Subject: FINANCIAL ACCOUNTING

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  • 15 Marks

FA – May 2012 – L1 – SB – Q6 – Financial Statements Preparation

Prepare Statements of Affairs for two years and calculate opening capital, net worth, and profit.

Fortward Geso Trading Store maintained a single-entry system. The following information was extracted from the records:

Year Ended 31 December 2011 31 December 2010
Accrued expenses 10,000 —
Accounts receivable 196,000 130,000
Prepaid expenses — 16,000
Bank balances (40,000) 200,000
Investment 500,000 —
Cash balance 366,000 106,000
Accounts payable 74,000 90,000
Land and buildings 1,500,000 1,500,000
Delivery van 260,000 260,000
Inventories 190,000 74,000
Loan from bank 300,000 300,000

The following additional information was also made available in respect of the 2011 accounting year:
(i) Provision for doubtful debts should be made for N3,000.
(ii) Depreciation is to be provided on book value as follows:
(a) Land and buildings 5%
(b) Delivery van 10%
(iii) Additional capital of N250,000 was introduced into the business during the year.
(iv) The owner of the store withdrew a total sum of N20,000 during the year.

You are required to:
Prepare the Statements of Affairs of Fortward Geso Trading Stores for the two years to show:
(a) The opening capital (6 Marks)
(b) Net worth of the business (6 Marks)
(c) Profit (3 Marks)

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  • 15 Marks

FA – May 2012 – L1 – SB – Q5 – Accounting for Property, Plant, and Equipment (PPE) in Accordance with IAS 16

Recording journal entries for three trade-in options for machinery and selecting the most viable option.

Fancy Enterprises has machinery that cost N750,000 with an accumulated depreciation of N510,000. The firm is contemplating acquiring new machinery to replace the old one. The new machinery has a catalog price of N1,290,000 and attracts a 12% trade discount. The following options are available:

(i) Trade in the old machinery and add cash of N895,200.
(ii) Trade in the old machinery and add cash of N600,000.
(iii) Trade in the old machinery and add cash of N1,080,000.

You are required to:

(a) Record journal entries for each of the options, considering the information provided above.
(b) Which of the options is economically viable for the firm to acquire the new machinery?
(14 Marks)

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  • 15 Marks

FA – May 2012 – L1 – SB – Q4 – Bank Reconciliation

Identify causes of discrepancies between cashbook and bank statement and prepare bank reconciliation.

The general day-to-day banking activities of business enterprises are bound to generate large volumes of transactions to the extent that there are always disagreements between the bank balance shown in the accounts of an organisation and the balance shown in the bank statement.

(a) You are required to state any FIVE causes of disagreement between the cash book balance and the bank statement.
(5 marks)

(b) The cashbook of Ecobiz Plc showed an overdraft of N180,000 on 31 March 2011 while the bank statement balance was an overdraft of N1.6m. On checking the two records, you made the following discoveries:

  1. Cheques drawn in respect of payment made to suppliers amounting to N250,000 had been entered in the cash book but were yet to be presented to the bank.
  2. Ecobiz Plc instructed the bank to transfer interest of N40,000 due on its bank deposit account to the current account and this was not effected by the bank until April 2011 whereas the entries have been made in the cash book.
  3. The bank made e-payment charges of N50,000 on the company’s account.
  4. The receipt side of the cash book was overcast by N100,000 by the account clerk.
  5. Cheques received and deposited to the bank which amounted to N480,000 had been entered in the cash book but had not been credited by the bank.
  6. E-dividend payments made through the bank by the company amounting to N360,000 were yet to be posted in the company’s cashbook.
  7. A cheque issued for the purchase of office equipment had been entered in the bank statement as N800,000 instead of N300,000.
  8. A cheque for N70,000 issued to one of the suppliers included in (i) above had been erroneously posted on the wrong side of the cash book (i.e. the receipt side).

Prepare the adjusted cash book and a statement reconciling the amended balance with that shown in the bank statement.
(10 marks)

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  • 15 Marks

FA – May 2012 – L1 – SB – Q3 – Accounting for Inventories in Accordance with IAS 2

Accounting treatment for containers used in sales and calculation of deposits owed by customers.

Nimyaro Limited sold goods in containers, which are charged out to customers at N15 each. Customers were credited with N10 for each container returned before the expiration of the due dates. At the end of the year, inventories of containers in warehouse and all returnable containers in the hands of customers were valued at N5 each.
On 1 August 2011, the number of such containers were 10,000 and 35,000 respectively. During the year ended 31 July 2011, the following transactions relating to containers took place:
(i) 40,000 were purchased at N7.50 each.
(ii) 150,000 were charged to customers.
(iii) 125,000 were returned by customers.
(iv) 4,000 of the returned containers were useless and sold for N5,000.
(v) On 31 July 2011, 55,000 containers invoiced since 1 July 2011 were in the hands of customers.
You are required to record the above transactions in the books of Nimyaro Limited for
the year ended 31 July 2011 using Containers Suspense Account Method.

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  • 15 Marks

FA – May 2012 – L1 – SB – Q2 – Partnership Accounts

Partnership business dissolution with the necessary ledger accounts.

Tap, Sea, Air, and River are in partnership business sharing profits and losses in the ratio 8:5:4:3, respectively. Their Statement of Financial Position was as follows as at 1 January 2009:

           

On the date of the statement, the business was brought to an end, and the assets realized as follows:

Assets Realized N’000
Motor Vehicles 60,000
Plant and Machinery 60,000
Furniture and Fittings 52,500
Inventories 15,300
Accounts Receivable 9,450

Dissolution expenses amounted to N22,500,000. Air became bankrupt and could only pay 40k for every N100 owed. The other partners were solvent, and the amount was collected from Air’s administrator. Cash was returned to or received from partners as appropriate.

You are required to:
(a) State the ways in which the amount owed by Air will be absorbed by the other partners. (3 Marks)
(b) Show the necessary ledger accounts to close the partnership’s books.

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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 – Q40 – Accounting Concepts

Identifying the term for the excess of minimum royalty over actual royalty paid.

The excess of minimum royalty over actual royalty paid on output is called ………………..

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  • 1 Marks

FA – May 2012 – L1 – SA – Q39 – Accounting Concepts

Identifying the name of the series of accounting activities from the beginning to the end of the accounting period.

The series of accounting activities that take place from the beginning of the accounting period of an enterprise to the end of that period, and repeated in subsequent years, is known as …………………………..

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  • 1 Marks

FA – May 2012 – L1 – SA – Q38 – Recording Financial Transactions

Identifying the closing balance to be shown in the company’s statement of financial position from the income tax account.

The Income Tax Account of Wazobia Limited showed a balance of N50,000 on 1 January 2011. Tax paid during the year was N45,000 and the estimated tax based on current year’s account is N60,000

What is the amount to be shown in the company’s statement of financial position as the closing balance from the company’s Income Tax Account?

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  • 1 Marks

FA – May 2012 – L1 – SA – Q37 – Recording Financial Transactions

Calculating the amount to be debited to the income statement as income tax.

The Income Tax Account of Wazobia Limited showed a balance of N50,000 on 1 January 2011. Tax paid during the year was N45,000 and the estimated tax based on current year’s account is N60,000

What is the amount to be debited to the company’s income statement as income tax for the year ended 31 December 2011?

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  • 15 Marks

FA – May 2012 – L1 – SB – Q6 – Financial Statements Preparation

Prepare Statements of Affairs for two years and calculate opening capital, net worth, and profit.

Fortward Geso Trading Store maintained a single-entry system. The following information was extracted from the records:

Year Ended 31 December 2011 31 December 2010
Accrued expenses 10,000 —
Accounts receivable 196,000 130,000
Prepaid expenses — 16,000
Bank balances (40,000) 200,000
Investment 500,000 —
Cash balance 366,000 106,000
Accounts payable 74,000 90,000
Land and buildings 1,500,000 1,500,000
Delivery van 260,000 260,000
Inventories 190,000 74,000
Loan from bank 300,000 300,000

The following additional information was also made available in respect of the 2011 accounting year:
(i) Provision for doubtful debts should be made for N3,000.
(ii) Depreciation is to be provided on book value as follows:
(a) Land and buildings 5%
(b) Delivery van 10%
(iii) Additional capital of N250,000 was introduced into the business during the year.
(iv) The owner of the store withdrew a total sum of N20,000 during the year.

You are required to:
Prepare the Statements of Affairs of Fortward Geso Trading Stores for the two years to show:
(a) The opening capital (6 Marks)
(b) Net worth of the business (6 Marks)
(c) Profit (3 Marks)

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  • 15 Marks

FA – May 2012 – L1 – SB – Q5 – Accounting for Property, Plant, and Equipment (PPE) in Accordance with IAS 16

Recording journal entries for three trade-in options for machinery and selecting the most viable option.

Fancy Enterprises has machinery that cost N750,000 with an accumulated depreciation of N510,000. The firm is contemplating acquiring new machinery to replace the old one. The new machinery has a catalog price of N1,290,000 and attracts a 12% trade discount. The following options are available:

(i) Trade in the old machinery and add cash of N895,200.
(ii) Trade in the old machinery and add cash of N600,000.
(iii) Trade in the old machinery and add cash of N1,080,000.

You are required to:

(a) Record journal entries for each of the options, considering the information provided above.
(b) Which of the options is economically viable for the firm to acquire the new machinery?
(14 Marks)

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  • 15 Marks

FA – May 2012 – L1 – SB – Q4 – Bank Reconciliation

Identify causes of discrepancies between cashbook and bank statement and prepare bank reconciliation.

The general day-to-day banking activities of business enterprises are bound to generate large volumes of transactions to the extent that there are always disagreements between the bank balance shown in the accounts of an organisation and the balance shown in the bank statement.

(a) You are required to state any FIVE causes of disagreement between the cash book balance and the bank statement.
(5 marks)

(b) The cashbook of Ecobiz Plc showed an overdraft of N180,000 on 31 March 2011 while the bank statement balance was an overdraft of N1.6m. On checking the two records, you made the following discoveries:

  1. Cheques drawn in respect of payment made to suppliers amounting to N250,000 had been entered in the cash book but were yet to be presented to the bank.
  2. Ecobiz Plc instructed the bank to transfer interest of N40,000 due on its bank deposit account to the current account and this was not effected by the bank until April 2011 whereas the entries have been made in the cash book.
  3. The bank made e-payment charges of N50,000 on the company’s account.
  4. The receipt side of the cash book was overcast by N100,000 by the account clerk.
  5. Cheques received and deposited to the bank which amounted to N480,000 had been entered in the cash book but had not been credited by the bank.
  6. E-dividend payments made through the bank by the company amounting to N360,000 were yet to be posted in the company’s cashbook.
  7. A cheque issued for the purchase of office equipment had been entered in the bank statement as N800,000 instead of N300,000.
  8. A cheque for N70,000 issued to one of the suppliers included in (i) above had been erroneously posted on the wrong side of the cash book (i.e. the receipt side).

Prepare the adjusted cash book and a statement reconciling the amended balance with that shown in the bank statement.
(10 marks)

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  • 15 Marks

FA – May 2012 – L1 – SB – Q3 – Accounting for Inventories in Accordance with IAS 2

Accounting treatment for containers used in sales and calculation of deposits owed by customers.

Nimyaro Limited sold goods in containers, which are charged out to customers at N15 each. Customers were credited with N10 for each container returned before the expiration of the due dates. At the end of the year, inventories of containers in warehouse and all returnable containers in the hands of customers were valued at N5 each.
On 1 August 2011, the number of such containers were 10,000 and 35,000 respectively. During the year ended 31 July 2011, the following transactions relating to containers took place:
(i) 40,000 were purchased at N7.50 each.
(ii) 150,000 were charged to customers.
(iii) 125,000 were returned by customers.
(iv) 4,000 of the returned containers were useless and sold for N5,000.
(v) On 31 July 2011, 55,000 containers invoiced since 1 July 2011 were in the hands of customers.
You are required to record the above transactions in the books of Nimyaro Limited for
the year ended 31 July 2011 using Containers Suspense Account Method.

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  • 15 Marks

FA – May 2012 – L1 – SB – Q2 – Partnership Accounts

Partnership business dissolution with the necessary ledger accounts.

Tap, Sea, Air, and River are in partnership business sharing profits and losses in the ratio 8:5:4:3, respectively. Their Statement of Financial Position was as follows as at 1 January 2009:

           

On the date of the statement, the business was brought to an end, and the assets realized as follows:

Assets Realized N’000
Motor Vehicles 60,000
Plant and Machinery 60,000
Furniture and Fittings 52,500
Inventories 15,300
Accounts Receivable 9,450

Dissolution expenses amounted to N22,500,000. Air became bankrupt and could only pay 40k for every N100 owed. The other partners were solvent, and the amount was collected from Air’s administrator. Cash was returned to or received from partners as appropriate.

You are required to:
(a) State the ways in which the amount owed by Air will be absorbed by the other partners. (3 Marks)
(b) Show the necessary ledger accounts to close the partnership’s books.

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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 – Q40 – Accounting Concepts

Identifying the term for the excess of minimum royalty over actual royalty paid.

The excess of minimum royalty over actual royalty paid on output is called ………………..

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  • 1 Marks

FA – May 2012 – L1 – SA – Q39 – Accounting Concepts

Identifying the name of the series of accounting activities from the beginning to the end of the accounting period.

The series of accounting activities that take place from the beginning of the accounting period of an enterprise to the end of that period, and repeated in subsequent years, is known as …………………………..

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  • 1 Marks

FA – May 2012 – L1 – SA – Q38 – Recording Financial Transactions

Identifying the closing balance to be shown in the company’s statement of financial position from the income tax account.

The Income Tax Account of Wazobia Limited showed a balance of N50,000 on 1 January 2011. Tax paid during the year was N45,000 and the estimated tax based on current year’s account is N60,000

What is the amount to be shown in the company’s statement of financial position as the closing balance from the company’s Income Tax Account?

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  • 1 Marks

FA – May 2012 – L1 – SA – Q37 – Recording Financial Transactions

Calculating the amount to be debited to the income statement as income tax.

The Income Tax Account of Wazobia Limited showed a balance of N50,000 on 1 January 2011. Tax paid during the year was N45,000 and the estimated tax based on current year’s account is N60,000

What is the amount to be debited to the company’s income statement as income tax for the year ended 31 December 2011?

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