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MI – Nov 2020 – L1 – SB – Q1 – Budgeting

Prepare the cash budget for the first three months of the year based on provided sales, expenses, and additional company details.

Question

WXYZ is preparing for the first half of the next year. The following information was available:

a. Sales – 15% of monthly sales are in cash, while the balance is sold on credit. Collections from receivables are 50% in the first month after sales, 30% in the second month, and the balance in the third month after sales.
b. Purchases are usually 55% of sales and paid in the month of purchase.
c. Insurance company is expected to pay the sum of N525,000 in February based on the company’s accidented vehicles.
d. Salary deductions are paid on a preceding-month basis.
e. Company income tax of N475,550 will be paid in March.
f. Cash and cash equivalent balance as at December is N502,760.
g. Bank charges are 1% of total payments for the month.
h. Additional Information:

Month	October (N)	November (N)	December (N)	January (N)	February (N)	March (N)
Sales	750,000	600,000	850,000	520,000	670,000	800,000
Net Salaries	230,000	200,000	250,000	210,000	240,000	270,000
Other Expenses	200,700	187,500	197,500	177,200	187,500	192,700
Salaries Deductions	29,400	28,400	39,400	28,700	32,750	27,650

Required:
Prepare the cash budget for the first three months of the year. (Total 20 Marks)

Answer

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Tags: Cash Budget, Forecasting, Payables, Purchases, Receivables, Sales
Level: Level 1

Topic: Budgeting
Series: NOV 2020

PM – May 2022 – L2 – SA – Q2 – Cash Budgeting and Working Capital

Preparation of a cash budget for Mega Laboratories PLC for the quarter ending June 30, 2021.

Question

Mega Laboratories plc is a successful manufacturing company in the pharmaceutical industry. The company manufactures a number of household drugs. Since the advent of the Covid-2019 pandemic, its products have been in high demand. One of its newest products is known as vacineDcovid. In order to manufacture the product, a single raw material, Zithromax, is used.

Budgets are to be prepared for the quarter ending 30 June 2021, and the following information is available for this purpose:

(i) At 31 March 2021 various balances were as follows:

Receivables: N500,700
Creditors (suppliers of Zithromax): N153,000
Inventory of vacineDcovid: 20,300 units
Inventory of Zithromax: 200,000 kg

(ii) Extracts from the ‘standard cost card’ – vacineDcovid are as follows:

Direct material Zithromax, 10kg at N5.00 per kg: N50.00
Direct labour, 2 hours at N6.00 per hour: N12.00

(iii) Suppliers of Zithromax give two months credit to the company, whereas customers take one month’s credit.
(iv) Sales expectations for the quarter ending 30 June 2021 are as follows:

25,000 units of vacineDcovid at a selling price of N95.00 per unit.
(v) Assume that sales of vacineDcovid and purchases of Zithromax will be evenly spread over the three months to 30 June 2021.
(vi) Depreciation relating to plant and machinery is N55,000 for the quarter ending 30 June 2021.
(vii) Other expenses are paid immediately in cash and are estimated to be N200,000 for the quarter ending 30 June 2021.
(viii) The anticipated inventory levels at 30 June 2021 are as follows:
Inventory of vacineDcovid: 15,000 units
Inventory of Zithromax: 150,500 kgs

(ix) Assume there is no work-in-progress and that stocks of vacineDcovid and Zithromax are valued at standard direct cost – see (ii) above.

Required:
For the quarter ending 30 June 2021 prepare:
a. A cash budget (amounts for each separate month are not required). (8 Marks)
b. Income Statement budget (clearly state any assumptions you have made). (5 Marks)
c. Briefly state the benefits of a Cash Budget to Mega Laboratories plc. (3 Marks)
d. Sales are often considered to be a principal budget factor of an organisation. Explain the meaning of a ‘principal budget factor’ and assuming that it is sales, explain how sales may be forecast, making appropriate reference to the use of statistical techniques and the use of computers. (4 Marks)

Answer

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Tags: Cash Budget, Inventory Management, Payables, Receivables
Level: Level 2

Topic: Cash Budgeting and Working Capital
Series: MAY 2022

FA – May 2012 – L1 – SA – Q15 – Control Accounts

Identifying items not credited to the Accounts Payable Control Account.

Question

Which of the following items should NOT be on the credit side of Accounts Payable Control Account?

A. Total of purchases day book
B. Interest charged by suppliers
C. Transfer of debit balance to accounts receivable ledger
D. Transfer of credit balance from accounts receivable ledger
E. Set-offs

Answer

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Tags: Control Accounts, Ledger Entries, Payables
Level: Level 1

Topic: Control Accounts
Series: MAY 2012

AA – May 2019 – L2 – Q5 – Audit Evidence

Justification for requiring confirmations of receivables, payables, and bank balances, and contents of confirmation letters.

Question

In the course of an audit assignment, an auditor requires an independent and external confirmation for the following items:

Receivables
Payables
Bank Balances

You are required to:

a. Justify the need for confirmation in respect of the items listed above. (9 Marks)

b. State the contents of each of the letters sent to request for confirmation in TWO of the items stated above. (6 Marks)

Answer

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Tags: Audit Confirmation, Audit evidence, Bank Balances, Payables, Receivables
Level: Level 2

Topic: Audit evidence
Series: MAY 2019

FR – May 2019 – L2 – Q5 – Related Party Transactions (IAS 24)

Analysis of related party transactions and disclosure requirements as per IAS 24 for Grandkano Nig. Plc.

Question

Grandkano Nig. Plc. is a company listed on the Nigerian Stock Exchange (NSE) and located in the northwestern part of the country. The company has been paying yearly penalties to NSE in respect of non-disclosure of related party transactions in its published financial statements. The company has therefore approached a partner in your firm to assist in this regard in order to avoid payment of these yearly penalties. The partner in your firm has requested for a list of all transactions with parties connected with the company and the directors of the company provided the following summary:

(i) A factory building had been sold to the brother of Alhaji Nagode, the Managing Director of Grandkano Nig. Plc. for N300 million (net of selling cost of N5 million). The market value of the property (factory building) was N322.5 million. The carrying amount of the factory building was N375 million and its value in use was N270 million.

(ii) Every month Grandkano Nig. Plc. sells N750,000 worth of goods to Malam Bayero, the finance director. The finance director has set up a small retail business for his son (Dongoyaro), and the goods are sold at cost price to him. The annual turnover of Grandkano Nig. Plc. is N4.5 billion. Also, Malam Bayero has purchased his official company’s car from the company for N675,000 (market value N1.2 million). Malam Bayero earns a salary of N7.5 million per annum, and he is a very wealthy man.

Required:
a. Reasons why it is important to disclose related party transactions. (5 Marks)

b. The nature of any disclosures required in transactions (i) and (ii) above under IAS 24 related party disclosures. (10 Marks)

Answer

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Tags: Auditing Procedures, Bank Balances, External Confirmation, Payables, Receivables
Level: Level 2

Topic: Related Party Transactions (IAS 24)
Series: MAY 2019

FA – Nov 2015 – L1 – SA – Q3 – Accounting Concepts

The question requires the calculation of capital using given financial figures.

Question

Using the following financial figures, calculate the capital:
Motor Van – N50,000
Furniture – N25,000
Cash – N12,500
Payables – N35,000
Loan is 30% of Payables

What is the Capital?
A. N34,500
B. N42,000
C. N52,500
D. N75,000
E. N95,000

Answer

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Tags: Balance Sheet, Capital, Payables
Level: Level 1

Topic: Accounting Concepts
Series: NOV 2015

FA – May 2021 – L1 – SB – Q4 – Control Accounts

The question involves preparing control accounts and reconciling the balances with individual ledgers for payables and receivables.

Question

Wakanda is an African-focused company in the sales of super-tech wrist watches with corporate logos. The wrist watches are purchased and sold in bulk on credit. The accountant is currently carrying out a reconciliation of the payables and receivables ledger control account balances, which are ₦218,320,000 and ₦172,120,000, respectively, to the total of the balances on the individual accounts in the payables and receivables ledgers, which are ₦197,660,000 and ₦156,134,000 respectively for the month of March 2019.

The following has been detected:

(i) Cash received of ₦1,070,000 has been debited to the individual customer’s account in the accounts receivable ledger.

(ii) The total of discount received for the month, amounting to ₦17,150,000, has not been entered in the control account but has been entered in the individual ledger accounts.

(iii) A supplier credit balance of ₦2,050,000 has been incorrectly treated as a debit.

(iv) A cheque for ₦2,555,000 from a customer has been dishonoured. The correct double entry has been posted, but the individual accounts have not been updated.

(v) A petty cash payment to a supplier amounting to ₦630,000 has been correctly treated in the control account, but no entry has been made in the supplier’s individual ledger account.

(vi) A payment of ₦322,000 from a customer has been incorrectly entered in the accounts receivable ledger as ₦233,000.

(vii) The purchases daybook total for March has been undercast (understated) by ₦20,000,000.

(viii) Total credit sales of ₦4,500,000 to an accountancy firm, TQ and Associates, have been posted correctly to the ledger account but not recorded in the control account.

(ix) Contras (set-offs) with the receivables ledger, amounting in total to ₦20,040,000, have been correctly treated in the individual ledger accounts but no entry has been made in the control account.

(x) Discounts allowed totalling ₦120,000 have not been entered in the control account.

Required:

a) Prepare the Trade Payable Ledger Control Account and reconcile this to the sum total of the individual accounts in the Trade Payable Ledger. (10 Marks)

b) Prepare the Trade Receivable Ledger Control Account and reconcile this to the sum total of the individual accounts in the Trade Receivable Ledger. (10 Marks)

Answer

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Tags: Control Accounts, Financial Statements, Payables, Receivables, Reconciliation
Level: Level 1

Topic: Control Accounts
Series: MAY 2021

FA – May 2016 – L1 – SB – Q4 – Control Accounts

Reconcile receivables and payables ledger control accounts with balances, clear suspense account.

Question

The trial balance of CLAVELL ENTERPRISES includes the following items:

The following information is available:

(i) The total of debit balances in the receivables ledger account is N116,374 and the total of credit balances is N1,234.

(ii) The total of credit balances in the payables ledger account is N80,412 and the total of debit balances is N1,111.

(iii) The receivables ledger account includes a debit balance of N700 for Entity C, and the accounts payable ledger includes a credit balance of N800 relating to Entity C. Only the net amount will eventually be paid.

(iv) Included in the credit balances in the receivables ledger account is a balance of N600 in the name of P Quinn. This arose because a sales invoice for N600 had earlier been posted in error from the sales day book to the debit of the account of M Quinn in the accounts payable ledger.

(v) An allowance of N300 granted to a customer for some damaged goods had been omitted from the appropriate account in the receivables ledger account. This allowance had been included in the receivables ledger control account.

(vi) An invoice for N456 had been entered in the purchases day book as N654.

(vii) A cash receipt from a credit customer for N345 had been entered in the cash book as N245.

(viii) The purchases day book had been overcast by N1,000.

(ix) The bank balance of N1,700 had been included in the trial balance, in error, as an overdraft.

(x) The debit balance on the insurance account in the nominal ledger of N3,456 has been included in the trial balance as N3,546.

Required:

a. Prepare a reconciliation of the receivable ledger control account and the receivables ledger balances. (8 Marks)

b. Open a suspense account and post the entries required to clear this account. (4 Marks)

c. Reconcile the payables ledger control account and the payables ledger balances. (8 Marks)

Answer

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Tags: Control Accounts, Error Correction, Financial Statements, Ledger Reconciliation, Payables, Receivables, Suspense account
Level: Level 1

Series: MAY 2016

FA – May 2016 – L1 – SA – Q12 – Control Accounts

A question about the meaning of the purchases ledger item in the control account.

Question

The item “Purchases Ledger – N7,200,000” in the control account means:
A. Cash Purchases during the period
B. Credit purchases during the period
C. Receivables set off against payables
D. Cash Payable
E. Cash Receivable

Answer

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Tags: Ledger, Payables, Purchases, Set-off
Level: Level 1

Topic: Control Accounts
Series: MAY 2016

FR – Nov 2015 – L2 – Q2 – Financial Statement Analysis

This question requires calculating financial ratios and analyzing Kack Ltd's financial performance and position for the year ended 31 March 2015 compared to the previous year.

Question

Kack Ltd is a listed company that assembles domestic electrical goods which it then sells to both wholesale and retail customers. Kack Ltd’s management was disappointed in the company’s results for the year ended 31 March 2014. In an attempt to improve performance, the following measures were taken early in the year ended 31 March 2015:

A national advertising campaign was undertaken.
Rebates to all wholesale customers purchasing goods above set quantity levels were introduced.
The assembly of certain lines ceased and was replaced by bought-in completed products. This allowed Kack Ltd to dispose of surplus plant.

Kack Ltd’s summarised financial statements for the year ended 31 March 2015 are set out below:

STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 MARCH 2015

Description	GHSm
Revenue (25% cash sales)	4,000
Cost of sales	(3,450)
Gross profit	550
Operating expenses	(370)
Operating profit	180
Profit on disposal of plant (note (i))	40
Financial charges	(20)
Profit before tax	200
Income tax expense	(50)
Profit for the year	150

STATEMENT OF FINANCIAL POSITION
AS AT 31 MARCH 2015

Description	GHSm	GHSm
Non-current assets
Property, plant, and equipment (note (ii))	550
Current assets
Inventory	250
Trade receivables	360
Bank	nil
Total current assets	610
Total assets		1,160
Equity and liabilities
Equity
Stated capital (400m shares)	100
Income surplus	380
Total equity		480
Non-current liabilities
8% loan notes	200
Current liabilities
Bank overdraft	10
Trade payables	430
Current tax payables	40
Total current liabilities		480
Total equity and liabilities		1,160

Below are ratios calculated for the year ended 31 March 2014:

Return on year-end capital employed (profit before interest and tax over total assets less current liabilities): 28.1%
Net assets (equal to capital employed) turnover: 4 times
Gross profit margin: 17%
Net profit (before tax) margin: 6.3%
Current ratio: 1.6:1
Closing inventory holding period: 46 days
Trade receivables’ collection period: 45 days
Trade payables’ payment period: 55 days
Dividend yield: 3.75%
Dividend cover: 2 times

Notes:

Kack Ltd received GHS 120 million from the sale of plant that had a carrying amount of GHS 80 million at the date of its sale.
The market price of Kack Ltd’s share throughout the year averaged GHS 3.75 each.
There were no issues or redemption of shares or loans during the year.
Dividends paid during the year ended 31 March 2015 amounted to GHS 90 million, maintaining the same dividend paid in the year ended 31 March 2014.

Required:

a) Calculate ratios for the year ended 31 March 2015 (showing your workings) for Kack Ltd, equivalent to those provided above.
(10 marks)

b) Analyse the financial performance and position of Kack Ltd for the year ended 31 March 2015 compared to the previous year.
(10 marks)
(Total: 20 marks)

Answer

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Tags: Asset Turnover, Current Ratio, Dividend Yield, Financial performance analysis, Inventory holding period, Liquidity, Payables, Profit margin, Ratio Analysis, Receivables, Return on Capital Employed
Level: Level 2

Topic: Financial Statement Analysis
Series: NOV 2015

MI – Nov 2020 – L1 – SB – Q1 – Budgeting

Prepare the cash budget for the first three months of the year based on provided sales, expenses, and additional company details.

Question

WXYZ is preparing for the first half of the next year. The following information was available:

Month	October (N)	November (N)	December (N)	January (N)	February (N)	March (N)
Sales	750,000	600,000	850,000	520,000	670,000	800,000
Net Salaries	230,000	200,000	250,000	210,000	240,000	270,000
Other Expenses	200,700	187,500	197,500	177,200	187,500	192,700
Salaries Deductions	29,400	28,400	39,400	28,700	32,750	27,650

Required:
Prepare the cash budget for the first three months of the year. (Total 20 Marks)

Answer

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Tags: Cash Budget, Forecasting, Payables, Purchases, Receivables, Sales
Level: Level 1

Topic: Budgeting
Series: NOV 2020

PM – May 2022 – L2 – SA – Q2 – Cash Budgeting and Working Capital

Preparation of a cash budget for Mega Laboratories PLC for the quarter ending June 30, 2021.

Question

Budgets are to be prepared for the quarter ending 30 June 2021, and the following information is available for this purpose:

(i) At 31 March 2021 various balances were as follows:

Receivables: N500,700
Creditors (suppliers of Zithromax): N153,000
Inventory of vacineDcovid: 20,300 units
Inventory of Zithromax: 200,000 kg

(ii) Extracts from the ‘standard cost card’ – vacineDcovid are as follows:

Direct material Zithromax, 10kg at N5.00 per kg: N50.00
Direct labour, 2 hours at N6.00 per hour: N12.00

(iii) Suppliers of Zithromax give two months credit to the company, whereas customers take one month’s credit.
(iv) Sales expectations for the quarter ending 30 June 2021 are as follows:

25,000 units of vacineDcovid at a selling price of N95.00 per unit.
(v) Assume that sales of vacineDcovid and purchases of Zithromax will be evenly spread over the three months to 30 June 2021.
(vi) Depreciation relating to plant and machinery is N55,000 for the quarter ending 30 June 2021.
(vii) Other expenses are paid immediately in cash and are estimated to be N200,000 for the quarter ending 30 June 2021.
(viii) The anticipated inventory levels at 30 June 2021 are as follows:
Inventory of vacineDcovid: 15,000 units
Inventory of Zithromax: 150,500 kgs

(ix) Assume there is no work-in-progress and that stocks of vacineDcovid and Zithromax are valued at standard direct cost – see (ii) above.

Answer

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Tags: Cash Budget, Inventory Management, Payables, Receivables
Level: Level 2

Topic: Cash Budgeting and Working Capital
Series: MAY 2022

FA – May 2012 – L1 – SA – Q15 – Control Accounts

Identifying items not credited to the Accounts Payable Control Account.

Question

Which of the following items should NOT be on the credit side of Accounts Payable Control Account?

A. Total of purchases day book
B. Interest charged by suppliers
C. Transfer of debit balance to accounts receivable ledger
D. Transfer of credit balance from accounts receivable ledger
E. Set-offs

Answer

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Tags: Control Accounts, Ledger Entries, Payables
Level: Level 1

Topic: Control Accounts
Series: MAY 2012

AA – May 2019 – L2 – Q5 – Audit Evidence

Justification for requiring confirmations of receivables, payables, and bank balances, and contents of confirmation letters.

Question

In the course of an audit assignment, an auditor requires an independent and external confirmation for the following items:

Receivables
Payables
Bank Balances

You are required to:

a. Justify the need for confirmation in respect of the items listed above. (9 Marks)

b. State the contents of each of the letters sent to request for confirmation in TWO of the items stated above. (6 Marks)

Answer

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Tags: Audit Confirmation, Audit evidence, Bank Balances, Payables, Receivables
Level: Level 2

Topic: Audit evidence
Series: MAY 2019

FR – May 2019 – L2 – Q5 – Related Party Transactions (IAS 24)

Analysis of related party transactions and disclosure requirements as per IAS 24 for Grandkano Nig. Plc.

Question

Required:
a. Reasons why it is important to disclose related party transactions. (5 Marks)

b. The nature of any disclosures required in transactions (i) and (ii) above under IAS 24 related party disclosures. (10 Marks)

Answer

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Tags: Auditing Procedures, Bank Balances, External Confirmation, Payables, Receivables
Level: Level 2

Topic: Related Party Transactions (IAS 24)
Series: MAY 2019

FA – Nov 2015 – L1 – SA – Q3 – Accounting Concepts

The question requires the calculation of capital using given financial figures.

Question

Using the following financial figures, calculate the capital:
Motor Van – N50,000
Furniture – N25,000
Cash – N12,500
Payables – N35,000
Loan is 30% of Payables

What is the Capital?
A. N34,500
B. N42,000
C. N52,500
D. N75,000
E. N95,000

Answer

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Tags: Balance Sheet, Capital, Payables
Level: Level 1

Topic: Accounting Concepts
Series: NOV 2015