Question

In: Accounting

QUESTION 1 Kasabrunu Enterprise is a business operating in the second-hand clothing in Kwadaso. Mr. Bruni...


QUESTION 1
Kasabrunu Enterprise is a business operating in the second-hand clothing in Kwadaso. Mr.
Bruni the owner of Kasabrunu Enterprise (KE) employed Mr. Ojidomi a BSc. Accounting
graduate as the Accountant. Business is booming and KE is expected to be in operation for a
long time. Mr. Odjidomi has been with the business for 5 years and has assured Mr. Bruni that
profits declared will not be deceptive since the same method will be continuously used for the
accounting treatment of similar items until Mr. Bruni decides to change from dealing in second
hand clothing to the purchase and sale of spare parts which they discussed. As part of the policy
adopted by the business, the Accountant records only transactions that can be valued in
monetary terms in the books of account and produces financial information at regular period
for the perusal of Mr. Bruni.
On reaching home, Sefakor Ojidomi, the daughter of Mr. Ojidomi who is pursuing an
accounting programme in Owusuwusu College of Accountancy asked his father to guide her
with an assignment.
Sikadanka, the Chairman and CEO of Defenders Ltd recently confronted the Chief Accountant
of the company over the way and manner the financial statements were presented for the 2019
financial year. The following points are summaries of the CEO’s reservations about the
financial statements:
a. He argued that the values of the company’s assets be shown at current market values
since these values will provide a better view of the company’s value. The Chief
Accountant is still insisting that the assets should be stated at original cost.
b. He expressed shock when the financial statements did not show a value for the
company’s efficient staff. He argued that the company’s beautiful and handsome sales
personnel are valuable assets used to attract customers and therefore insisted that this
“power of attraction” should be recognised in the books of accounts and reflected on
the face of the financial statement.
c. He was worried when a potential sale of millions of Ghana cedis to a certain buyer from
whom purchase orders have been received have not been recognized in the books of
accounts as sales. The Chief Accountant argued that these potential customers have
only been sent pro-forma invoices and so are not obliged to pay the company.
d. The CEO recently bought a saloon car for his son out of company funds. The Chief
Accountant recorded this on a current account for the CEO. This resulted in an intense
argument. The CEO threatened to dismiss the Chief Accountant should he refuse to
recognize the purchase of the saloon car as a transaction of the company.
e. The CEO insisted that the value of expired inventory should be maintained in the books
of accounts and not written off.
Sefakor presented the assignment and scored a 100% for the 1st time.
On the 27th of March, 2019, Mr. Ogboro, the purchasing officer of KE prepared documents to
purchase on credit 1,500 bales of second-hand clothing from Osimeyo and brothers (OB.). O.B
delivered the goods to KE 4 (four) days after the order was placed with all appropriate
documents. KE only deals in male second-hand clothing but included in the goods delivered
were 15 bales of ladies second-hand clothing which Mr. Ogboro returned to OB as it did not
meet the description provided. Customers purchased the goods either on credit or outright
payment with cash or cheque. Documents showing evidence of payment were given to these customers. All customers who purchased on credit paid through their bankers by transfers made
directly to the bank accounts of KE. KE is later advised accordingly by her bankers.
Mr. Odjidomi prepares bank reconciliation statements quarterly. He made a request on the 15th
of March 2019 for a bank statement from Obidibi commercial bank. Upon receipt of the bank
statement, he compared the balance with that of the Cash book and it did not agree. The
Accountant’s friend, Oyeni Bawabawat, an accounts officer at Oshikishiki Enterprise requested
for reasons for the disagreement. He confessed his inability to grasp these reasons during his
studies. After an in-depth explanation, Mr. Odjidomi, the Accountant asked his friend to assist
him prepare a bank reconciliation statement as he had to urgently attend an important meeting.
The Accountant provided his friend with the information below:
The cash book, bank column of Kasabrunu Enterprise showed a credit balance of
GHS578,000 while the bank statement for the period showed a debit balance of GH¢338,000
on 31st March,2019. A thorough investigation revealed the following:
i. Cheques drawn amounting to GHS195,0000 had not been presented to the bank for
payment.
ii. A cash deposit into the bank of GHS97,800 was recorded as GHS79,800 in the cash
book.
iii. Bank charges of GHS10,900 and standing order payment of GHS12,100 relating to
telephone bills entered on the bank statement had not been recorded in the cash book.
iv. A cheque of GHS245,000 drawn by the firm had been charged by the bank in error to
another customer’s account.
v. A dividend of GHS15,000 paid directly to the bank had not been entered in the cash
book.
vi. A cheque for GHS20,000 paid into bank had been dishonoured and shown as such by
the bank but no entry of the dishonour had been made in the cash book.
vii. The following cheques and cash deposits entered in the cash book and paid to the
bank have not been credited by the bank: cash deposits GHS76,500; cheques receipts:
Maame Dakona GH¢54,500; Ntekuma Ananse GHS34,000.
viii. A cheque drawn for GHS32,000 had been entered in the cash book in the error
GHS23,000.
ix. A cheque for GHS16,000 drawn by another customer of the same name had been
charged to the firm’s bank account in error.
After adjusting the cash book balance, Oyeni Bawabawat prepared the bank reconciliation
statement. After waiting for 3 hours, he was informed that Mr. Odjidomi will be in the
meeting for 6 hours. Oyeni then left for his office.
Required:
A
i) Identify and explain two (2) accounting policies adopted by Kasabrunu Enterprise (1mark)
ii) State the accounting concept in each of the CEO’s reservation in Sefakor’s assignment.
Explain your reason for choosing the concept.
NB: Present your answer in a tabular form as illustrated below
Concept/Principle Definition/Explanation Reason
Identify and explain the use of three (3) source documents in the transaction to purchase
and sell 1,500 bales of second-hand clothing.

C. i) State and explain six (6) reasons Mr. Odjidomi will give to his friend for the
disagreement in the cash book and bank statement balances.
i) Imagine you are Oyeni Bawabawat. Show the appropriate adjustments to be made in
the cash book.
ii) Prepare a Bank Reconciliation Statement for Mr. Odjidomi.

Solutions

Expert Solution

A(i)- Money Measurement Concept: The money measurement concept states that a business should only record an accounting transaction if it can be expressed in terms of money.

Accounting Period Concept: Every organization, according to its needs, chooses a specific period of time to complete an accounting cycle.So the indefinite life of an organization is divided into shorter, generally equal time period. This facilitates a comparison of performances.

A(ii)-

Concept definition Explanations

(a) Cost Concept

This accounting concept states that all assets of the firm are entered into the books of account at their purchase price (cost of acquisition + transport + installation etc). In the subsequent years to, the price remains the same (minus depreciation charged). The market price of the asset is not taken into consideration. Hence, The CEO's arguement is void-ab-initio because it's not in compliance of Accounting Concept.

(b) Money Measurement Concept

This accounting concept states that only financial transactions will find a place in accounting. So only those business activities that can be expressed in monetary terms will be recorded in accounting. Any other transaction, no matter how significant, will not find a place in the financial accounts. Hence, Human Resource Capital of a firm can't be measured in monetary terms.for example, if the company underwent a major management overhaul this would have no effect on the accounting records as well. This concept is actually one of the major drawbacks of accounting.
(c) Revenue recognition Concept /

Realisation Concept

The revenue recognition principle states that one should only record revenue when it has been earned, not when the related cash (or Equivalent Accomodation Amount e.g. in the form of Purchases made here) is collected. Now revenue is the cash inflow for a business arising from the sale of goods or services. And we assume this revenue as realized only when it legally arises to be received. So in simpler terms, the profit earned will be recorded when it is actually earned.

(d) Matching Concept

The matching accounting concept follows the realization concept. First, the revenue is recognized and then we match the costs associated with the revenue. So costs are matched with revenue, the reverse would be an incorrect system. here, cost of purchasing Saloon car by CEO for his personal purpose does'nt match with any corresponding Revenue in the firm. hence, to be charged as drawings.
(e)

Conservatism Concept

This accounting concept promotes prudence in accounting. It states that profit should not be included until it is realized. However, losses even those not realized but with the remote possibility of occurring should be included in the financial statements. So all losses are recognized – those that have occurred or are even likely to occur. But only realized profits are recognized. Expired stocks are of no use to firm anymore.In a way or the other They bear zero realizable Value in Market.so, Inventories are valued at Cost or NRV whichever is lower.as such, expired stocks does'nt hold any value except in the form of scraps.so, have to be written off for the purpose of better transparency of Financial Statements.

B. 3 Source Documents could possibly be the following ones:

Previous Invoices these are used normally as concrete proof.
Purchase Requisitions showing the estimations of required raw materials for upcoming Batches.
Computer-generated receipts for previous Orders They can be most reliable than anything to prepare the budget for upcoming quarters.

C(ii):

Aforementioned Values are merely Adjustments to the Corrected Cash book balance.


Related Solutions

QUESTION 1 Kasabrunu Enterprise is a business operating in the second-hand clothing in Kwadaso. Mr. Bruni...
QUESTION 1 Kasabrunu Enterprise is a business operating in the second-hand clothing in Kwadaso. Mr. Bruni the owner of Kasabrunu Enterprise (KE) employed Mr. Ojidomi a BSc. Accounting graduate as the Accountant. Business is booming and KE is expected to be in operation for a long time. Mr. Odjidomi has been with the business for 5 years and has assured Mr. Bruni that profits declared will not be deceptive since the same method will be continuously used for the accounting...
QUESTION 1 Ernest and his partner Mary run a second-hand bookshop. The business is incorporated under...
QUESTION 1 Ernest and his partner Mary run a second-hand bookshop. The business is incorporated under the name of Ketchum Ltd, and they are the only shareholders. As the business is small they do not employ a full-time accountant, but pay a local firm to prepare their accounts after the end of the accounting period from information they supply. You are on a summer work placement with this firm and have been asked to prepare             a first draft of the...
QUESTION 1 Ernest and his partner Mary run a second-hand bookshop. The business is incorporated under...
QUESTION 1 Ernest and his partner Mary run a second-hand bookshop. The business is incorporated under the name of Ketchum Ltd, and they are the only shareholders. As the business is small they do not employ a full-time accountant, but pay a local firm to prepare their accounts after the end of the accounting period from information they supply. You are on a summer work placement with this firm and have been asked to prepare             a first draft of the...
Mr. Kamran is thinking to start a hand sanitizer manufacturing business. As a business graduate, Mr....
Mr. Kamran is thinking to start a hand sanitizer manufacturing business. As a business graduate, Mr. Kamran is well acquainted with the challenges commonly faced by new start-ups. However he lacks the knowledge and skills associated with sanitizer manufacturing business. What advise would you give to Mr. Kamran to make smart recruitment decisions, briefly explain
QUESTION 2 (20 MARKS) Budi Enterprise is a private investigation business owned by Mr. Budiman. The...
QUESTION 2 Budi Enterprise is a private investigation business owned by Mr. Budiman. The business is in operation since the last six years, but all accounts and financial statements have been prepared by an external accounting firm. It is your responsibility as a new manager with accounting background to prepare the accounts and financial statements to reduce the business’s cost. It is normal practice for the business where some clients are pay in advance for the company’s services, while other...
Budi Enterprise is a private investigation business owned by Mr. Budiman. The business is in operation...
Budi Enterprise is a private investigation business owned by Mr. Budiman. The business is in operation since the last six years, but all accounts and financial statements have been prepared by an external accounting firm. It is your responsibility as a new manager with accounting background to prepare the accounts and financial statements to reduce the business’s cost. It is normal practice for the business where some clients are pay in advance for the company’s services, while other clients make...
The father of Mr. Spock, second officer of the Starship Enterprise, came from the planet Vulcan;...
The father of Mr. Spock, second officer of the Starship Enterprise, came from the planet Vulcan; his mother came from the Earth. A Vulcan is homozygous for the genes for pointed ears (P), adrenals absent (A), and a right-sided heart (R). All three genes are dominant over their respective Earth alleles (p, a, and r). These three genes are autosomal and are linked as shown in this linkage map: P(p)-----------15 map units-----------A(a)---------------20 map units-------------R(r) If Mr. Spock marries a phenotypically...
Boston Retail Company (clothing chain) is working with several suppliers of new and second-hand clothes. Store...
Boston Retail Company (clothing chain) is working with several suppliers of new and second-hand clothes. Store managers have the freedom to decide which supplier(s) they wants to work with and the amount and types of clothes they want to order for their stores in each season. The prices charged by each supplier are based on the price per piece of cloth and the total number of clothes ordered. A store manager first places the order with a supplier. After receiving...
Enslin Clothing, a micro clothing manufacturing enterprise has the option to invest in machinery for projects...
Enslin Clothing, a micro clothing manufacturing enterprise has the option to invest in machinery for projects M and N. However due to constraint financial resources the company may only be able to invest in one of them. You are given the following projected data: Project M (R) Project N (R) Investment 180 000 190 000 Net cash flows: Year 1 58 000 62 000 Year 2 63 000 62 000 Year 3 68 000 62 000 Year 4 72 000...
Ernest and his partner Mary run a second-hand bookshop. The business is incorporated under the name...
Ernest and his partner Mary run a second-hand bookshop. The business is incorporated under the name of Ketchum Ltd, and they are the only shareholders. As the business is small they do not employ a full-time accountant, but pay a local firm to prepare their accounts after the end of the accounting period from information they supply. You are on a summer work placement with this firm and have been asked to prepare             a first draft of the accounts for...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT