional Bodies

Filter by Subject

Filter by Series

Filter by Topics

Filter by Levels

CR – May 2020 – L3 – Q1 – Consolidated Statement of Financial Position

Prepare the consolidated statement of financial position for Phato Ltd and its subsidiaries as at 30 September 2019, including relevant calculations for goodwill, non-controlling interest, and asset impairments.

You're reporting an error for "CR – May 2020 – L3 – Q1 – Consolidated Statement of Financial Position"

CR – May 2020 – L3 – Q1 – Consolidated Statement of Financial Position

Prepare the consolidated statement of financial position for Phato Ltd and its subsidiaries as at 30 September 2019, including relevant calculations for goodwill, non-controlling interest, and asset impairments.

You're reporting an error for "CR – May 2020 – L3 – Q1 – Consolidated Statement of Financial Position"

CR – May 2020 – L3 – Q2a – Government Grants for Factory Construction

Discuss the accounting treatment for a government grant received for the construction of a factory, showing calculations and relevant entries.

You're reporting an error for "CR – May 2020 – L3 – Q2a – Government Grants for Factory Construction"

CR – May 2020 – L3 – Q2a – Government Grants for Factory Construction

Discuss the accounting treatment for a government grant received for the construction of a factory, showing calculations and relevant entries.

You're reporting an error for "CR – May 2020 – L3 – Q2a – Government Grants for Factory Construction"

CR – May 2020 – L3 – Q2b – Capitalization of Borrowing Costs

Required: Determine the maximum amount that could potentially be capitalized as borrowing costs during the period (assuming an asset was being financed using all available finance).

You're reporting an error for "CR – May 2020 – L3 – Q2b – Capitalization of Borrowing Costs"

CR – May 2020 – L3 – Q2b – Capitalization of Borrowing Costs

Required: Determine the maximum amount that could potentially be capitalized as borrowing costs during the period (assuming an asset was being financed using all available finance).

You're reporting an error for "CR – May 2020 – L3 – Q2b – Capitalization of Borrowing Costs"

CR – May 2020 – L3 – Q2c – Defined Benefit Pension Plan

Recommend the accounting treatment for a defined benefit pension plan with supporting calculations.

Workings – Calculation of Actuarial Gain/Loss:

Journal Entries:

You're reporting an error for "CR – May 2020 – L3 – Q2c – Defined Benefit Pension Plan"

CR – May 2020 – L3 – Q2c – Defined Benefit Pension Plan

Recommend the accounting treatment for a defined benefit pension plan with supporting calculations.

Workings – Calculation of Actuarial Gain/Loss:

Journal Entries:

You're reporting an error for "CR – May 2020 – L3 – Q2c – Defined Benefit Pension Plan"

CR – May 2020 – L3 – Q3a – Foreign Currency Transactions

Foreign currency transactions related to purchases, sales, and investment property with exchange rate variations and reporting implications.

You're reporting an error for "CR – May 2020 – L3 – Q3a – Foreign Currency Transactions"

CR – May 2020 – L3 – Q3a – Foreign Currency Transactions

Foreign currency transactions related to purchases, sales, and investment property with exchange rate variations and reporting implications.

You're reporting an error for "CR – May 2020 – L3 – Q3a – Foreign Currency Transactions"

CR – May 2020 – Q3b(i) – Ethical Issues in Contract Bidding

This question requires a discussion on the ethical issues related to conflict of interest, confidentiality, and professional behavior in a contract bidding scenario.

You're reporting an error for "CR – May 2020 – Q3b(i) – Ethical Issues in Contract Bidding"

CR – May 2020 – Q3b(i) – Ethical Issues in Contract Bidding

This question requires a discussion on the ethical issues related to conflict of interest, confidentiality, and professional behavior in a contract bidding scenario.

You're reporting an error for "CR – May 2020 – Q3b(i) – Ethical Issues in Contract Bidding"

CR – May 2020 – Q3b(ii) – Ethical Actions in Contract Bidding

This question requires recommendations for maintaining ethical standards in a contract bidding situation involving a conflict of interest.

You're reporting an error for "CR – May 2020 – Q3b(ii) – Ethical Actions in Contract Bidding"

CR – May 2020 – Q3b(ii) – Ethical Actions in Contract Bidding

This question requires recommendations for maintaining ethical standards in a contract bidding situation involving a conflict of interest.

You're reporting an error for "CR – May 2020 – Q3b(ii) – Ethical Actions in Contract Bidding"

CR – May 2020 – Q4b – Statement of Financial Position for Sasasila Ltd

This question requires the preparation of a statement of financial position for Sasasila Ltd following its restructuring.

You're reporting an error for "CR – May 2020 – Q4b – Statement of Financial Position for Sasasila Ltd"

CR – May 2020 – Q4b – Statement of Financial Position for Sasasila Ltd

This question requires the preparation of a statement of financial position for Sasasila Ltd following its restructuring.

You're reporting an error for "CR – May 2020 – Q4b – Statement of Financial Position for Sasasila Ltd"

CR – May 2020 – Q5 – Financial Performance and Position of Bossman Ltd

This question involves analyzing the financial performance and position of Bossman Ltd over three years using ratio analysis.

Introduction:

Financial Performance:

Financial Position:

Conclusion:

You're reporting an error for "CR – May 2020 – Q5 – Financial Performance and Position of Bossman Ltd"

CR – May 2020 – Q5 – Financial Performance and Position of Bossman Ltd

This question involves analyzing the financial performance and position of Bossman Ltd over three years using ratio analysis.

Introduction:

Financial Performance:

Financial Position:

Conclusion:

You're reporting an error for "CR – May 2020 – Q5 – Financial Performance and Position of Bossman Ltd"

CR – May 2020 – Q4a – Capital Reduction Account

This question requires the preparation of a Capital Reduction Account for Sasasila Ltd following a reorganization.

You're reporting an error for "CR – May 2020 – Q4a – Capital Reduction Account"

Required:
Determine the maximum amount that could potentially be capitalized as borrowing costs during the period (assuming an asset was being financed using all available finance).

Required:
Determine the maximum amount that could potentially be capitalized as borrowing costs during the period (assuming an asset was being financed using all available finance).