Topic: Bad and doubtful debt

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FA – Nov 2024 – L1 – Q2b – Allowance for Receivables and Irrecoverable Debt

Prepare the allowance for receivables and irrecoverable debt expense accounts for a financial period.

Question

At 1 August 2023, the balance on the allowance for receivables account was GH¢12,600.

At 31 August 2023, the company’s management decided that the revised balance should be 10% of the month-end accounts receivable.

Required:

Prepare the Allowance for Receivables and Irrecoverable Debt Expense accounts, showing the necessary entries for the financial period ending 31 August 2023.

Answer

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Tags: Allowance for Receivables, Doubtful Debts, Financial Adjustments, Irrecoverable Debt, Provision for Bad Debts
Level: Level 1

Topic: Bad and doubtful debt
Series: Nov 2024

FA – Mar 2024 – L1 – Q2a – Bad and doubtful debt

Prepare the trade receivables, bad debt expense, and allowance for doubtful debts accounts for Lukay's sales transactions over three years.

Question

Lukay is a wholesaler who is into the distribution of soft drinks. Lukay has been in operation for some time now, and the following transactions in relation to sales occurred in the first 3 years:

Year 1
Lukay made credit sales of GH¢60,000 and received GH¢45,000 from his credit customers. At the end of the year, she decided to write off Abrantie’s debt of GH¢2,400, made a specific allowance for Keke’s debt totaling GH¢1,050, and created a general allowance of 5% of the remaining trade receivables balance.

Year 2
During the second year of trading, Lukay made credit sales of GH¢90,000 and received cash of GH¢84,000, including GH¢1,200 from Abrantie. He decided to write off Keke’s debt and create a specific allowance against 50% of Yakubu’s total debt of GH¢1,800. He decided that his general allowance should now be 8% of the remaining trade receivables balance.

Year 3
Lukay made credit sales of GH¢150,000 and received cash of GH¢120,000. Additionally, he also received a cheque from Yakubu for GH¢1,800. At the year-end, he decided to create a specific allowance against Atia’s debt of GH¢15,000 and maintained his general allowance at 8%.

Required:

For each of the above years, show the trade receivables account, bad debt expense account, and allowance for doubtful debts account, and the statement of financial position extract as at each year-end. (10 marks)

Answer

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Tags: Allowance for Doubtful Debts, Bad Debts, Sales Revenue, Trade receivables
Level: Level 1

Topic: Bad and doubtful debt
Series: MAR 2024

FA – Mar 2023 – L1 – Q2 – Bad and doubtful debt | Control accounts and account reconciliations

Prepares control accounts, allowance for doubtful debts, revaluation account, partners' capital accounts, and adjusted financial position for a partnership.

Question

a) The following were extracted from the books of Pele Ltd by the close of December 2021:

Account	GH¢
Receivables ledger control account	71,400
Payables ledger control account	56,100

During the year 2022 the following transactions occurred:

Transaction	GH¢
Cash received from customers	47,700
Cash paid to suppliers	48,750
Sales on credit	72,300
Purchases on credit	54,750
Sales returns	2,850
Purchase returns	1,050
Discounts received from suppliers	600
Settlement discount claimed by customer	450
Bad debts written off	4,050
Customer and supplier accounts settled by contra	3,150

At 1 January 2022, the start of Pele Ltd’s financial year, the balance on the allowance for doubtful debts account was GH¢9,450. At 31 December 2022, the company’s management decided that the revised balance should be 10% of the year-end accounts receivable.

Required:

i) Prepare the receivables ledger control account and payables ledger control account for the year ended December 2022 and hence determine the balances at 31 December 2022. (7 marks)
ii) Prepare the allowance for doubtful debts account and bad debt expense account showing the necessary entries in respect of the financial year ended 31 December 2022. (3 marks)

b) Molu, Mbisi, and Mabiodun have been in practice under the name Moba Partners for many years sharing profits and losses in the ratio of 4:3:3. Mbisi decided to retire on 31 December 2022 due to her relocation to Spain. The Statement of Financial Position as at 31 December 2022 was as shown below:

Additional Information:

Interest should be charged on partners’ drawings at 5%. Each of the partners had withdrawn GH¢600,000 from the account.
Interest on partner’s capital account to be credited at 6%. Partners’ accounts for the purpose of the interest calculation are to be taken as follows: Molu GH¢2,100,000, Mbisi GH¢1,050,000, Mabiodun GH¢1,500,000.
Mbisi received GH¢240,000 paid by cheque immediately.
Goodwill was valued at GH¢3,000,000 and was to be retained in the books.
Other assets and liabilities were valued as follows:
- Freehold land and buildings: GH¢6,000,000
- Plant and machinery: GH¢2,400,000
- Office equipment: GH¢350,000
- Motor vehicles: GH¢1,560,000
Discount to be received from creditors amounted to GH¢270,000.
20% of the receivables were irrecoverable.
15% of inventory was obsolete.
The balance due to Mbisi is to be kept in the firm as a loan.

Required:

i) Prepare the revaluation account. (2 marks)
ii) Prepare the partners’ capital accounts. (4 marks)
iii) Prepare the adjusted statement of financial position. (4 marks)

Answer

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Tags: Doubtful Debts, Financial Position, Partners' Capital Accounts, Payables Ledger, Receivables Ledger, Revaluation Account
Level: Level 1

Topic: Bad and doubtful debt, Control accounts and account reconciliations
Series: MAR 2023

FA – Dec 2023 – L1 – Q1 – Bad and doubtful debt | Double entry bookkeeping | The IASB’s Conceptual Framework

Explains the purpose and differences between Financial and Management Accounting, prepares ledger accounts, and links prudence concept to allowance for receivables.

Question

a) Financial Accounting and Management Accounting are similar with regard to the determination of costs, their assignment to different accounting periods, and allocation of costs to different departments and segments. This implies that the concepts and principles that are used in Financial Accounting may be suitable for Management Accounting.

Required:
i) Explain the purpose and scope of financial accounting. (4 marks)
ii) Explain THREE (3) differences between Financial Accounting and Management Accounting. (6 marks)

b) On 1 January 2021, Mankessim Traders had the following entries in its ledger accounts:

Insurance: GHȼ600 owing
Commission receivable: GHȼ500 owing to Mankessim Traders
Allowance for receivables: GHȼ1,600 credit balance

The following information is available for the financial year ended 31 December 2021:

Insurance was paid as follows:
- 26 February 2021 GHȼ2,000
- 15 October 2021 GHȼ2,600
- The payment on 15 October 2021 relates to the period 1 October 2021 to 31 March 2022.
Commission receivable was as follows:
- 10 January 2021 GHȼ400
- 18 January 2021 GHȼ200
- 13 November 2021 GHȼ3,000
On 31 December 2021, GHȼ600 was owing in commission to Mankessim Traders.
The trade receivables balance at 31 December 2021 was GHȼ38,400. The allowance for receivables is to be provided as GHȼ600 for a specific debt, plus 2% on the remainder of receivables.

Required:
Prepare the following ledger accounts, including in each case the transfer to the Statement of Profit and Loss, for the year ended 31 December 2021, and the balance carried down to the next financial year.
i) Insurance. (2 marks)
ii) Commission receivable. (2 marks)
iii) Allowance for receivables. (2 marks)

c) Explain why maintaining an allowance for receivables is an application of the prudence concept. (4 marks)

Answer

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Tags: Financial Accounting, Ledger Accounts, Management Accounting, Prudence Concept
Level: Level 1

Topic: Bad and doubtful debt, Double entry bookkeeping, The IASB’s Conceptual Framework
Series: DEC 2023

FA – April 2022 – L1 – Q4 – Accruals and prepayments | Bad and doubtful debt | Non-current assets and depreciation | Preparation of financial statements of a sole trader

Preparation of the Statement of Profit or Loss and Statement of Financial Position for a sole trader, including adjustments for depreciation, doubtful debts, and prepayments.

Question

The following trial balance was extracted from the books of Nsaa Zolko, a sole trader, on 31 December 2020:

Account	Debit (GHȼ)	Credit (GHȼ)
Land	251,200
Equipment	202,220
Accumulated depreciation on equipment		62,830
Inventory	49,620
Receivable and Payable	124,200	104,350
Value Added Tax (refund due)	10,320
Deposit on rented premises (security deposit)	17,900
Bank and Cash balances	15,640
Allowance for doubtful debt		11,250
Tax Liability		7,420
Business Rent	30,000
Sales		804,500
Purchases	390,200
Returns	8,300	7,500
Discount	4,300	6,240
Distribution and Advertising	8,900
Power	4,200
Communication	1,540
Insurance	22,500
Wages and Salaries	164,380
Employers Social Security contribution	16,560
4% Long term loan		182,500
Long term loan interest	3,520
Bad debt	2,240
Drawings	10,580
Retained Earnings		44,820
Capital		103,710
Suspense		3,200
Total	1,338,320	1,338,320

Additional Information: i) The inventory count as at 31 December 2020 showed closing inventory value at GHȼ42,390. ii) Nsaa Zolko has agreed an annual rent of GHȼ40,000 with his landlord. iii) Included in insurance above is an amount of GHȼ18,000 paid to insure the equipment. The policy year ends 28 February 2021. iv) Nsaa Zolko has specific concerns over GHȼ5,120 of receivables balance and wishes to set up a specific provision with respect to these balances. The general provision on the remaining receivable balance should be at 5%. v) Depreciation is to be charged as follows:

Land: No Provision
Equipment: 15% reducing balance method (Depreciation should be calculated to the nearest whole number). vi) The suspense account balance above relates to sales of GHȼ1,600 which was recorded as purchases in error. The receivables and payables balances are correct.

Required:
a) Prepare a Statement of Profit or Loss for the year ended 31 December 2020.
(10 marks)

b) Prepare a Statement of Financial Position as at 31 December 2020.
(10 marks)

Answer

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Tags: Accruals, Depreciation, Doubtful Debts, Prepayments, Statement of Financial Position, Statement of Profit or Loss
Level: Level 1

FA – April 2022 – L1 – Q2 – Bad and doubtful debt | Preparation of Partnership accounts

Preparation of bad debts, provision for bad debts accounts, and accounting for the admission and retirement of partners in a partnership.

Question

a) Nkrumah runs a small business with total annual sales of GHȼ50,000. He has been reviewing the outstanding balances on his customers’ accounts and has provided the following aged analysis of trade receivables as at 31 March 2020.

Nkrumah’s credit policy is payment within 30 days. The provision for bad debt as at 1 April 2019 was GHȼ880. Nkrumah’s policy for overdue and irrecoverable debts is to:

Write off as an irrecoverable debt any debt outstanding for over 12 months.
Create specific provision for any debts outstanding between 4 and 12 months.
Make no provision for debts up to 1 month old.
Create a general provision of 4% for all other debts.

Required:
i) Prepare and balance off the following ledger accounts for Nkrumah for the year ended 31 March 2020:

Tetteh
Abena
Irrecoverable Debts
Provision for Bad Debts
(6 marks)

ii) Prepare the Statement of Profit and Loss extract for irrecoverable debts and provision for bad debts for the year ended 31 March 2020.
(2 marks)

iii) Prepare the Statement of Financial Position extract for receivables as at 31 March 2020.
(2 marks)

b) The admission and retirement of a partner in a firm can only be done if all the existing partners have given consent unless otherwise agreed upon. At the time of admitting or retiring a partner, a new agreement is entered into and the firm is redesigned.

When a partner is admitted or retired in a partnership, some steps (procedures) are followed when accounting for his/her admission or retirement.

Required:
i) Detail the steps required when accounting for admission of a new partner.
(6 marks)
ii) Detail the steps required when accounting for the retirement of a partner.
(4 marks)

Answer

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Tags: Bad Debts, Financial Statements, Partnership Admission, Partnership Retirement, Provision for Bad Debts
Level: Level 1

Topic: Bad and doubtful debt, Preparation of Partnership accounts
Series: APR 2022

FA – Nov 2021 – L1 – Q4 – Bad and doubtful debt | Inventory | Non-current assets and depreciation | Preparation of financial statements of a sole trader

Preparation of the Statement of Profit or Loss and Statement of Financial Position for a sole trader, including adjustments for depreciation, inventory, and receivables.

Question

Additional Information:
i) The inventory count on 30 June 2019 showed closing inventory valued at GHȼ34,380.
ii) A review of receivables as at 30 June 2019 showed that a further GHȼ2,300 was to be written off as an irrecoverable debt. Therefore, it was decided that the closing allowance for receivables was 10% of the outstanding receivables balance as at 30 June 2019.
iii) On 30 June 2019, Sintim received a cheque of GHȼ1,680 in relation to an irrecoverable debt previously written off.
iv) A supplier of Sintim has charged an interest of GHȼ1,490 on a payable balance that has been outstanding for over 200 days.
v) GHȼ16,000 of insurance in the trial balance above relates to 1 January 2019 to 31 December 2019.
vi) Allowance to be made for depreciation is as follows:

Land: Not depreciated.
Delivery van: 10% straight line basis.
vii) Upon investigation, it was revealed that the balance in the suspense account relates to a cash receipt from a customer of GHȼ800 that was credited to the bank account in error.

Required:
a) Prepare the statement of Profit or Loss for the year ended 30 June 2019.
(12 marks)
b) Prepare the statement of Financial Position as at that date.
(8 marks)

Answer

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Tags: Allowance for Receivables, Depreciation, Inventory, Statement of Financial Position, Statement of Profit or Loss
Level: Level 1

Topic: Bad and doubtful debt, Inventory, Non-current assets and depreciation, Preparation of financial statements of a sole trader
Series: NOV 2021

FA – May 2021 – L1 – Q2 – Accruals and prepayments | Bad and doubtful debt | Preparation of Partnership accounts

Preparation of ledger accounts for accruals and prepayments and accounts on the dissolution of a partnership.

Question

a) The following information is available from the books of Twibom Ltd.

Item	1 January 2020 (GH¢)	31 December 2020 (GH¢)
Interest received	680 Accrued	750 Accrued
General expenses	5,200 Prepaid	3,180 Accrued
Allowance for receivables	1,350	–
Receivables	45,000	56,000

During the year ended 31 December 2020, the following amounts were received or paid (all transactions were through the bank account).

Date	Transaction	Amount (GH¢)
31 March	Interest received	1,280
4 August	General expenses paid	4,500
5 December	Rent paid	27,000

The rent is due in equal monthly installments. The payment for rent covered the period from 1 January 2020 to 31 March 2021.

The allowance for receivables is to be set using the same percentage of receivables as in the previous year.

Required:
Prepare the following ledger accounts for the year ended 31 December 2020.
i) Interest Received (1 mark)
ii) General Expenses (1 mark)
iii) Rent (1 mark)
iv) Allowance for Receivables (2 marks)

b) Agbeko, Musah, and Osei had been in partnership for several years sharing profits and losses in the ratio 5:3:2. On 1 January 2021, they decided to dissolve their partnership after a disagreement. The Statement of Financial Position of the partnership as at 31 December 2020, was as follows:

Additional Information

The plant and machinery were sold for GH¢98,200.
The inventory was sold for GH¢40,500.
The Receivables realized GH¢62,000.
The motor vehicles were taken over by Agbeko at an agreed value of GH¢40,800.
The furniture and fittings were sold for GH¢50,400.
A discount of GH¢4,320 was received when payables were paid off.
The loan was repaid in full on 1 January 2021.
There were no outstanding interest payments on the loan.
Dissolution expenses amounted to GH¢3,000.

Required:
Prepare the following accounts on dissolution:
i) Partners’ capital accounts (3 marks)
ii) Realization account (7 marks)
iii) Bank account (5 marks)

Answer

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Tags: Allowance for Receivables, Capital Account, General Expenses, Interest Received, Partnership Dissolution, Realization Account, Rent
Level: Level 1

Topic: Accruals and prepayments, Bad and doubtful debt, Preparation of Partnership accounts
Series: MAY 2021

FA – Nov 2020 – L1 – Q1 – Accruals and prepayments | Bad and doubtful debt | The IASB’s Conceptual Framework

Question on various accounting principles and preparation of specific accounts related to rent, rates, bad debts, and doubtful debts.

Question

a) Accounting principles and concepts are of fundamental importance in the preparation of financial statements.
Required:
With the aid of relevant examples, outline your understanding on any FOUR (4) of the following concepts/principles: i) Accruals
ii) Going Concern
iii) Historical Cost
iv) Materiality
v) Break up basis
(10 marks)

b) Patricia Ltd prepares accounts to 31 December each year. The following transactions relate to Rent and Rates: i) 31 December 2018 three months’ rent owing amounted to GH¢6,000.
ii) 31 December 2018 two months rates prepaid amounted to GH¢5,250.
iii) During the year 2019, cash paid for rent and rates amounted to GH¢90,000
iv) Rent owing as at 31 December 2019 amounts to GH¢9,000
v) Rates prepaid as at 31 December 2019 amounts to GH¢2,250
Required:
Prepare a combined rent and rates account to disclose the amount that is chargeable to the profit or loss account for the year ended 31 December, 2019.
(4 marks)

c) The following information was extracted from the books of Maanaa and Co.:

Year	Bad debts written off (GH¢)	Trade Receivables (GH¢)	Allowance for doubtful debt (%)
1	200,000	1,200,000	10
2	300,000	1,800,000	5
3	100,000	3,000,000	5

Required:
Prepare the following accounts for the 3 years to determine the amount chargeable to the Profit or Loss account:
i) Bad debts written off account (2 marks)
ii) Allowance for doubtful debt account (4 marks)

Answer

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Tags: Accruals, Allowance for Doubtful Debt, Bad Debts, Break-up Basis, Going Concern, Historical Cost, Materiality, Rates, Rent
Level: Level 1

Topic: Accruals and prepayments, Bad and doubtful debt, The IASB’s Conceptual Framework
Series: NOV 2020

FA – May 2016 – L1 – Q1 – Accruals and prepayments | Bad and doubtful debt | Preparation of financial statements of a sole trader

Prepare income statement and balance sheet, identify and explain accounting concepts related to specific adjustments.

Question

Asomdwee Enterprise is run by a sole trader. The following Trial Balance was prepared from the business accounts on 30th September 2015:

Account	Dr (GH¢)	Cr (GH¢)
Capital		185,280
Inventory	24,200
Sales		421,450
Purchases	167,350
Purchase returns		6,040
Electricity	2,230
Discounts allowed	2,420
Discounts received		4,270
Motor expenses	1,580
Drawings	32,000
Bank	24,511
Salaries	108,000
Insurance	15,400
Receivables	110,140
Irrecoverable debts	1,420
Allowance for receivables		3,153
Payables		76,288
General expenses	6,780
9% Loan (2012-2019)		150,000
Loan interest	12,000
Land and buildings	340,000
Accumulated depreciation – buildings		26,000
Equipment	22,000
Accumulated depreciation – equipment		10,300
Motor vehicles	26,000
Accumulated depreciation – motor vehicles		13,250
Total	896,031	896,031

The following information is also available:
i) Only 10 months’ salaries are shown in the Trial Balance. An equal amount is paid for salaries for each month of the year.
ii) As at 30th September 2015, GH¢3,200 had been prepaid for insurance, whilst GH¢410 was owing for general expenses.
iii) GH¢4,600 had been charged to general expenses for the owner’s private holiday.
iv) As at 30th September 2015, inventory was valued at GH¢22,500.
v) A customer, owing GH¢5,040, has been declared bankrupt. This amount is to be written off in full.
vi) An allowance for receivables is to be maintained at 3% of the remaining receivables.
vii) As at 30th September 2015, the business’s land was valued at GH¢100,000. Land is not depreciated.
viii) Depreciation is to be provided as follows:

Buildings: 4% per annum using the straight-line method.
Equipment: 25% per annum using the straight-line method.
Motor vehicles: 40% per annum using the reducing balance method.
ix) There were no additions or disposals of non-current assets during the financial year.

Required:
a) Prepare the Income Statement for the year ended 30th September 2015. (8 marks)
b) Prepare the Statement of Financial Position as at 30th September 2015. (6 marks)
c) i) Identify the accounting concept involved in each of the footnotes/items (i), (iii), and (v). (3 marks)
ii) Explain the correct accounting treatment in each case. (3 marks)

Answer

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Tags: Accruals, Bad Debts, Balance Sheet, Depreciation, Income Statement, Prepayments
Level: Level 1

Topic: Accruals and prepayments, Bad and doubtful debt, Preparation of financial statements of a sole trader
Series: MAY 2016

FA – Nov 2024 – L1 – Q2b – Allowance for Receivables and Irrecoverable Debt

Prepare the allowance for receivables and irrecoverable debt expense accounts for a financial period.

Question

At 1 August 2023, the balance on the allowance for receivables account was GH¢12,600.

At 31 August 2023, the company’s management decided that the revised balance should be 10% of the month-end accounts receivable.

Required:

Prepare the Allowance for Receivables and Irrecoverable Debt Expense accounts, showing the necessary entries for the financial period ending 31 August 2023.

Answer

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Tags: Allowance for Receivables, Doubtful Debts, Financial Adjustments, Irrecoverable Debt, Provision for Bad Debts
Level: Level 1

Topic: Bad and doubtful debt
Series: Nov 2024

FA – Mar 2024 – L1 – Q2a – Bad and doubtful debt

Prepare the trade receivables, bad debt expense, and allowance for doubtful debts accounts for Lukay's sales transactions over three years.

Question

Lukay is a wholesaler who is into the distribution of soft drinks. Lukay has been in operation for some time now, and the following transactions in relation to sales occurred in the first 3 years:

Required:

Answer

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Tags: Allowance for Doubtful Debts, Bad Debts, Sales Revenue, Trade receivables
Level: Level 1

Topic: Bad and doubtful debt
Series: MAR 2024

FA – Mar 2023 – L1 – Q2 – Bad and doubtful debt | Control accounts and account reconciliations

Prepares control accounts, allowance for doubtful debts, revaluation account, partners' capital accounts, and adjusted financial position for a partnership.

Question

a) The following were extracted from the books of Pele Ltd by the close of December 2021:

Account	GH¢
Receivables ledger control account	71,400
Payables ledger control account	56,100

During the year 2022 the following transactions occurred:

Transaction	GH¢
Cash received from customers	47,700
Cash paid to suppliers	48,750
Sales on credit	72,300
Purchases on credit	54,750
Sales returns	2,850
Purchase returns	1,050
Discounts received from suppliers	600
Settlement discount claimed by customer	450
Bad debts written off	4,050
Customer and supplier accounts settled by contra	3,150

Required:

Additional Information:

Interest should be charged on partners’ drawings at 5%. Each of the partners had withdrawn GH¢600,000 from the account.
Interest on partner’s capital account to be credited at 6%. Partners’ accounts for the purpose of the interest calculation are to be taken as follows: Molu GH¢2,100,000, Mbisi GH¢1,050,000, Mabiodun GH¢1,500,000.
Mbisi received GH¢240,000 paid by cheque immediately.
Goodwill was valued at GH¢3,000,000 and was to be retained in the books.
Other assets and liabilities were valued as follows:
- Freehold land and buildings: GH¢6,000,000
- Plant and machinery: GH¢2,400,000
- Office equipment: GH¢350,000
- Motor vehicles: GH¢1,560,000
Discount to be received from creditors amounted to GH¢270,000.
20% of the receivables were irrecoverable.
15% of inventory was obsolete.
The balance due to Mbisi is to be kept in the firm as a loan.

Required:

i) Prepare the revaluation account. (2 marks)
ii) Prepare the partners’ capital accounts. (4 marks)
iii) Prepare the adjusted statement of financial position. (4 marks)

Answer

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Tags: Doubtful Debts, Financial Position, Partners' Capital Accounts, Payables Ledger, Receivables Ledger, Revaluation Account
Level: Level 1

Topic: Bad and doubtful debt, Control accounts and account reconciliations
Series: MAR 2023

FA – Dec 2023 – L1 – Q1 – Bad and doubtful debt | Double entry bookkeeping | The IASB’s Conceptual Framework

Explains the purpose and differences between Financial and Management Accounting, prepares ledger accounts, and links prudence concept to allowance for receivables.

Question

Required:
i) Explain the purpose and scope of financial accounting. (4 marks)
ii) Explain THREE (3) differences between Financial Accounting and Management Accounting. (6 marks)

b) On 1 January 2021, Mankessim Traders had the following entries in its ledger accounts:

Insurance: GHȼ600 owing
Commission receivable: GHȼ500 owing to Mankessim Traders
Allowance for receivables: GHȼ1,600 credit balance

The following information is available for the financial year ended 31 December 2021:

Insurance was paid as follows:
- 26 February 2021 GHȼ2,000
- 15 October 2021 GHȼ2,600
- The payment on 15 October 2021 relates to the period 1 October 2021 to 31 March 2022.
Commission receivable was as follows:
- 10 January 2021 GHȼ400
- 18 January 2021 GHȼ200
- 13 November 2021 GHȼ3,000
On 31 December 2021, GHȼ600 was owing in commission to Mankessim Traders.
The trade receivables balance at 31 December 2021 was GHȼ38,400. The allowance for receivables is to be provided as GHȼ600 for a specific debt, plus 2% on the remainder of receivables.

c) Explain why maintaining an allowance for receivables is an application of the prudence concept. (4 marks)

Answer

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Tags: Financial Accounting, Ledger Accounts, Management Accounting, Prudence Concept
Level: Level 1

Topic: Bad and doubtful debt, Double entry bookkeeping, The IASB’s Conceptual Framework
Series: DEC 2023

FA – April 2022 – L1 – Q4 – Accruals and prepayments | Bad and doubtful debt | Non-current assets and depreciation | Preparation of financial statements of a sole trader

Preparation of the Statement of Profit or Loss and Statement of Financial Position for a sole trader, including adjustments for depreciation, doubtful debts, and prepayments.

Question

The following trial balance was extracted from the books of Nsaa Zolko, a sole trader, on 31 December 2020:

Account	Debit (GHȼ)	Credit (GHȼ)
Land	251,200
Equipment	202,220
Accumulated depreciation on equipment		62,830
Inventory	49,620
Receivable and Payable	124,200	104,350
Value Added Tax (refund due)	10,320
Deposit on rented premises (security deposit)	17,900
Bank and Cash balances	15,640
Allowance for doubtful debt		11,250
Tax Liability		7,420
Business Rent	30,000
Sales		804,500
Purchases	390,200
Returns	8,300	7,500
Discount	4,300	6,240
Distribution and Advertising	8,900
Power	4,200
Communication	1,540
Insurance	22,500
Wages and Salaries	164,380
Employers Social Security contribution	16,560
4% Long term loan		182,500
Long term loan interest	3,520
Bad debt	2,240
Drawings	10,580
Retained Earnings		44,820
Capital		103,710
Suspense		3,200
Total	1,338,320	1,338,320

Land: No Provision
Equipment: 15% reducing balance method (Depreciation should be calculated to the nearest whole number). vi) The suspense account balance above relates to sales of GHȼ1,600 which was recorded as purchases in error. The receivables and payables balances are correct.

Required:
a) Prepare a Statement of Profit or Loss for the year ended 31 December 2020.
(10 marks)

b) Prepare a Statement of Financial Position as at 31 December 2020.
(10 marks)

Answer

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Tags: Accruals, Depreciation, Doubtful Debts, Prepayments, Statement of Financial Position, Statement of Profit or Loss
Level: Level 1

FA – April 2022 – L1 – Q2 – Bad and doubtful debt | Preparation of Partnership accounts

Preparation of bad debts, provision for bad debts accounts, and accounting for the admission and retirement of partners in a partnership.

Question

Nkrumah’s credit policy is payment within 30 days. The provision for bad debt as at 1 April 2019 was GHȼ880. Nkrumah’s policy for overdue and irrecoverable debts is to:

Write off as an irrecoverable debt any debt outstanding for over 12 months.
Create specific provision for any debts outstanding between 4 and 12 months.
Make no provision for debts up to 1 month old.
Create a general provision of 4% for all other debts.

Required:
i) Prepare and balance off the following ledger accounts for Nkrumah for the year ended 31 March 2020:

Tetteh
Abena
Irrecoverable Debts
Provision for Bad Debts
(6 marks)

ii) Prepare the Statement of Profit and Loss extract for irrecoverable debts and provision for bad debts for the year ended 31 March 2020.
(2 marks)

iii) Prepare the Statement of Financial Position extract for receivables as at 31 March 2020.
(2 marks)

When a partner is admitted or retired in a partnership, some steps (procedures) are followed when accounting for his/her admission or retirement.

Required:
i) Detail the steps required when accounting for admission of a new partner.
(6 marks)
ii) Detail the steps required when accounting for the retirement of a partner.
(4 marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Bad Debts, Financial Statements, Partnership Admission, Partnership Retirement, Provision for Bad Debts
Level: Level 1

Topic: Bad and doubtful debt, Preparation of Partnership accounts
Series: APR 2022

FA – Nov 2021 – L1 – Q4 – Bad and doubtful debt | Inventory | Non-current assets and depreciation | Preparation of financial statements of a sole trader

Preparation of the Statement of Profit or Loss and Statement of Financial Position for a sole trader, including adjustments for depreciation, inventory, and receivables.

Question

Land: Not depreciated.
Delivery van: 10% straight line basis.
vii) Upon investigation, it was revealed that the balance in the suspense account relates to a cash receipt from a customer of GHȼ800 that was credited to the bank account in error.

Required:
a) Prepare the statement of Profit or Loss for the year ended 30 June 2019.
(12 marks)
b) Prepare the statement of Financial Position as at that date.
(8 marks)

Answer

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Tags: Allowance for Receivables, Depreciation, Inventory, Statement of Financial Position, Statement of Profit or Loss
Level: Level 1

Topic: Bad and doubtful debt, Inventory, Non-current assets and depreciation, Preparation of financial statements of a sole trader
Series: NOV 2021

FA – May 2021 – L1 – Q2 – Accruals and prepayments | Bad and doubtful debt | Preparation of Partnership accounts

Preparation of ledger accounts for accruals and prepayments and accounts on the dissolution of a partnership.

Question

a) The following information is available from the books of Twibom Ltd.

Item	1 January 2020 (GH¢)	31 December 2020 (GH¢)
Interest received	680 Accrued	750 Accrued
General expenses	5,200 Prepaid	3,180 Accrued
Allowance for receivables	1,350	–
Receivables	45,000	56,000

During the year ended 31 December 2020, the following amounts were received or paid (all transactions were through the bank account).

Date	Transaction	Amount (GH¢)
31 March	Interest received	1,280
4 August	General expenses paid	4,500
5 December	Rent paid	27,000

The rent is due in equal monthly installments. The payment for rent covered the period from 1 January 2020 to 31 March 2021.

The allowance for receivables is to be set using the same percentage of receivables as in the previous year.

Additional Information

The plant and machinery were sold for GH¢98,200.
The inventory was sold for GH¢40,500.
The Receivables realized GH¢62,000.
The motor vehicles were taken over by Agbeko at an agreed value of GH¢40,800.
The furniture and fittings were sold for GH¢50,400.
A discount of GH¢4,320 was received when payables were paid off.
The loan was repaid in full on 1 January 2021.
There were no outstanding interest payments on the loan.
Dissolution expenses amounted to GH¢3,000.

Required:
Prepare the following accounts on dissolution:
i) Partners’ capital accounts (3 marks)
ii) Realization account (7 marks)
iii) Bank account (5 marks)

Answer

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Tags: Allowance for Receivables, Capital Account, General Expenses, Interest Received, Partnership Dissolution, Realization Account, Rent
Level: Level 1

Topic: Accruals and prepayments, Bad and doubtful debt, Preparation of Partnership accounts
Series: MAY 2021

FA – Nov 2020 – L1 – Q1 – Accruals and prepayments | Bad and doubtful debt | The IASB’s Conceptual Framework

Question on various accounting principles and preparation of specific accounts related to rent, rates, bad debts, and doubtful debts.

Question

c) The following information was extracted from the books of Maanaa and Co.:

Year	Bad debts written off (GH¢)	Trade Receivables (GH¢)	Allowance for doubtful debt (%)
1	200,000	1,200,000	10
2	300,000	1,800,000	5
3	100,000	3,000,000	5

Answer

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Tags: Accruals, Allowance for Doubtful Debt, Bad Debts, Break-up Basis, Going Concern, Historical Cost, Materiality, Rates, Rent
Level: Level 1

Topic: Accruals and prepayments, Bad and doubtful debt, The IASB’s Conceptual Framework
Series: NOV 2020

FA – May 2016 – L1 – Q1 – Accruals and prepayments | Bad and doubtful debt | Preparation of financial statements of a sole trader

Prepare income statement and balance sheet, identify and explain accounting concepts related to specific adjustments.

Question

Asomdwee Enterprise is run by a sole trader. The following Trial Balance was prepared from the business accounts on 30th September 2015:

Account	Dr (GH¢)	Cr (GH¢)
Capital		185,280
Inventory	24,200
Sales		421,450
Purchases	167,350
Purchase returns		6,040
Electricity	2,230
Discounts allowed	2,420
Discounts received		4,270
Motor expenses	1,580
Drawings	32,000
Bank	24,511
Salaries	108,000
Insurance	15,400
Receivables	110,140
Irrecoverable debts	1,420
Allowance for receivables		3,153
Payables		76,288
General expenses	6,780
9% Loan (2012-2019)		150,000
Loan interest	12,000
Land and buildings	340,000
Accumulated depreciation – buildings		26,000
Equipment	22,000
Accumulated depreciation – equipment		10,300
Motor vehicles	26,000
Accumulated depreciation – motor vehicles		13,250
Total	896,031	896,031

Buildings: 4% per annum using the straight-line method.
Equipment: 25% per annum using the straight-line method.
Motor vehicles: 40% per annum using the reducing balance method.
ix) There were no additions or disposals of non-current assets during the financial year.

Answer

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Tags: Accruals, Bad Debts, Balance Sheet, Depreciation, Income Statement, Prepayments
Level: Level 1

Topic: Accruals and prepayments, Bad and doubtful debt, Preparation of financial statements of a sole trader
Series: MAY 2016

Topic: Bad and doubtful debt

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