Construction – NBC Institute

MI – May 2021 – L1 – SB – Q2 – Costing Methods

Preparation of contract accounts and financial position for Segelu Nigeria Limited.

Question

Segelu Nigeria Limited is a construction company located in Bukuai Local Government. The company commenced the construction of a health centre building on 3 January, 2018 for a contract price of N30,000,000 with completion date of February 2019. Estimated cost of the contract was N21,000,000. The construction company’s financial year end was 30 September 2018, with the following balances extracted from the books of accounts on that date.

Description	Amount (N)
Materials issued to site	3,220,000
Materials returned from site	250,000
Wages of workers paid	1,250,000
Own plant in use on site (at cost)	2,200,000
Plant hire and scaffolding	1,050,000
Head office expenses	1,220,000
Supervisory staff: direct	485,000
Supervisory staff: indirect	480,000
Value of work certified to 30 September 2018	16,200,000
Cost of work not yet certified	2,150,000
Progress payments	12,150,000
Material on site 30 September 2018	580,000
Workers’ wages due but unpaid	125,000

Depreciation on plant is to be provided at the rate of 15% per annum on cost.

You are required to prepare:
a) The contract account as at 30 September 2018 assuming the contract commenced 3 January 2018.
b) Contractee account.
c) An extract from the construction company’s financial position at 30 September 2018. (Total 20 Marks)

Answer

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Tags: Construction, Contract Account, Financial Position, Segelu Nigeria Limited
Level: Level 1

Topic: Costing Methods
Series: MAY 2021

FA – May 2021 – L1 – SB – Q2a – Bank Reconciliation

Preparation of a contract account showing the costs, revenues, and profit recognized for the period.

Question

The following is a summary of the cash book of Babagana Limited for the month of March 2019.

N’000
Receipts	Payments
22,035	11,930
Balance b/f 18,415	Balance c/d 8,310
30,345	30,345

All receipts are banked and payments made by cheque. On investigation, you discovered that:

Bank charges of N2,040,000 entered on the bank statement had not been entered in the cash book.
Cheques drawn amounting to N4,005,000 had not been presented to the bank for payment.
Cheques received amounting to N11,430,000 had been entered in the cash book and paid into the bank, but had not been credited by the bank until April 2019.
A cheque for N330,000 had been wrongly entered as a receipt in the cash book.
A cheque drawn had been overstated by N375,000.
A cheque of N1,200,000 received had been returned by the bank. No adjustment had been made in the cash book.
All dividends receivable are credited directly to the bank account. During March 2019, amounts totaling N930,000 were credited by the bank and no entries were made in the cash book.
A cheque drawn for N90,000 had been incorrectly entered in the cash book as N990,000.
The bank statement as at 31 March 2019 showed an overdraft of N17,430,000.

Required:

i. The adjustments required in the cash book (5 Marks)
ii. Starting with balance as per bank statement, prepare a bank reconciliation statement as at March 31, 2019. (5 Marks)

Answer

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Tags: Construction, Contract Account, Financial Statement
Level: Level 1

Topic: Bank reconciliations
Series: MAY 2021

FR – March 2023 – L2 – Q5c – Preparation of Financial Statements

Determining the initial cost, depreciation charge, and carrying amount of the head office construction under IFRSs.

Question

Lana Ltd is a public listed company in Ghana, located in the Northern Region. The company operates in the manufacturing sector and prepares its accounts to 31 December each year. During the year ended 31 December 2021, Lana Ltd built a head office. The costs associated with the construction of the head office are as follows:

GH¢ million
Fees for environmental certifications and building permits	0.5
Leasehold Land acquisition	10.0
Architect and engineer fees	1.0
Construction material and labor costs (including unused materials)	6.5

At 31 October 2021, when the head office extension became available for use, the cost of unused materials on site amounted to GH¢0.5 million. The total borrowing costs incurred on a loan specifically used to finance the head office extension amounted to GH¢0.8 million. The estimated useful life of the building was 40 years.

Required:
With reference to IFRSs, determine:
i) The initial cost to be capitalized.
ii) The depreciation charge for the year ended 31 December 2021.
iii) The carrying amount as of 31 December 2021.

Answer

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Tags: Borrowing Costs, Capitalization, Construction, Depreciation, IFRS
Level: Level 2

Topic: Preparation of Financial Statements
Series: MAR 2023

CR – May 2016 – L3 – Q1b – Non-current assets: sundry standards (IAS 16, IAS 23, IAS 20 and IAS 40)

Calculate borrowing costs to be capitalized for a warehouse construction project, considering specific loans and general borrowings.

Question

Nanniama Ltd is constructing a warehouse that will take about 18 months to complete. It began construction on 1st January 2014. The following payments were made during 2014:

GH¢’000 31st January 200 31st March 450 30th June 100 31st October 200 30th November 250

The first payment on 31st January was funded from the entity’s pool of debt. However, the entity succeeded in raising a medium-term loan for an amount of GH¢800,000 on 31st March, 2014, with simple interest of 9 percent per annum, calculated and payable monthly in arrears. These funds were specifically used for this construction. Excess funds were temporarily invested at 6 percent per annum monthly in arrears and payable in cash. The pool of debt was again used to an amount of GH¢200,000 for the payment on 30th November, which could not be funded from the medium-term loan. The construction project was temporarily halted for 3 weeks in May when substantial technical and administrative work was carried out.

Nanniama Ltd adopted the accounting policy of capitalizing borrowing costs. The following amounts of debt were outstanding at the balance sheet date, 31st December 2014:

GH¢’000 Medium-term loan (see description above) 800 Bank overdraft 1,200 (The weighted average amount outstanding during the year was GH¢750,000 and total interest charged by the bank amounted to GH¢33,800 for the year) A 10%, 7-year note dated 31st October 2018 with simple interest payable annually at 31st December 9,000

Required: Calculate the borrowing costs to be capitalized (10 marks)

Answer

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Tags: Borrowing Costs, Capitalization, Construction, IAS 23, Interest
Level: Level 3

Topic: Non-current assets: sundry standards (IAS 16, IAS 23, IAS 20 and IAS 40)
Series: MAY 2016

MI – May 2021 – L1 – SB – Q2 – Costing Methods

Preparation of contract accounts and financial position for Segelu Nigeria Limited.

Question

Description	Amount (N)
Materials issued to site	3,220,000
Materials returned from site	250,000
Wages of workers paid	1,250,000
Own plant in use on site (at cost)	2,200,000
Plant hire and scaffolding	1,050,000
Head office expenses	1,220,000
Supervisory staff: direct	485,000
Supervisory staff: indirect	480,000
Value of work certified to 30 September 2018	16,200,000
Cost of work not yet certified	2,150,000
Progress payments	12,150,000
Material on site 30 September 2018	580,000
Workers’ wages due but unpaid	125,000

Depreciation on plant is to be provided at the rate of 15% per annum on cost.

Answer

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Tags: Construction, Contract Account, Financial Position, Segelu Nigeria Limited
Level: Level 1

Topic: Costing Methods
Series: MAY 2021

FA – May 2021 – L1 – SB – Q2a – Bank Reconciliation

Preparation of a contract account showing the costs, revenues, and profit recognized for the period.

Question

The following is a summary of the cash book of Babagana Limited for the month of March 2019.

N’000
Receipts	Payments
22,035	11,930
Balance b/f 18,415	Balance c/d 8,310
30,345	30,345

All receipts are banked and payments made by cheque. On investigation, you discovered that:

Bank charges of N2,040,000 entered on the bank statement had not been entered in the cash book.
Cheques drawn amounting to N4,005,000 had not been presented to the bank for payment.
Cheques received amounting to N11,430,000 had been entered in the cash book and paid into the bank, but had not been credited by the bank until April 2019.
A cheque for N330,000 had been wrongly entered as a receipt in the cash book.
A cheque drawn had been overstated by N375,000.
A cheque of N1,200,000 received had been returned by the bank. No adjustment had been made in the cash book.
All dividends receivable are credited directly to the bank account. During March 2019, amounts totaling N930,000 were credited by the bank and no entries were made in the cash book.
A cheque drawn for N90,000 had been incorrectly entered in the cash book as N990,000.
The bank statement as at 31 March 2019 showed an overdraft of N17,430,000.

Required:

i. The adjustments required in the cash book (5 Marks)
ii. Starting with balance as per bank statement, prepare a bank reconciliation statement as at March 31, 2019. (5 Marks)

Answer

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Tags: Construction, Contract Account, Financial Statement
Level: Level 1

Topic: Bank reconciliations
Series: MAY 2021

FR – March 2023 – L2 – Q5c – Preparation of Financial Statements

Determining the initial cost, depreciation charge, and carrying amount of the head office construction under IFRSs.

Question

GH¢ million
Fees for environmental certifications and building permits	0.5
Leasehold Land acquisition	10.0
Architect and engineer fees	1.0
Construction material and labor costs (including unused materials)	6.5

Required:
With reference to IFRSs, determine:
i) The initial cost to be capitalized.
ii) The depreciation charge for the year ended 31 December 2021.
iii) The carrying amount as of 31 December 2021.

Answer

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Tags: Borrowing Costs, Capitalization, Construction, Depreciation, IFRS
Level: Level 2

Topic: Preparation of Financial Statements
Series: MAR 2023

CR – May 2016 – L3 – Q1b – Non-current assets: sundry standards (IAS 16, IAS 23, IAS 20 and IAS 40)

Calculate borrowing costs to be capitalized for a warehouse construction project, considering specific loans and general borrowings.

Question

Nanniama Ltd is constructing a warehouse that will take about 18 months to complete. It began construction on 1st January 2014. The following payments were made during 2014:

GH¢’000 31st January 200 31st March 450 30th June 100 31st October 200 30th November 250

Nanniama Ltd adopted the accounting policy of capitalizing borrowing costs. The following amounts of debt were outstanding at the balance sheet date, 31st December 2014:

Required: Calculate the borrowing costs to be capitalized (10 marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Borrowing Costs, Capitalization, Construction, IAS 23, Interest
Level: Level 3

Topic: Non-current assets: sundry standards (IAS 16, IAS 23, IAS 20 and IAS 40)
Series: MAY 2016

Question Tag: Construction

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MI – May 2021 – L1 – SB – Q2 – Costing Methods

Preparation of contract accounts and financial position for Segelu Nigeria Limited.

FA – May 2021 – L1 – SB – Q2a – Bank Reconciliation

Preparation of a contract account showing the costs, revenues, and profit recognized for the period.

FR – March 2023 – L2 – Q5c – Preparation of Financial Statements

Determining the initial cost, depreciation charge, and carrying amount of the head office construction under IFRSs.

CR – May 2016 – L3 – Q1b – Non-current assets: sundry standards (IAS 16, IAS 23, IAS 20 and IAS 40)

Calculate borrowing costs to be capitalized for a warehouse construction project, considering specific loans and general borrowings.

MI – May 2021 – L1 – SB – Q2 – Costing Methods

Preparation of contract accounts and financial position for Segelu Nigeria Limited.

FA – May 2021 – L1 – SB – Q2a – Bank Reconciliation

Preparation of a contract account showing the costs, revenues, and profit recognized for the period.

FR – March 2023 – L2 – Q5c – Preparation of Financial Statements

Determining the initial cost, depreciation charge, and carrying amount of the head office construction under IFRSs.

CR – May 2016 – L3 – Q1b – Non-current assets: sundry standards (IAS 16, IAS 23, IAS 20 and IAS 40)

Calculate borrowing costs to be capitalized for a warehouse construction project, considering specific loans and general borrowings.

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MI – May 2021 – L1 – SB – Q2 – Costing Methods

Preparation of contract accounts and financial position for Segelu Nigeria Limited.

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FA – May 2021 – L1 – SB – Q2a – Bank Reconciliation

Preparation of a contract account showing the costs, revenues, and profit recognized for the period.

You're reporting an error for "FA – May 2021 – L1 – SB – Q2a – Bank Reconciliation"

FR – March 2023 – L2 – Q5c – Preparation of Financial Statements

Determining the initial cost, depreciation charge, and carrying amount of the head office construction under IFRSs.

You're reporting an error for "FR – March 2023 – L2 – Q5c – Preparation of Financial Statements"

CR – May 2016 – L3 – Q1b – Non-current assets: sundry standards (IAS 16, IAS 23, IAS 20 and IAS 40)

Calculate borrowing costs to be capitalized for a warehouse construction project, considering specific loans and general borrowings.

You're reporting an error for "CR – May 2016 – L3 – Q1b – Non-current assets: sundry standards (IAS 16, IAS 23, IAS 20 and IAS 40)"

MI – May 2021 – L1 – SB – Q2 – Costing Methods

Preparation of contract accounts and financial position for Segelu Nigeria Limited.

You're reporting an error for "MI – May 2021 – L1 – SB – Q2 – Costing Methods"

FA – May 2021 – L1 – SB – Q2a – Bank Reconciliation

Preparation of a contract account showing the costs, revenues, and profit recognized for the period.

You're reporting an error for "FA – May 2021 – L1 – SB – Q2a – Bank Reconciliation"

FR – March 2023 – L2 – Q5c – Preparation of Financial Statements

Determining the initial cost, depreciation charge, and carrying amount of the head office construction under IFRSs.

You're reporting an error for "FR – March 2023 – L2 – Q5c – Preparation of Financial Statements"

CR – May 2016 – L3 – Q1b – Non-current assets: sundry standards (IAS 16, IAS 23, IAS 20 and IAS 40)

Calculate borrowing costs to be capitalized for a warehouse construction project, considering specific loans and general borrowings.

You're reporting an error for "CR – May 2016 – L3 – Q1b – Non-current assets: sundry standards (IAS 16, IAS 23, IAS 20 and IAS 40)"

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