Question Tag: Income Statement

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  • 5 Marks

AA – Nov 2024 – L2 – Q3b – Audit Assertions for the Income Statement

Explain two key audit assertions for the income statement.

Audit assertions are claims made by management regarding the accuracy and completeness of various elements of financial statements. These assertions are used by auditors to develop audit procedures and gather evidence to support their audit opinion. Assertions are categorised into those related to the income statement and those related to the statement of financial position.

Required:
Explain TWO key Audit Assertions for the Income Statement.

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  • 30 Marks

FM – Nov 2017 – L3 – Q1 – Financial Planning and Forecasting

Prepare forecast financials for Lekki Plc and suggest divestment options for a poorly performing subsidiary.

Despite the global recession, demand for the company’s products has recently increased and is expected to grow over the next two years.

As part of a recent strategic review, the directors made the following projections for the years ending March 31, 2018, and March 31, 2019:

  1. An anticipated annual revenue increase of 8% for each year.
  2. Operating costs (excluding depreciation) expected to rise by 4% per year.
  3. Tax rate to remain at 21%, payable in the year liability arises.
  4. The trade receivables/revenue and trade payables/operating costs ratios will stay the same.
  5. Inventory levels to increase by 10% in the year ending March 31, 2018, and then remain stable.
  6. Non-current assets, including Lekki Plc.’s headquarters and factory, are not depreciated, and capital allowances are negligible.
  7. Dividend growth rate to remain at 6% annually, with dividends declared at the year-end and paid the following year.
  8. Purchase of new machinery at N8 million, financed through existing overdraft facilities. Machinery to be depreciated straight-line over 8 years with a N1 million residual value; capital allowances will apply at 18% reducing balance.
  9. Finance costs are projected to increase by 50% in the year ending March 31, 2018, and remain stable thereafter.

Financial Statement Extracts (March 31, 2017):

  • Income Statement:
    • Revenue: N60,240,000
    • Operating Costs: N49,500,000
    • Operating Profit: N10,740,000
    • Finance Costs: N800,000
    • Profit before Tax: N9,940,000
    • Tax: N2,286,000
    • Profit after Tax: N7,654,000
  • Statement of Financial Position:
    • Assets:
      • Non-current Assets: N28,850,000
      • Current Assets:
        • Inventories: N9,020,000
        • Trade Receivables: N9,036,000
        • Cash and Equivalents: N396,000
    • Equity and Liabilities:
      • Ordinary Share Capital: N16,700,000
      • Retained Earnings: N12,482,000
      • Non-current Liabilities: N8,000,000 (6% Debentures)
      • Current Liabilities: N10,120,000 (Trade Payables, Dividends)

Assume today is April 1, 2017.

a. Prepare a Forecast Financial Statement (Income Statement, Statement of Financial Position, and Cash Flow Statement) for each of the years ending March 31, 2018, and March 31, 2019.
(24 Marks)

Note: All calculations should be rounded up to the nearest N’000.

b. Beyond March 31, 2019, the directors are considering the disposal of a smaller subsidiary due to poor performance. The Finance Director suggests avoiding liquidation to minimize industrial relations issues.

Required: Discuss three non-liquidation methods to divest the subsidiary.
(6 Marks)

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  • 15 Marks

FA – May 2012 – L1 – SB – Q1 – Accounts of Not-for-Profit Entities

Prepare income statement, income and expenditure account, and statement of financial position for a not-for-profit society.

The following details are available from the books of Tops Darts Society:

(iii)
The person handling Dart sales, “all in cash,” disappeared with the money received from this source. It is unknown how much was stolen, but all darts were sold at a profit of 33⅓% on cost price.

(iv)
Three people paid life membership fees of N4,000 each. One-tenth of this amount is to be credited to the income and expenditure account each year, while the remaining is treated as prepaid.

(v)
Depreciation on equipment is to be calculated at 20%.

You are required to:

(a) Draw up a Darts Income Statement for the year 2011 to calculate the gross profit on Darts sold. The cash stolen should be credited to this account, with a debit shown in the Income and Expenditure Account.
(b) Prepare an Income and Expenditure Account for the year ended 31 December 2011, and a Statement of Financial Position as at that date.

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  • 1 Marks

FA – May 2012 – L1 – SA – Q30 – Accounting Treatment for Bad and Doubtful Debts

Identifying how a decrease in provision for doubtful debts impacts the income statement and provision account.

A decrease in provision for doubtful debts is ……………………. to the income statement and ……………………….. to the provision for doubtful debt account.

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  • 1 Marks

FA – Nov 2020 – L1 – SA – Q2 – Financial Statements Preparation

Difference between an income statement and an income and expenditure account.

The difference between an income statement and an income and expenditure account is that:
A. An income and expenditure account is another name for an income statement.
B. An income statement is prepared for a business while an income and expenditure account is prepared for a not-for-profit organization.
C. An income statement is prepared for a business while an income and expenditure account is prepared on a cash flow basis.
D. An income statement is prepared on an accrual basis while an income and expenditure account is prepared on a cash basis.
E. An income statement is prepared for a manufacturing business while an income and expenditure account is prepared for a non-manufacturing business.

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  • 1 Marks

FA – May 2014 – L1 – SA – Q11 – Financial Statements Preparation

Calculates the cost of sales from given gross profit and sales figures.

Aye Limited has a gross profit of 11% and its sales are N150,000. What is the cost of sales?
A. N133,500
B. N142,500
C. N154,500
D. N160,000
E. N165,000

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  • 1 Marks

FA – Nov 2015 – L1 – SA – Q8 – Financial Statements Preparation

This question calculates the revised net profit after correcting an accounting error.

Compute the revised net profit, given a net profit before the adjustment as N550,000.
A. N300,000
B. N400,000
C. N525,000
D. N700,000
E. N800,000

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  • 12 Marks

PT – May 2020 – L2 – Q4b – Special considerations for taxation of gifts and capital allowances.

Calculation of the chargeable income for Stella-VD Ltd for the 2018 year of assessment.

The Company’s assets include the following:

Type of Assets Date of Acquisition Cost (GH¢)
Factory Building 01/10/2017 300,000
Plant and Machinery 25/10/2017 171,000
Delivery Van 01/11/2017 50,000
Computers 01/10/2017 40,000
Furniture and Fittings 10/12/2017 150,000
Other Office Equipment 01/10/2017 200,000
Office Building 30/06/2018 500,000
Required:
Required:
a) Compute the appropriate capital allowance for 2017 and 2018 year of assessment. (8 marks)
b) Calculate the chargeable income of the company for assessment year 2018.
(12 marks)

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  • 7 Marks

CR – May 2018 – L3 – Q2c – Financial instruments: Recognition and measurement Corporate reporting

Show the accounting treatment for a convertible loan note under IFRS 9 for income statement and financial position.

Alfa Limited issued a GH¢5,000,000 18% convertible loan note at par on 1 July 2015 with interest payable annually in arrears. Three years later, on 30 June 2018, the loan note becomes convertible into equity shares on the basis of GH¢100 of loan note for 50 equity shares, or it may be redeemed at par in cash at the option of the loan note holder. The Financial Accountant of Alfa Limited has observed that the use of a convertible loan note was preferable to a non-convertible loan note as the latter would have required an interest rate of 24% in order to make it attractive to investors.

The present value of GH¢1 receivable at the end of the year, based on discount rates of 18% and 24%, can be taken as:

Year 18% 24%
1 0.847 0.806
2 0.718 0.650
3 0.609 0.524

Required:
Show the accounting treatments for the convertible loan note in Alfa Limited’s:
i) income statement for the years ended 30 June 2016, 2017, and 2018. (3 marks)
ii) statement of financial position as at 30 June 2016, 2017, and 2018. (4 marks)
(Note: Assume that the share option is taken at the end of June 30, 2018.)

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  • 5 Marks

AA – Nov 2024 – L2 – Q3b – Audit Assertions for the Income Statement

Explain two key audit assertions for the income statement.

Audit assertions are claims made by management regarding the accuracy and completeness of various elements of financial statements. These assertions are used by auditors to develop audit procedures and gather evidence to support their audit opinion. Assertions are categorised into those related to the income statement and those related to the statement of financial position.

Required:
Explain TWO key Audit Assertions for the Income Statement.

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  • 30 Marks

FM – Nov 2017 – L3 – Q1 – Financial Planning and Forecasting

Prepare forecast financials for Lekki Plc and suggest divestment options for a poorly performing subsidiary.

Despite the global recession, demand for the company’s products has recently increased and is expected to grow over the next two years.

As part of a recent strategic review, the directors made the following projections for the years ending March 31, 2018, and March 31, 2019:

  1. An anticipated annual revenue increase of 8% for each year.
  2. Operating costs (excluding depreciation) expected to rise by 4% per year.
  3. Tax rate to remain at 21%, payable in the year liability arises.
  4. The trade receivables/revenue and trade payables/operating costs ratios will stay the same.
  5. Inventory levels to increase by 10% in the year ending March 31, 2018, and then remain stable.
  6. Non-current assets, including Lekki Plc.’s headquarters and factory, are not depreciated, and capital allowances are negligible.
  7. Dividend growth rate to remain at 6% annually, with dividends declared at the year-end and paid the following year.
  8. Purchase of new machinery at N8 million, financed through existing overdraft facilities. Machinery to be depreciated straight-line over 8 years with a N1 million residual value; capital allowances will apply at 18% reducing balance.
  9. Finance costs are projected to increase by 50% in the year ending March 31, 2018, and remain stable thereafter.

Financial Statement Extracts (March 31, 2017):

  • Income Statement:
    • Revenue: N60,240,000
    • Operating Costs: N49,500,000
    • Operating Profit: N10,740,000
    • Finance Costs: N800,000
    • Profit before Tax: N9,940,000
    • Tax: N2,286,000
    • Profit after Tax: N7,654,000
  • Statement of Financial Position:
    • Assets:
      • Non-current Assets: N28,850,000
      • Current Assets:
        • Inventories: N9,020,000
        • Trade Receivables: N9,036,000
        • Cash and Equivalents: N396,000
    • Equity and Liabilities:
      • Ordinary Share Capital: N16,700,000
      • Retained Earnings: N12,482,000
      • Non-current Liabilities: N8,000,000 (6% Debentures)
      • Current Liabilities: N10,120,000 (Trade Payables, Dividends)

Assume today is April 1, 2017.

a. Prepare a Forecast Financial Statement (Income Statement, Statement of Financial Position, and Cash Flow Statement) for each of the years ending March 31, 2018, and March 31, 2019.
(24 Marks)

Note: All calculations should be rounded up to the nearest N’000.

b. Beyond March 31, 2019, the directors are considering the disposal of a smaller subsidiary due to poor performance. The Finance Director suggests avoiding liquidation to minimize industrial relations issues.

Required: Discuss three non-liquidation methods to divest the subsidiary.
(6 Marks)

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  • 15 Marks

FA – May 2012 – L1 – SB – Q1 – Accounts of Not-for-Profit Entities

Prepare income statement, income and expenditure account, and statement of financial position for a not-for-profit society.

The following details are available from the books of Tops Darts Society:

(iii)
The person handling Dart sales, “all in cash,” disappeared with the money received from this source. It is unknown how much was stolen, but all darts were sold at a profit of 33⅓% on cost price.

(iv)
Three people paid life membership fees of N4,000 each. One-tenth of this amount is to be credited to the income and expenditure account each year, while the remaining is treated as prepaid.

(v)
Depreciation on equipment is to be calculated at 20%.

You are required to:

(a) Draw up a Darts Income Statement for the year 2011 to calculate the gross profit on Darts sold. The cash stolen should be credited to this account, with a debit shown in the Income and Expenditure Account.
(b) Prepare an Income and Expenditure Account for the year ended 31 December 2011, and a Statement of Financial Position as at that date.

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  • 1 Marks

FA – May 2012 – L1 – SA – Q30 – Accounting Treatment for Bad and Doubtful Debts

Identifying how a decrease in provision for doubtful debts impacts the income statement and provision account.

A decrease in provision for doubtful debts is ……………………. to the income statement and ……………………….. to the provision for doubtful debt account.

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  • 1 Marks

FA – Nov 2020 – L1 – SA – Q2 – Financial Statements Preparation

Difference between an income statement and an income and expenditure account.

The difference between an income statement and an income and expenditure account is that:
A. An income and expenditure account is another name for an income statement.
B. An income statement is prepared for a business while an income and expenditure account is prepared for a not-for-profit organization.
C. An income statement is prepared for a business while an income and expenditure account is prepared on a cash flow basis.
D. An income statement is prepared on an accrual basis while an income and expenditure account is prepared on a cash basis.
E. An income statement is prepared for a manufacturing business while an income and expenditure account is prepared for a non-manufacturing business.

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  • 1 Marks

FA – May 2014 – L1 – SA – Q11 – Financial Statements Preparation

Calculates the cost of sales from given gross profit and sales figures.

Aye Limited has a gross profit of 11% and its sales are N150,000. What is the cost of sales?
A. N133,500
B. N142,500
C. N154,500
D. N160,000
E. N165,000

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  • 1 Marks

FA – Nov 2015 – L1 – SA – Q8 – Financial Statements Preparation

This question calculates the revised net profit after correcting an accounting error.

Compute the revised net profit, given a net profit before the adjustment as N550,000.
A. N300,000
B. N400,000
C. N525,000
D. N700,000
E. N800,000

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  • 12 Marks

PT – May 2020 – L2 – Q4b – Special considerations for taxation of gifts and capital allowances.

Calculation of the chargeable income for Stella-VD Ltd for the 2018 year of assessment.

The Company’s assets include the following:

Type of Assets Date of Acquisition Cost (GH¢)
Factory Building 01/10/2017 300,000
Plant and Machinery 25/10/2017 171,000
Delivery Van 01/11/2017 50,000
Computers 01/10/2017 40,000
Furniture and Fittings 10/12/2017 150,000
Other Office Equipment 01/10/2017 200,000
Office Building 30/06/2018 500,000
Required:
Required:
a) Compute the appropriate capital allowance for 2017 and 2018 year of assessment. (8 marks)
b) Calculate the chargeable income of the company for assessment year 2018.
(12 marks)

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  • 7 Marks

CR – May 2018 – L3 – Q2c – Financial instruments: Recognition and measurement Corporate reporting

Show the accounting treatment for a convertible loan note under IFRS 9 for income statement and financial position.

Alfa Limited issued a GH¢5,000,000 18% convertible loan note at par on 1 July 2015 with interest payable annually in arrears. Three years later, on 30 June 2018, the loan note becomes convertible into equity shares on the basis of GH¢100 of loan note for 50 equity shares, or it may be redeemed at par in cash at the option of the loan note holder. The Financial Accountant of Alfa Limited has observed that the use of a convertible loan note was preferable to a non-convertible loan note as the latter would have required an interest rate of 24% in order to make it attractive to investors.

The present value of GH¢1 receivable at the end of the year, based on discount rates of 18% and 24%, can be taken as:

Year 18% 24%
1 0.847 0.806
2 0.718 0.650
3 0.609 0.524

Required:
Show the accounting treatments for the convertible loan note in Alfa Limited’s:
i) income statement for the years ended 30 June 2016, 2017, and 2018. (3 marks)
ii) statement of financial position as at 30 June 2016, 2017, and 2018. (4 marks)
(Note: Assume that the share option is taken at the end of June 30, 2018.)

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