Topic: The IASB’s Conceptual Framework

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  • 10 Marks

FA – Mar 2024 – L1 – Q1a – The IASB’s Conceptual Framework

Explain the qualitative characteristics of financial information, including consistency, completeness, materiality, and going concern.

It is understood that different users require financial information for assistance in their economic decisions. Financial statements need to have certain characteristics or adhere to certain accounting principles in order to be useful to its users.

Required:

In relation to the statement above, write brief notes about the following:
i) Consistency
ii) Completeness
iii) Materiality
iv) Going concern

i) Consistency:
The presentation and classification of items in the financial statements should be similar from one period to the next unless there is a significant change in the nature of the entity’s operations or a change is required by a standard or an interpretation. This ensures that financial information can be reliably compared across periods.

ii) Completeness:
To be reliable, the information in financial statements must be complete within the bounds of materiality and cost. An omission can cause information to be false or misleading, thus affecting its relevance and reliability.

iii) Materiality:
Information is material if its omission or misstatement could influence the economic decisions taken by users on the basis of the financial statements. Materiality depends on the size of the item or error judged in the context of its omission or misstatement.

iv) Going Concern:
The going concern assumption means that the entity will continue in operation for the foreseeable future and has neither the intention nor the need to liquidate or curtail materially the scale of its operations. This assumption underpins the preparation of financial statements unless there is evidence to the contrary.

  • 10 Marks

FA – Nov 2023 – L1 – Q1a – The IASB’s Conceptual Framework

Explain the key qualitative characteristics of useful accounting information according to the IASB's Conceptual Framework.

Explain each of the following characteristics of useful accounting information:
i) Relevance (2 marks)
ii) Understandability (2 marks)
iii) Materiality (2 marks)
iv) Completeness (2 marks)
v) Neutrality (2 marks)

i) Relevance:
This is defined as capable of making a difference in the decisions made by users. Financial information is capable of making a difference in decisions if it has predictive value, confirmatory value, or both. Predictive value consists of the capability of being used as an input in processes or models used to predict future outcomes. Confirmatory value exists when the information provides feedback about earlier estimations. The relevance of information depends on its materiality since only material information is considered relevant.

ii) Understandability:
An essential quality of the information provided in financial reports is that it is readily understandable by users. For this purpose, users are assumed to have a reasonable knowledge of business and economic activities and accounting. Classifying, characterizing, and presenting information clearly and concisely makes it understandable.

iii) Materiality:
Information is material if omitting or misstating it could influence decisions that users make on the basis of financial information about a specific reporting entity. Materiality is an entity-specific aspect of relevance based on the nature or magnitude (or both) of the items to which the information relates in the context of an individual entity’s financial report. For example, a large supermarket omitting expenses of GHȼ1,500 would not be material to them but would be to a small local shop.

iv) Completeness:
Completeness means that the depiction will include all the information, including descriptions and explanations, necessary for a user to understand the phenomenon. Omission of any information can lead to unreliability. Therefore, the more complete the information the better, but weigh against the costs of time and money needed to prepare full information. For example, if the omission of a particular asset would lead to incomplete and therefore unreliable information, the effect of having unreliable information must be weighed against the costs and time involved in the inclusion of the asset.

v) Neutrality:
Neutrality is obtained when a depiction is without bias in the selection or presentation of financial information. In other words, it is not manipulated in order to present a favorable or unfavorable depiction of an economic phenomenon. Financial statements are not neutral if a particular selection or presentation of information influences the user’s decision. Competent individuals working independently should arrive at the same or very similar measures of given economic events or situations. For example, a provision for bad debts must be based on some evidence and not the biased view of the preparer of the financial statements.

  • 20 Marks

FA – July 2023 – L1 – Q1 – Non-current assets and depreciation | The IASB’s Conceptual Framework

Describe the elements of financial statements per the IASB framework and compute depreciation using different methods, adjusting net profit accordingly.

a) Describe the FIVE (5) main elements of financial statements in accordance with the IASB’s Conceptual Framework. (10 marks)

b) Bimbila Ltd commenced business on 1 June 2020 and reported the following net profits during its first two years in business:

GHȼ
1 June 2020 to 31 May 2021 135,000
1 June 2021 to 31 May 2022 140,000

During this period the following non-current assets were purchased on the dates shown:

Bimbila Ltd has a policy to depreciate machinery at 25% per annum on cost (straight line method) and equipment at 20% per annum on cost (straight line method), rates being charged for each month of ownership. Bimbila Ltd is now considering using the reducing balance method, with the following rates applying to the balance at the end of each year:

  • Machinery: 20%
  • Equipment: 15%

A full year’s depreciation is charged irrespective of the date of purchase.

Required:

i) Calculate the total depreciation for the years ended 31 May 2021 and 31 May 2022 using the original method (straight line) and rates for:

  • Machinery (2 marks)
  • Equipment (1 mark)

ii) Calculate the total depreciation for the years ended 31 May 2021 and 31 May 2022 using the alternative method (reducing balance) and rates for:

  • Machinery (2 marks)
  • Equipment (1 mark)

iii) Prepare a statement to show the net profit which would have been reported for each of the years ended 31 May 2021 and 31 May 2022 if the reducing balance method had been used. (4 marks)

a) Elements of Financial Statements

Asset
A present economic resource controlled by the entity as a result of past events. An economic resource is a right that has the potential to produce economic benefits.

Liability
A present obligation of the entity to transfer an economic resource as a result of past events.

Equity
The residual interest in an entity after the value of all its liabilities has been deducted from the value of all its assets.

Income
Increases in assets or decreases in liabilities that result in increases in equity, other than those relating to contributions from holders of equity claims.

Expenses
Decreases in assets or increases in liabilities that result in decreases in equity, other than those relating to distributions to holders of equity claims.

(5 points @ 2 marks each = 10 marks)

b) Depreciation Calculations

 

  • 20 Marks

FA – Mar 2023 – L1 – Q1 – Double entry bookkeeping | Inventory | The IASB’s Conceptual Framework

Explains going concern assumption, inventory valuation, faithful representation, and prepares various day books and cash book.

a) The Conceptual Framework for Financial Reporting is a set of principles which underpin the foundation of financial accounting. The Conceptual Framework sets out the going concern concept as one of the important underlying assumptions for the preparation of financial statements.

Required:
Explain what is meant by ‘the assumption that an entity is operating under the going concern concept’. Support your answer with a suitable example. (3 marks)

b) A trader who trades in Machines commences business on 1 Jan 2021 and buys 200 machines, each costing GH¢50,000. During the year, he sells 150 machines at GH¢60,000 each.

Required:
How should the remaining machines be valued at the end of the year if:
i) He is forced to close down his business at the end of the year and the remaining machines will realise only GH¢30,000 each in a forced sale. (2 marks)
ii) He intends to continue the business into the next year. (2 marks)

c) One of the fundamental qualitative characteristics of useful financial information in the Conceptual Framework for Financial Reporting is ‘faithful representation’.

Required:
Explain what is meant by ‘faithful representation’. (3 marks)

d) Davidco is a trader who commenced business on January 1, 2021. He introduced capital of GH¢50,000. He bought Vehicle worth GH¢30,000 out of the capital introduced. The following transaction took place in the month of January (Jan) 2021:

  • Jan 5: Davidco bought goods on credit from the following:
    • Tradco: GH¢2,500, Trade Discount 10%
    • Vamco: GH¢8,000, Trade Discount 10%
  • Jan 8: Davidco Sold goods on credit to the following:
    • Markcom: GH¢5,000, Trade Discount 20%
    • Kathrine: GH¢2,000, Trade Discount 5%
  • Jan 12: Davidco returned defective goods worth GH¢200 to Tradco.
  • Jan 15: Davidco paid all amounts outstanding to Tradco and Vamco less cash discount of 5%.
  • Jan 22: Kathrine returned spoiled goods worth GH¢300.
  • Jan 24: Davidco received payment from Markcom and Kathrine of all outstanding debt less cash discount of 5%.

Required:
Prepare the following:
i) Sales day book
ii) Purchase day book
iii) Cash book
iv) Purchase returns
v) Sales returns

(10 marks)

a) The financial statements are normally prepared on the assumption that an entity is a going concern and will continue in operation for the foreseeable future. Hence, it is assumed that the entity has neither the intention nor the need to liquidate or curtail materially the scale of its operations. Example: inventory is valued at the lower of cost or net realizable value.

(3 marks)

b) Machines:

Quantity Price (GH¢) Value (GH¢)
Purchase 200 10,000,000
Sales 150 9,000,000
Closing Inventory 50

i) If the business is forced to close down, the machines will be valued at:

Quantity Price (GH¢) Value (GH¢)
50 30,000 1,500,000

(2 marks)

ii) If the business continues, the machines will be valued at:

Quantity Price (GH¢) Value (GH¢)
50 50,000 2,500,000

(2 marks)

c) Faithful representation:

  • The information gives full details of its effect on the financial statements and is only recognized if its financial effects are certain.
  • Financial reports represent economic phenomena in words and numbers. To be useful, financial information must not only represent relevant phenomena but must faithfully represent the phenomena that it purports to represent.
  • To be faithful, financial information must be complete, neutral, and free from error. A complete report must include all information necessary for the user to understand, neutral is without bias, and finally, free from error means there should be no errors or omissions in the report.

(3 marks)

d)
i) Sales Day Book

Date Customer Invoice No. Gross Amount (GH¢) Trade Discount (GH¢) Net Amount (GH¢)
Jan 8 Markcom 5,000 1,000 4,000
Jan 8 Kathrine 2,000 100 1,900

Total Sales: GH¢5,900

  • 20 Marks

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

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

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

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

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

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

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

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

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

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

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

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

ii) Differences between Financial Accounting and Management Accounting:

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

b) i) Insurance Account

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

  • 20 Marks

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

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

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

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

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

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

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

i) Commission received was as follows:

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

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

ii) Stationery was paid as follows:

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

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

iii) Rates were paid as follows:

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

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

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

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

a)
Enhancing Qualitative Characteristics:

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

(4 points @ 2.5 marks each = 10 marks)

b)

c)
Reasons for Adjustments for Accruals and Prepayments:

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

FA – May 2021 – L1 – Q1 – Non-current assets and depreciation | The IASB’s Conceptual Framework

Explanation of stakeholders' interest in financial statements and preparation of a schedule for non-current assets with depreciation and revaluation adjustments.

a) Explain why each of the following would be interested in the published financial statements of a company.
i) Shareholders
ii) Lenders
iii) Customers
iv) Suppliers
v) Financial analysts and advisers
(10 marks)

b) The following details were taken from the books of Suban Ltd for the year ended 31 July 2020.
i) Tangible non-current assets at cost as at 1 August 2019 were:

Item Amount (GH¢)
Land and Buildings (Land GH¢120,000) 520,000
Motor Vehicles 310,000
Equipment 115,000

ii) Accumulated depreciation as at 1 August 2019:

Item Amount (GH¢)
Land and Buildings 75,000
Motor Vehicles 110,000
Equipment 40,000

Suban Ltd depreciates non-current assets as follows:

  • Buildings: 3% per annum on cost.
  • Motor vehicles: 20% per annum reducing balance basis.
  • Equipment: 10% per annum on cost.
    Depreciation is charged for each month of ownership.

iii) On 1 October 2019, Land was revalued at GH¢200,000.
iv) A Motor Vehicle purchased on 1 May 2018 for GH¢40,000 was sold on 1 February 2020.
v) All equipment as at 1 August 2019 had been purchased after 1 February 2013, except for one equipment which cost GH¢10,000 purchased on 1 August 2008.
vi) During the year, the following assets were purchased:

  • Motor vehicles GH¢35,000 on 1 November 2019.
  • Equipment GH¢20,000 on 1 February 2020.

Required:
Prepare the Schedule of Non-Current Assets for the year ended 31 July 2020.
(10 marks)

a)
i) Shareholders
Shareholders, the business owners, will want to assess how effectively management is performing its stewardship function. In addition, they will want to know how profitably management is running the business and how much profit they can afford to withdraw as dividends.

ii) Lenders
These consist of debenture holders, banks, and other financial institutions. They are interested in information that enables them to determine whether their loans and the interest attached to them will be paid when due.

iii) Customers
Customers are interested in information about the continuance of the business, especially if they have bought goods with guarantees etc. If the business is a major supplier of goods, they will wish to know that it will continue into the future.

iv) Suppliers
These are people the business owes money to. They are interested in information that enables them to determine whether amounts owing to them will be paid when due. Many suppliers will also be interested in the long-term survival of the business if the business is their major customer.

v) Financial Analysts and Advisers
They need information for their clients or audience. For example, stockbrokers will need the information to advise investors in stocks and shares; credit agencies will want the information to advise potential suppliers of goods to the business, and journalists need information for their reading public.

(Each point @ 2 marks = 10 marks)

b)
Suban Ltd
Schedule of Non-Current Assets for the year ended 31 July 2020

Item Land and Buildings (GH¢) Motor Vehicles (GH¢) Equipment (GH¢)
Cost as at 1 August 2019 520,000 310,000 115,000
Additions – 35,000 20,000
Disposals – (40,000) –
Revaluations 80,000 – –
Cost as at 31 July 2020 600,000 305,000 135,000
Accumulated Depreciation as at 1 August 2019 75,000 110,000 40,000
Profit and Loss (W1, W3, W4) 12,000 42,210 11,500
Disposals (W2) – (12,640) –
Accumulated Depreciation as at 31 July 2020 87,000 139,570 51,500
Net Book Value as at 31 July 2020 513,000 165,430 83,500

Workings:

  1. (520,000 – 120,000) x 3% = 12,000
  2. Accumulated depreciation of motor vehicle disposed of:
    a. 40,000 x 20% x 3/12 + (40,000 – 2,000) x 20% + (40,000 – 2,000 – 7,600) x 20% x 6/12
    = 2,000 + 7,600 + 3,040 = 12,640.
  3. (270,000 – (110,000 – 9,600)) x 20% + (40,000 – 9,600) x 20% x 6/12 + 35,000 x 20% x 9/12 = 33,920 + 3,040 + 5,250 = 42,210.
  4. (115,000 – 10,000) x 10% + 20,000 x 10% x 6/12 = 10,500 + 1,000 = 11,500

(10 marks evenly spread using ticks)

  • 20 Marks

FA – Nov 2020 – L1 – Q1 – Accruals and prepayments | Bad and doubtful debt | The IASB’s Conceptual Framework

Question on various accounting principles and preparation of specific accounts related to rent, rates, bad debts, and doubtful debts.

a) Accounting principles and concepts are of fundamental importance in the preparation of financial statements.
Required:
With the aid of relevant examples, outline your understanding on any FOUR (4) of the following concepts/principles: i) Accruals
ii) Going Concern
iii) Historical Cost
iv) Materiality
v) Break up basis
(10 marks)

b) Patricia Ltd prepares accounts to 31 December each year. The following transactions relate to Rent and Rates: i) 31 December 2018 three months’ rent owing amounted to GH¢6,000.
ii) 31 December 2018 two months rates prepaid amounted to GH¢5,250.
iii) During the year 2019, cash paid for rent and rates amounted to GH¢90,000
iv) Rent owing as at 31 December 2019 amounts to GH¢9,000
v) Rates prepaid as at 31 December 2019 amounts to GH¢2,250
Required:
Prepare a combined rent and rates account to disclose the amount that is chargeable to the profit or loss account for the year ended 31 December, 2019.
(4 marks)

c) The following information was extracted from the books of Maanaa and Co.:

Year Bad debts written off (GH¢) Trade Receivables (GH¢) Allowance for doubtful debt (%)
1 200,000 1,200,000 10
2 300,000 1,800,000 5
3 100,000 3,000,000 5

Required:
Prepare the following accounts for the 3 years to determine the amount chargeable to the Profit or Loss account:
i) Bad debts written off account (2 marks)
ii) Allowance for doubtful debt account (4 marks)

a)
Accruals
Income is recognized in the financial statements as it is earned, not when the cash is received. Expenditure is recognized as it is incurred, not when it is paid for. When income is incurred over time (e.g., rental/interest income) or expenditures are time-based (e.g., rent payments), the income and expenditure recognized in the income statement should relate to the time period, not to the receipts and payments of cash. For example, the sale of a good is recognized in the financial statements when the rights and rewards of ownership have passed from the seller to the purchaser not when the cash is received.

Going Concern
Financial transactions are usually prepared on the assumption that the business will continue in operational existence for the foreseeable future. This means that the financial statements are drawn up on the assumption that there is no intention or necessity to close down the business. If the financial statements are not prepared on the going concern basis, then they must be prepared on what is known as the break-up basis. The break-up basis reflects the following:

  • Some non-current assets may be sold at less than their value on the statement of financial position, whilst a machine may have a use for specific business, it may be scrap or no use to other businesses.
  • In contrast, property may be sold for a value in excess of that shown in the statement of financial position based on original cost.
  • If the entire inventory is sold at once, then it will not be sold for as much money as if it were sold in the normal way.
  • Some receivables may decide not to pay the business if it is known the business is about to go into liquidation.

In most cases, financial statements are prepared on a going concern basis unless there is evidence to the contrary.

Historical Cost
Assets are recorded at historical cost, i.e., what they were bought for. Liabilities are valued at the amount initially received in exchange for the obligation. Thus, the figure shown in the financial statements for an item is the value of the item when the transaction occurred, not its current market value. Historical cost has many drawbacks, a significant one being that the non-current assets of the business tend to be undervalued and therefore the statement of financial position does not show the true value of the business. Historical cost continues to be used, however, for the following reasons: it is simple and cheap to apply, figures used are objective and verifiable, and the lack of a sound and acceptable alternative. An example of the historical cost concept is valuing buildings at a cost price of GH¢100,000 even though the current market value of the buildings is GH¢250,000.

Materiality
Materiality is a threshold quality that is demanded of all information given in the financial statements. When immaterial information is given in the financial statements, the resulting clutter can impair the understandability of the other information provided. An item’s size is judged in the context both of the financial statements as a whole and of the other information available to users that would affect their evaluation of the financial statements. An example of a material item is the value of non-current assets of GH¢250,000 in the financial statement of an entity with total assets of GH¢320,000. The non-current assets are material to the financial statements of the entity.

(4 principles well explained @ 2.5 = 10 marks)

  • 20 Marks

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

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

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

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

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

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

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

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

a) Fundamental Qualitative Characteristics

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

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

b) Ledger Postings

i) Bank Account

iii) Capital Account

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