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FA – Nov 2024 – L1 – Q5c – Profitability vs Liquidity Ratios

Explain the difference between profitability and liquidity ratios and provide two examples of each.

Question

Accounting ratios cover a wide array of ratios that are used by accountants and act as different indicators that measure profitability, liquidity, and potential financial distress in a company’s financials.

Required:

Differentiate between profitability ratios and liquidity ratios and give TWO examples each.

Answer

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Tags: Business Analysis, Financial health, Financial Ratios, Liquidity Ratios, Profitability Ratios
Level: Level 1

Topic: Interpretation of financial statements (Financial Ratios)
Series: Nov 2024

FA – Nov 2024 – L1 – Q5b – Subscription Account for a Non-Profit Organization

Prepare the subscription account for a football club considering arrears, advance payments, and new subscriptions received.

Question

At 31 March 2023, Kahuro Football Club had membership subscriptions in arrears amounting to GH¢144,000 and had received GH¢36,000 as subscriptions in advance.

During the year ended 31 March 2024, the club received GH¢1,872,000, which included 26 memberships for the year ending 31 March 2025, charged at GH¢1,200 per annum.

At 31 March 2024, 16 members owed a subscription fee of GH¢1,200 each.

Required:

Prepare the subscription account for Kahuro Football Club for the year to 31 March 2024

Answer

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Tags: Accruals and Prepayments, Club Accounts, Membership Fees, Non-Profit Accounting, Subscription Account
Level: Level 1

Topic: Preparation of not-for-profit accounts
Series: Nov 2024

FA – Nov 2024 – L1 – Q5a – Inventory Loss and Statement of Profit or Loss

Compute inventory loss due to fire and prepare a statement of profit or loss for a sole trader.

Question

Mawulolo Enterprise is a retail business that prepares its accounts on 31 March each year. The business maintains a standard gross profit margin of 30% on sales.

The following financial information was extracted from its records as at 31 March 2024:

Item	GH¢
Inventory at 1 April 2023	254,000
Operating Expenses	378,000
Finance Cost	58,000
Purchases	1,306,000
Sales	1,900,000
Inventory in good standing at 31 March 2024	192,000

On 31 March 2024, a fire outbreak in the warehouse destroyed some of the inventory records and goods.

The tax charge for the year is estimated at GH¢30,000.

Required:

i)Calculate the amount of inventory lost.

ii) Prepare the Statement of Profit or Loss for the year ended 31 March 2024

Answer

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Tags: Cost of Sales, Financial Adjustments, Fire Loss, Gross Profit, Inventory Valuation, Net Profit
Level: Level 1

Topic: Inventory
Series: Nov 2024

FA – Nov 2024 – L1 – Q4- Preparation of Financial Statements for a Sole Trader

Prepare the Statement of Profit or Loss and Statement of Financial Position for a sole trader from given financial data and adjustments.

Question

The following list of assets, liabilities, and equity as at 30 June 2023 was extracted from the books of Akuorkor, a sole trader:

Trial Balance as at 30 June 2023

Item	GH¢
Plant and equipment – cost	100,000
Accumulated depreciation – Plant & Equipment	36,000
Office fixtures – cost	25,000
Accumulated depreciation – Office Fixtures	2,500
Inventory	15,250
Trade receivables and prepayments	17,500
Trade payables and accrued expenses	8,800
Bank overdraft	4,425
Loan (10% interest per annum)	47,500
Capital	58,525

Summary of Receipts and Payments for the Year Ended 30 June 2024

Receipts	GH¢
Capital introduced	11,000
Cash from customers	213,750
Total Receipts	224,750

Payments	GH¢
Cash drawings (Note 5)	11,225
Loan repayments (Note 7)	10,000
Payment to suppliers	87,800
Rent	11,000
Wages	45,000
Office expenses	6,250
Total Payments	171,275

Additional Information:

Closing inventory on 30 June 2024 was GH¢13,925.
Depreciation policies:
- Plant & Equipment: 20% per annum reducing balance.
- Office Equipment: 10% per annum on cost.
- Fixtures & Fittings: Straight-line method over 4 years with a full year’s charge in the year of acquisition.
GH¢2,500 worth of fixtures & fittings was introduced into the business.
Prepayments and accrued expenses as at 30 June 2023:
- Rent paid in advance: GH¢1,250
- Accrued wages: GH¢2,150
Cash drawings included:
- Wages: GH¢3,375
- Payments to suppliers: GH¢2,100
- Advertising leaflets: GH¢1,300 (Half not yet distributed).
Bank balance per statement: GH¢53,350 after adjusting for unpresented cheques.
Loan repayments include GH¢4,750 in interest payments.
Assets and liabilities as at 30 June 2024:
- Rent paid in advance: GH¢1,350
- Accrued wages: GH¢2,625
- Amounts due to suppliers: GH¢6,100
- Amounts due from customers: GH¢11,150
Major customer went into liquidation owing GH¢8,000; only 20% recoverable.

Required:

Prepare:
i) Statement of Profit or Loss for Akuorkor for the year ended 30 June 2024.
ii) Statement of Financial Position as at 30 June 2024.

Answer

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Tags: Accruals and Prepayments, Depreciation, Inventory, Loan Interest, Sole Trader, Statement of Financial Position, Statement of Profit or Loss
Level: Level 1

Topic: Preparation of financial statements of a sole trader
Series: Nov 2024

FA – Nov 2024 – L1 – Q3b – Bank Reconciliation

Prepare an adjusted cash book and reconcile it with the bank statement balance.

Question

The cash book of Lawra Ltd as at 31 December 2023 shows a balance of GH¢36,900, which does not match the bank statement balance of GH¢41,100. Investigation revealed the following discrepancies:

Cheques received of GH¢104,000, GH¢10,000, and GH¢24,900 were still in the business drawer.
Standing orders for electricity charges (GH¢2,400) and insurance (GH¢3,600) were paid by the bank but not recorded in the cash book.
The bank charged GH¢300 for a cheque book issued to Lawra Ltd.
The bank incorrectly debited GH¢9,910 to Lawra Ltd’s account, which was intended for another customer.
A credit transfer of GH¢10,000 was received but not recorded in the cash book.
A cheque for GH¢140,000 drawn by Lawra Ltd was correctly recorded in the cash book but was debited as GH¢14,000 by the bank.
The following cheques, paid in November 2023, remained unpresented:

Cheque Number Amount (GH¢)

0000111 4,000

0000117 10,000

0000120 9,310

Cheque Number	Amount (GH¢)
0000111	4,000
0000117	10,000
0000120	9,310

Required:

i) Prepare the adjusted cash book for Lawra Ltd as at 31 December 2023.

ii) Prepare a bank reconciliation statement reconciling the adjusted cash book balance to the bank statement balance.

Answer

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Tags: Adjusted Cash Book, Bank Errors, Bank Reconciliation, Credit Transfers, Standing Orders, Unpresented Cheques
Level: Level 1

Topic: Bank reconciliations
Series: Nov 2024

FA – Nov 2024 – L1 – Q3a – Correction of Errors

Identify and correct accounting errors using journal entries, suspense account, and revised profit calculations.

Question

The trial balance for Aboadze Ltd for the year ended 31 December 2022 failed to agree, showing a difference of GH¢3,600, which was credited to the suspense account. The draft account reported a net profit of GH¢435,000.

During 2023, the following errors were identified:

GH¢30,000 received from the sale of old machinery was incorrectly recorded in the sales account.
The purchase day book was overstated by GH¢48,000.
A private purchase by the director worth GH¢36,000 was included in the company’s purchases.
Bank charges of GH¢14,400 were recorded in the cash book but not posted to the bank charges account.
A sale of GH¢207,000 to Kofi was correctly entered in the sales day book but posted as GH¢270,000 in the personal account.
Discount received of GH¢13,500 was incorrectly posted to the debit side of the discount allowed account.
Wages of GH¢120,000 paid were not posted from the cash book.

Required:

i) Show the journal entries to correct the errors.

ii) Write up the suspense account to eliminate the errors.

iii) Prepare a statement to show the revised profit.

Answer

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Tags: Accounting Adjustments, Error Correction, Financial Statements, Journal Entries, Suspense account, Trial Balance
Level: Level 1

Topic: Correction of errors
Series: Nov 2024

FA – Nov 2024 – L1 – Q2b – Allowance for Receivables and Irrecoverable Debt

Prepare the allowance for receivables and irrecoverable debt expense accounts for a financial period.

Question

At 1 August 2023, the balance on the allowance for receivables account was GH¢12,600.

At 31 August 2023, the company’s management decided that the revised balance should be 10% of the month-end accounts receivable.

Required:

Prepare the Allowance for Receivables and Irrecoverable Debt Expense accounts, showing the necessary entries for the financial period ending 31 August 2023.

Answer

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Tags: Allowance for Receivables, Doubtful Debts, Financial Adjustments, Irrecoverable Debt, Provision for Bad Debts
Level: Level 1

Topic: Bad and doubtful debt
Series: Nov 2024

FA – Nov 2024 – L1 – Q2a – Preparation of Partnership Accounts

Prepare receivables and payables control accounts and identify books of prime entry for specific transactions.

Question

At the close of business on 31 July 2023, the following balances were extracted from the books of Akrowa, a limited liability company:

GH¢
Receivables Ledger Control Account
Payables Ledger Control Account

During August 2023, the following transactions occurred:

Transaction	GH¢
1) Cash received from customers	63,600
2) Cash paid to suppliers	65,000
3) Sales on credit	96,400
4) Purchases on credit	73,000
5) Sales returns	3,800
6) Purchase returns	1,400
7) Discounts received from suppliers	800
8) Settlement discount claimed by customer unexpectedly	600
9) Irrecoverable debts written off	5,400
10) Customer and supplier accounts settled by contra	4,200

Required:

i) Prepare the Receivables Ledger Control Account and Payables Ledger Control Account for August 2023 and determine the balances at 31 August 2023.

ii) Identify the book of prime entry from which each of the transactions (1) to (10) originated.

Answer

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Tags: Contra Entries, Control Accounts, Irrecoverable Debts, Payables Ledger, Prime Entry Books, Purchase Returns, Receivables Ledger, Sales Returns
Level: Level 1

Topic: Control accounts and account reconciliations
Series: Nov 2024

ICMA – Nov 2024 – L1 – Q5b – Budgeting Models and Systems

Explain the benefits of GIFMIS to the government of Ghana.

Question

Efforts to improve Public Financial Management (PFM) Systems in Ghana led to the Ghana Integrated Financial Management Information System (GIFMIS), which is an adaptation of the Integrated Financial Management Information System (IFMIS). The rationale of GIFMIS is to establish an integrated ICT-based PFM system in Ghana at national, regional, and district levels.

Required:

State FOUR benefits of GIFMIS to the government of Ghana.

Answer

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Tags: Budgeting, Financial Reporting, Fiscal Policy, GIFMIS, Government Accounting, Public Financial Management
Level: Level 1

Topic: Budgeting Models and Systems
Series: Nov 2024

ICMA – Nov 2024 – L1 – Q5a – Cost Segregation and Estimation

Determine fixed and variable cost components using regression analysis and estimate total cost for a given production level.

Question

Ebo LTD is planning to determine its variable and fixed cost elements for its planned activity level for the next year. The company has recorded the following costs and production units in the past six months:

Month	Units (X)	Cost (Y)
January	5.8	40.3
February	7.7	47.1
March	8.2	48.7
April	6.1	40.6
May	6.5	44.5
June	7.5	47.1

Required:

i) Construct the least square regression model.
ii) Determine the variable cost per unit of output using the model.
iii) Determine the fixed cost for the month using the model.
iv) Estimate the total cost if the company plans to produce 6,200 units.

Answer

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Tags: Cost Estimation, Fixed Cost, Least Squares Method, Regression Analysis, Variable Cost
Level: Level 1

Topic: Cost Segregation and Estimation
Series: Nov 2024

BCL – Nov 2024 – L1 – Q5b – Registrar’s Power to Refuse Firm Registration

Circumstances under which the Registrar of Companies may refuse to register a firm or partnership.

Question

The Registrar of Companies may refuse to register a firm or partnership.

Required:
Under what conditions will the Registrar of Companies in his opinion refuse to register a firm/partnership?

Answer

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Tags: Business Registration, Company Formation, Legal Compliance, Partnership Law, Registrar of Companies
Level: Level 1

Topic: Company directors and other officers
Series: Nov 2024

BCL – Nov 2024 – L1 – Q5a – Annual General Meeting (AGM) Requirements

Legal requirements for holding an AGM and consequences of non-compliance.

Question

Yaw Perbi, the CEO of your company, is preparing for a top management meeting scheduled for 1 December 2023. One of the issues to be discussed is the mode of holding the next shareholders’ meeting. There are views that the Annual General Meeting (AGM) must be in-person so that members can vote on resolutions to be passed. Others believe that the AGM should be virtual or hybrid. Some shareholders believe that the items on the agenda are too many and that they would need two days to have a meaningful discussion. Kwasi Mensa, a shareholder, has decided not to attend the AGM if it is organised virtually.

Required:

a) Explain the following to your boss:

i) The requirement of the Companies Act, 2019 (Act 992) on the interval between which AGMs are to be held.

ii) THREE things that should be covered in the notice for an AGM.

iii) TWO consequences of not holding an AGM in accordance with the Companies Act.

iv) Justify whether or not decisions taken at the AGM will be binding on Kwasi Mensa.

Answer

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Tags: AGM, Companies Act, Corporate Governance, Meeting Notice, Shareholder Rights
Level: Level 1

Topic: Company Meetings and Resolutions
Series: Nov 2024

BCL – Nov 2024 – L1 – Q4d – Utmost Good Faith in Insurance

Explanation of the principle of utmost good faith in insurance contracts.

Question

Disclosure of material facts is important in insurance transactions.

Required:
What is utmost good faith in insurance?

Answer

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Tags: Contract of Insurance, Insurance Law, Material Disclosure, Risk Assessment, Utmost Good Faith
Level: Level 1

Topic: Insurance and Banking Contracts
Series: Nov 2024

BCL – Nov 2024 – L1 – Q4c – Contractual Obligations of a Minor

Legal validity of a contract involving a minor performing services for payment.

Question

Amevo is a minor and a professional dancer. He entered into a contract to perform a series of dances for GH¢5,000 an hour per night of performance. The rule as accepted was that failure to perform in one series without reasonable excuse would incur a percentage deduction from his earnings at subsequent performances. Amevo failed to perform at one of the series. His attention was drawn to the rule, but he now thinks the deduction should not be made.

Required:
Advise Amevo.

Answer

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Tags: Beneficial Contracts, Breach of Contract, Contract Law, Legal obligations, Minor’s Contracts
Level: Level 1

Topic: Contract Law
Series: Nov 2024

BCL – Nov 2024 – L1 – Q4b – Domestic Agreements and Legal Enforcement

Legal enforceability of a domestic agreement between spouses regarding financial obligations.

Question

As part of the arrangements in the home of the Ananses, the husband agreed to pay the school fees of the children. The wife decided to use part of her earnings to manage the household chores, including the provision of food. The wife had observed for some time that the husband had not performed his side of the obligation, leading to arrears of school fees. She has therefore chosen to sue the husband in a court of law to compel him to perform his duty.

Required:
Advise her

Answer

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Tags: Contractual Obligations, Domestic Agreements, Family Law, Legal Intent, Social Contracts
Level: Level 1

Topic: Company Law
Series: Nov 2024

BCL – Nov 2024 – L1 – Q4a – Agency of Necessity

Legal implications of an agent acting in necessity during a curfew.

Question

Ozoozo is a cargo driving agent of Oforiwa, a trader. Ozoozo loaded a truck of yam from Kutunada for delivery to Oforiwa in Accra. In the course of the journey and at Butako township, a curfew was imposed as a result of chieftaincy issues in the traditional area. He tried to communicate with Oforiwa but he was unable to do so due to network challenges. Ozoozo found it useful to off-load the cargo of yam and dispose of it by sale. He accounted for the sale but Oforiwa became furious.

Required:
Advise Oforiwa.

Answer

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Tags: Agency Law, Commercial Transactions, Emergency Contracts, Necessity Doctrine, Principal-Agent Relationship
Level: Level 1

Topic: Agency Law
Series: Nov 2024

BCL – Nov 2024 – L1 – Q3b – Financial Assistance for Share Purchase

Conditions under which a company may provide financial assistance for share purchase.

Question

Under what circumstances will the provision of financial assistance by a company for the purchase of its own shares be permitted?

Answer

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Tags: Business Financing, Capital structure, Corporate Law, Financial Assistance, Share Purchase
Level: Level 1

Topic: Types of capital and the financing of companies
Series: Nov 2024

BCL-Nov-2024-L1-Q3a-Unfair Termination of Employment

Legal basis for unfair termination of employment under the Labour Act.

Question

Alahey, an employee of Gyammea Ventures, has had his appointment terminated following allegations of financial impropriety. In his response to a query for the alleged offense, he admitted committing the offense and pleaded for leniency.

For the offense of financial impropriety, the corresponding penalty should have been dismissal, as per the “Employee Handbook” of the company.

On account of his plea, Management decided to terminate the relationship with loss of terminal benefits. Alahey is minded to sue Gyammea Ventures for unfair termination and has approached you for advice.

Required:
With your understanding of the Labour Act, 2003, (Act 651), explain to Alahey the basis for severance of the employment relationship that can constitute unfair termination.

Answer

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Tags: Contract of Employment, Employee Rights, Employment Termination, Labour Law, Unfair Dismissal
Level: Level 1

Topic: Employment law
Series: Nov 2024

BCL-Nov-2024-L1-Q2b- Pre-incorporation Contracts & Fiduciary Duty

Legal advice on pre-incorporation contract expenses and secret profits between business associates.

Question

Darkoa lives in the United States of America (USA) and asked his long-time friend, Gyankoroma, to register a company for her in Ghana. Gyankoroma spent GH¢20,000 on documentation, filing, and processing (with the issuance of receipts being in Gyankoroma’s name). Upon the request of Darkoa, Gyankoroma rented an office premises for one year at GH¢40,000 with the receipt in the name of the newly formed company.

Darkoa just returned from the USA to start operations. Darkoa discovered that the rental agent gave GH¢4,000 to Gyankoroma as inducement for the office deal. Darkoa appointed Gyankoroma as head of operations and refused to pay the registration expenses on the basis that Gyankoroma’s monthly salary as head of operations is more than GH¢20,000 and those expenses should be borne from the secret profits Gyankoroma had earlier enjoyed.

Required:
Based on your knowledge in pre-incorporation contracts, advise the parties.

Answer

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Tags: Company Formation, Fiduciary Duties, Pre-Incorporation Contracts, Promoter Duties, Secret Profits
Level: Level 1

Topic: Formation and constitution of organisations
Series: Nov 2024

BMIS-Nov-2024-L1-Q5c-Benefits of Internet and E-commerce for Suppliers and Customers

Explains the benefits of internet and e-commerce for suppliers and customers.

Question

The internet and e-commerce have become important channels for marketing and selling products, and the internet can also be a distribution channel for products.
Required:
State FOUR potential benefits of the internet and e-commerce for each of the following:
i) Suppliers
ii) Customers

Answer

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Tags: Customers, Distribution, E-commerce, Internet, Marketing, Suppliers
Level: Level 1

Topic: Internet and E-commerce
Series: Nov 2024

Level: Level 1

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FA – Nov 2024 – L1 – Q5c – Profitability vs Liquidity Ratios

Explain the difference between profitability and liquidity ratios and provide two examples of each.

Required:

FA – Nov 2024 – L1 – Q5b – Subscription Account for a Non-Profit Organization

Prepare the subscription account for a football club considering arrears, advance payments, and new subscriptions received.

Required:

FA – Nov 2024 – L1 – Q5a – Inventory Loss and Statement of Profit or Loss

Compute inventory loss due to fire and prepare a statement of profit or loss for a sole trader.

Required:

FA – Nov 2024 – L1 – Q4- Preparation of Financial Statements for a Sole Trader

Prepare the Statement of Profit or Loss and Statement of Financial Position for a sole trader from given financial data and adjustments.

Trial Balance as at 30 June 2023

Summary of Receipts and Payments for the Year Ended 30 June 2024

Additional Information:

Required:

FA – Nov 2024 – L1 – Q3b – Bank Reconciliation

Prepare an adjusted cash book and reconcile it with the bank statement balance.

Required:

FA – Nov 2024 – L1 – Q3a – Correction of Errors

Identify and correct accounting errors using journal entries, suspense account, and revised profit calculations.

Required:

FA – Nov 2024 – L1 – Q2b – Allowance for Receivables and Irrecoverable Debt

Prepare the allowance for receivables and irrecoverable debt expense accounts for a financial period.

Required:

FA – Nov 2024 – L1 – Q2a – Preparation of Partnership Accounts

Prepare receivables and payables control accounts and identify books of prime entry for specific transactions.

During August 2023, the following transactions occurred:

Required:

ICMA – Nov 2024 – L1 – Q5b – Budgeting Models and Systems

Explain the benefits of GIFMIS to the government of Ghana.

Required:

ICMA – Nov 2024 – L1 – Q5a – Cost Segregation and Estimation

Determine fixed and variable cost components using regression analysis and estimate total cost for a given production level.

Required:

BCL – Nov 2024 – L1 – Q5b – Registrar’s Power to Refuse Firm Registration

Circumstances under which the Registrar of Companies may refuse to register a firm or partnership.

BCL – Nov 2024 – L1 – Q5a – Annual General Meeting (AGM) Requirements

Legal requirements for holding an AGM and consequences of non-compliance.

BCL – Nov 2024 – L1 – Q4d – Utmost Good Faith in Insurance

Explanation of the principle of utmost good faith in insurance contracts.

BCL – Nov 2024 – L1 – Q4c – Contractual Obligations of a Minor

Legal validity of a contract involving a minor performing services for payment.

BCL – Nov 2024 – L1 – Q4b – Domestic Agreements and Legal Enforcement

Legal enforceability of a domestic agreement between spouses regarding financial obligations.

BCL – Nov 2024 – L1 – Q4a – Agency of Necessity

Legal implications of an agent acting in necessity during a curfew.

BCL – Nov 2024 – L1 – Q3b – Financial Assistance for Share Purchase

Conditions under which a company may provide financial assistance for share purchase.

BCL-Nov-2024-L1-Q3a-Unfair Termination of Employment

Legal basis for unfair termination of employment under the Labour Act.

BCL-Nov-2024-L1-Q2b- Pre-incorporation Contracts & Fiduciary Duty

Legal advice on pre-incorporation contract expenses and secret profits between business associates.

BMIS-Nov-2024-L1-Q5c-Benefits of Internet and E-commerce for Suppliers and Customers

Explains the benefits of internet and e-commerce for suppliers and customers.

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