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- 15 Marks
FA – Nov 2012 – L1 – SB – Q6 – Correction of errors
Prepare the Royalty Account, Donald’s Account, and the Short Working Recoverable Account.
Question
Maxwell acquired the rights to run a quarry from a parcel of land owned by Donald. The agreement provided for:
i. Payment of royalty of N40 per tonne of granite quarried;
ii. A minimum payment of N2,000,000 per annum; and
iii. The right to recoup (for short workings) is to be extinguished at the end of the third year.
During the first four years of the contract, the following quantities of granite were produced:
| Year | Tonnes Produced |
|---|---|
| 2008 | 40,000 |
| 2009 | 48,000 |
| 2010 | 54,000 |
| 2011 | 56,000 |
Maxwell’s accounting year ends on 31 December, and payment to Donald is made on 1 January following the year-end.
Required:
a. Prepare the Royalty Account (3 Marks)
b. Prepare Donald’s Account (7 Marks)
c. Prepare the Short Working Recoverable Account (5 Marks)
Find Related Questions by Tags, levels, etc.
- Tags: Financial Statements, Quarry Operations, Royalties, Short Working
- Level: Level 1
- Topic: Correction of errors
- Series: NOV 2012
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- 15 Marks
FA – Nov 2013 – L1 – SB – Q6 – Accounting Concepts
Recording royalty and short-working transactions in the landlord's books.
Question
Fatai leased his quarry site to EML Limited to mine granite at a dead rent of N2,000,000 per annum. The royalty payable per metric tonne was agreed at N100. Short-workings could be recovered in the first four years of the lease only, while irrecoverable short-workings are regarded as a loss.
The output of the granite for the first five years was as follows:
| Year | Output (Metric Tonnes) |
|---|---|
| 2008 | 12,000 |
| 2009 | 15,000 |
| 2010 | 22,000 |
| 2011 | 26,000 |
| 2012 | 30,000 |
You are required to:
Record the above transactions in the landlord’s books for the first five years of the contract.
(15 Marks)
Find Related Questions by Tags, levels, etc.
- Tags: Accounting Entries, Landlord’s Books, Lease Agreements, Royalties, Short Workings
- Level: Level 1
- Topic: Accounting Concepts
- Series: NOV 2013
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- 10 Marks
AA – April 2022 – L2 – Q3a – Audit and Assurance Evidence
Describes audit procedures for sales reliability and substantive tests for royalties in a publishing company.
Question
a) Oxtom Plc, is a publisher and producer of books of poetry. The company has been listed on the Ghana Stock Exchange. Also, it has been a client of your firm of Chartered Accountants for a number of years. The manager in charge of the audit prior to the commencement of the work, has been discussing the audit plan with the audit team, of which you are a member. The audit manager informed the team, among other things, that there has been a growing interest in poetry generally and that the company has acquired a reputation for publishing poets who are still relatively unknown.
During your audit you observed the following:
- Contracts with the poets state that they are given a royalty of 10% on sales. Free copies of the books are provided to the poets and to some organizations such as copyright libraries and to others, such as reviewers and university lecturers. No royalties are paid on free copies.
- The computerised customer master file contains a code indicating whether a dispatch is to earn a royalty for the author. This code is shown on the sales invoice and dispatch note when they are prepared.
- A computerised royalty file is held, all entries therein bearing the invoice number and date.
- The company keeps detailed statistics of sales made, including trends of monthly sales by type of customer, and colleges where its books are recommended as part of course material.
- Bookshops have the right to return books which are not selling well, however, 10% of these are slightly damaged when returned. The company keeps similar records of returns as it does for sales.
Required:
i) Describe TWO (2) procedures you will perform to ensure that the sales kept by the company may be relied upon. (4 marks)
ii) Describe THREE (3) substantive tests you should perform to ensure that the royalties charged are accurate and complete, stating the objective of each test. (6 marks)
Find Related Questions by Tags, levels, etc.
- Tags: Audit Procedures, Royalties, Sales Testing, Substantive Testing
- Level: Level 2
- Topic: Audit and Assurance Evidence
- Series: APR 2022
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- 13 Marks
TX – May 2019 – L3 – Q2a – Taxable Income Calculation and Obligations
Calculate the taxable income and assess the tax obligations for a secondment and other income.
Question
Agyemang Boateng has been working with Intellect Consult Limited (ICL) since 2010. At the beginning of January 2016, he was seconded to Accra Metropolitan Assembly (AMA) for a period of six months to be part of a team to spearhead a restructuring exercise and the review of the system of internal controls at the Revenue department of AMA.
Terms of the AMA engagement:
ICL was to be paid a one-off settlement of GH¢10,000 at the completion of the engagement as well as reimbursement of monthly operational expenses incurred based on submission of the relevant invoices.
Agyemang’s only entitlements from AMA were the following monthly allowances:
Inconvenience Allowance: GH¢300
Extra Duties Allowance: GH¢200
Agyemang’s secondment to AMA did not in any way affect his salary and other entitlements from his employer, ICL, as these continued to accrue to him during the period of the secondment.
Agyemang’s earnings and entitlements from ICL for the year of assessment ended 31 December 2016 are as follows:
Basic Salary: GH¢46,000
Bonus: GH¢9,500
Fuel allowance: GH¢1,750
Entertainment allowance: GH¢7,500
Additional Information:
Agyemang stays in a fully furnished ICL bungalow at East Legon in Accra. ICL charges him a rent of GH¢150 per month.
Agyemang makes use of ICL’s company vehicle, driver, and fuel for official use only.
On 1 January 2016, Agyemang successfully applied for a GH¢10,000 loan from his employer, ICL. His employer charged him interest of 2% per annum on the loan. During this period, Bank of Ghana policy rate was 15%. The loan was repayable within ten months.
On 1 October 2016, Agyemang commenced part-time lecturing in Accounting at a local private Senior High School. He was paid monthly for his services, and the total amount received for the three months ended 31 December 2016 was GH¢5,000 gross.
Agyemang’s other non-employment-related income received during the year ended 31 December 2016 were:
Net royalties received for his Accounting textbook: GH¢21,250
Gross local company dividends (Unquoted Company shares): GH¢13,000
Interest on Bank deposits from local financial institutions: GH¢10,000
Gross lottery winnings: GH¢12,000
Required:
i) Calculate Agyemang’s taxable income for the year ended 31 December 2016. (10 marks)
ii) State AMA’s tax obligation when making the disbursement of GH¢10,000 to ICL. (1 mark)
iii) What are the tax implications to Agyemang with respect to the following:
Part-time lecturing
Royalty
Dividends
Interest on bank deposit (2 marks)
iv) What is the tax implication of the loan taken by Agyemang? (1 mark)
Find Related Questions by Tags, levels, etc.
- Tags: Dividends, Employment Income, Interest, Loans, Part-Time Income, Royalties, Taxable Income, Withholding Tax
- Level: Level 3
- Topic: Tax planning
- Series: MAY 2019
Report an error
- 15 Marks
FA – Nov 2012 – L1 – SB – Q6 – Correction of errors
Prepare the Royalty Account, Donald’s Account, and the Short Working Recoverable Account.
Question
Maxwell acquired the rights to run a quarry from a parcel of land owned by Donald. The agreement provided for:
i. Payment of royalty of N40 per tonne of granite quarried;
ii. A minimum payment of N2,000,000 per annum; and
iii. The right to recoup (for short workings) is to be extinguished at the end of the third year.
During the first four years of the contract, the following quantities of granite were produced:
| Year | Tonnes Produced |
|---|---|
| 2008 | 40,000 |
| 2009 | 48,000 |
| 2010 | 54,000 |
| 2011 | 56,000 |
Maxwell’s accounting year ends on 31 December, and payment to Donald is made on 1 January following the year-end.
Required:
a. Prepare the Royalty Account (3 Marks)
b. Prepare Donald’s Account (7 Marks)
c. Prepare the Short Working Recoverable Account (5 Marks)
Find Related Questions by Tags, levels, etc.
- Tags: Financial Statements, Quarry Operations, Royalties, Short Working
- Level: Level 1
- Topic: Correction of errors
- Series: NOV 2012
Report an error
- 15 Marks
FA – Nov 2013 – L1 – SB – Q6 – Accounting Concepts
Recording royalty and short-working transactions in the landlord's books.
Question
Fatai leased his quarry site to EML Limited to mine granite at a dead rent of N2,000,000 per annum. The royalty payable per metric tonne was agreed at N100. Short-workings could be recovered in the first four years of the lease only, while irrecoverable short-workings are regarded as a loss.
The output of the granite for the first five years was as follows:
| Year | Output (Metric Tonnes) |
|---|---|
| 2008 | 12,000 |
| 2009 | 15,000 |
| 2010 | 22,000 |
| 2011 | 26,000 |
| 2012 | 30,000 |
You are required to:
Record the above transactions in the landlord’s books for the first five years of the contract.
(15 Marks)
Find Related Questions by Tags, levels, etc.
- Tags: Accounting Entries, Landlord’s Books, Lease Agreements, Royalties, Short Workings
- Level: Level 1
- Topic: Accounting Concepts
- Series: NOV 2013
Report an error
- 10 Marks
AA – April 2022 – L2 – Q3a – Audit and Assurance Evidence
Describes audit procedures for sales reliability and substantive tests for royalties in a publishing company.
Question
a) Oxtom Plc, is a publisher and producer of books of poetry. The company has been listed on the Ghana Stock Exchange. Also, it has been a client of your firm of Chartered Accountants for a number of years. The manager in charge of the audit prior to the commencement of the work, has been discussing the audit plan with the audit team, of which you are a member. The audit manager informed the team, among other things, that there has been a growing interest in poetry generally and that the company has acquired a reputation for publishing poets who are still relatively unknown.
During your audit you observed the following:
- Contracts with the poets state that they are given a royalty of 10% on sales. Free copies of the books are provided to the poets and to some organizations such as copyright libraries and to others, such as reviewers and university lecturers. No royalties are paid on free copies.
- The computerised customer master file contains a code indicating whether a dispatch is to earn a royalty for the author. This code is shown on the sales invoice and dispatch note when they are prepared.
- A computerised royalty file is held, all entries therein bearing the invoice number and date.
- The company keeps detailed statistics of sales made, including trends of monthly sales by type of customer, and colleges where its books are recommended as part of course material.
- Bookshops have the right to return books which are not selling well, however, 10% of these are slightly damaged when returned. The company keeps similar records of returns as it does for sales.
Required:
i) Describe TWO (2) procedures you will perform to ensure that the sales kept by the company may be relied upon. (4 marks)
ii) Describe THREE (3) substantive tests you should perform to ensure that the royalties charged are accurate and complete, stating the objective of each test. (6 marks)
Find Related Questions by Tags, levels, etc.
- Tags: Audit Procedures, Royalties, Sales Testing, Substantive Testing
- Level: Level 2
- Topic: Audit and Assurance Evidence
- Series: APR 2022
Report an error
- 13 Marks
TX – May 2019 – L3 – Q2a – Taxable Income Calculation and Obligations
Calculate the taxable income and assess the tax obligations for a secondment and other income.
Question
Agyemang Boateng has been working with Intellect Consult Limited (ICL) since 2010. At the beginning of January 2016, he was seconded to Accra Metropolitan Assembly (AMA) for a period of six months to be part of a team to spearhead a restructuring exercise and the review of the system of internal controls at the Revenue department of AMA.
Terms of the AMA engagement:
ICL was to be paid a one-off settlement of GH¢10,000 at the completion of the engagement as well as reimbursement of monthly operational expenses incurred based on submission of the relevant invoices.
Agyemang’s only entitlements from AMA were the following monthly allowances:
Inconvenience Allowance: GH¢300
Extra Duties Allowance: GH¢200
Agyemang’s secondment to AMA did not in any way affect his salary and other entitlements from his employer, ICL, as these continued to accrue to him during the period of the secondment.
Agyemang’s earnings and entitlements from ICL for the year of assessment ended 31 December 2016 are as follows:
Basic Salary: GH¢46,000
Bonus: GH¢9,500
Fuel allowance: GH¢1,750
Entertainment allowance: GH¢7,500
Additional Information:
Agyemang stays in a fully furnished ICL bungalow at East Legon in Accra. ICL charges him a rent of GH¢150 per month.
Agyemang makes use of ICL’s company vehicle, driver, and fuel for official use only.
On 1 January 2016, Agyemang successfully applied for a GH¢10,000 loan from his employer, ICL. His employer charged him interest of 2% per annum on the loan. During this period, Bank of Ghana policy rate was 15%. The loan was repayable within ten months.
On 1 October 2016, Agyemang commenced part-time lecturing in Accounting at a local private Senior High School. He was paid monthly for his services, and the total amount received for the three months ended 31 December 2016 was GH¢5,000 gross.
Agyemang’s other non-employment-related income received during the year ended 31 December 2016 were:
Net royalties received for his Accounting textbook: GH¢21,250
Gross local company dividends (Unquoted Company shares): GH¢13,000
Interest on Bank deposits from local financial institutions: GH¢10,000
Gross lottery winnings: GH¢12,000
Required:
i) Calculate Agyemang’s taxable income for the year ended 31 December 2016. (10 marks)
ii) State AMA’s tax obligation when making the disbursement of GH¢10,000 to ICL. (1 mark)
iii) What are the tax implications to Agyemang with respect to the following:
Part-time lecturing
Royalty
Dividends
Interest on bank deposit (2 marks)
iv) What is the tax implication of the loan taken by Agyemang? (1 mark)
Find Related Questions by Tags, levels, etc.
- Tags: Dividends, Employment Income, Interest, Loans, Part-Time Income, Royalties, Taxable Income, Withholding Tax
- Level: Level 3
- Topic: Tax planning
- Series: MAY 2019
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