In: Accounting
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
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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
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B. Identify and explain the use of three (3) source documents in
the transaction to purchase and sell 1,500 bales of second-hand
clothing. (4.5 marks)
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 (4.5 marks) ii)
Prepare a Bank Reconciliation Statement for Mr. Odjidomi.
(Total 20 marks)
QUESTION 2
Halibatu, a sole trader, deals in phones and computer accessories
at the Ohiamankwa Enterprise. The following Trial Balance was
extracted from her books at 31st December, 2019
DR. CR. GHS’000 GHS’000 Drawings & Capital 2,128 18,043
Receivables & Payables 7,689 5,462 Purchases & Sales 62,101
122,242 Rent & Rates 900 Gas &Electricity 246 Carriage 200
Salaries & Wages 8,268 Bad debts 247 Allowance for receivables
326 Inventory (1/1/2019) 9,274 Insurance 172 Discounts 150 350
Advertising 933 Cash at bank & on hand 2,142 Investment in
91-Day Treasury Bills 740 Interest on investment received 56 Motor
Vans at cost 16,000 Computers (cost GH¢5million) 3,600 Provision
for depreciation: Motor Vans 8,600 Motor Expenses 861 Returns 232
54 Rent received 750 Freehold premises at cost 40,000 155,883
155,883
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Additional information: a) Inventory as at 31st December, 2019 was
GHS 9,884,000 b) Rent & Rates paid covered the period 1st
January, 2019 to 31st March, 2020. c) Some tenants have not yet
paid their rent to Ohiamankwa Enterprise. The amount involved was
GHS 250,000. d) Electricity bill of GHS 85,000 for December, 2019
has just been received. Halibatu intends to pay within the third
week of January, 2020. No record has been made in the books. e) GHS
80,000 out of total carriage of GHS 200,000 relates to carriage on
purchases made f) Allowance for receivables is adjusted to 5% of
total receivables at the end of the year. g) An amount of GHS
202,000 was spent on the personal vehicle of Halibatu. This was
included in the motor expenses. h) Depreciation is to be charged on
vans at annual rate of 20% on cost. Computers are to be depreciated
at the rate of 25% using the reducing balance method.
You are required to prepare: i) Income statement for the year ended
31st December, 2019 ii) Statement of financial position
as at 31st December, 2019 (Total 20 marks)
QUESTION 3
A The agreement of the trial balance totals is an indication that
all transactions have been properly recorded in the books of
accounts. Do you agree with this statement?
Required: Outline 4 reasons to justify your response.
B ABC Ltd started business on 1/1/14, and its financial year ends
on 31st December each year. The following information was extracted
from the company’s asset register. DATE TRANSACTION AMOUNT (GHS)
2016 January, 1 Purchased one motor van 58,500 2016 September, 1
Purchased two motor vans 78,000 each 2018 March, 1 Purchased one
motor van 45,200 2018 May, 2 Sold the motor van purchased in
January,2016 18,240 2019 April 1 Purchased three motor vans 62,000
each
Additional Information The company’s policy is to depreciate Motor
vehicles at a rate of 20% per annum on cost. You are required to
prepare: i) The Motor vehicles account (2016-2019) ii)
Provision for depreciation account (2016-2019) iii)
Disposal account for 2018 iv) Statement of profit or loss
extract for 2018 and 2019 (1 mark) v) Statement of financial
position extract for 2018 and 2019
Balance Sheet As at December 31, 2019
Assets | Amount $ | Liabilities | Amount $ |
Motor Vehicle | 387200 | Provision for Depreciation | 148473 |
387200 | 148473 |
Statement of Profit and Loss a/c for the year 2018
Particulars | Amount $ | Particulars | Amount $ |
Depreciation | 42600 | Net Loss | 55793 |
Loss on Sale of Van |
13193 | ||
55793 | 55793 |
Statement of Profit and Loss a/c for the year 2019
Particulars | Amount $ | Particulars | Amount $ |
Depreciation | 68140 | Net Loss | 68140 |
68140 | 68140 |
Balance Sheet As at December 31, 2018
Assets | Amount $ | Liabilities | Amount $ |
Motor Vehicle | 80333 | Provision for Depreciation | 201200 |
80333 | 201200 |
Provision for Depreciation a/c
Particulars | Amount $ | Particulars | Amount $ |
Balance c/d | 148473 | Balance b/d | 80333 |
Depreciation | 68140 | ||
148473 | 148473 |
Disposal a/c
Particulars | Amount $ | Particulars | Amount $ |
Motor Vehicle a/c (1st Installment) |
58500 | Provision for Depreciation | 27067 |
Bank | 18240 | ||
Profit and loss a/c | 13193 | ||
58500 | 58500 |
Motor Vehicle a/c
Particulars | Amount $ | Particulars | Amount $ |
Balance b/d | 214500 | Disposal a/c | 58500 |
Bank (4th Inst) | 45200 | Balance c/d | 201200 |
259700 | 259700 | ||
Balance b/d | 201200 | ||
Bank (5 ,6,7 th Inst) |
186000 | Balance c/d | 387200 |
387200 | 387200 |
Provision for Depreciation a/c
Particulars | Amount $ | Particulars | Amount $ |
Depreciation | 22000 | ||
Balance c/d | 22000 | ||
22000 | 22000 | ||
Balance b/d | 22000 | ||
Balance c/d | 64800 | Depreciation | 42800 |
64800 | 64800 | ||
To Disposal a/c | 27067 | Balance b/d | 64800 |
Depreciation (4 M) | 3867 | ||
Balance c/d | 80333 | Depreciation (10 M) | 38733 |
107400 | 107400 |
3. (a)
The Agreement of Trial balance is no indication that all transactions are recorded in the books of accounts because
1.The transaction which is completely ignored to record will not affect the trial balance
2. A transaction may be recorded with less amount will not affect the trial balance
3. A transaction recorded with more amount will not affect the trial balance
4. A transaction recorded twice, the trial balance will ignore.
Motor Vehicle a/c
Particulars | Amount GHS | Particulars | Amount GHS |
Bank (1st Inst) | 58500 | Balance c/d | 214500 |
Bank (2,3rd Inst) | 156000 | ||
214500 | 214500 | ||
Balance b/d | 214500 | ||
Balance b/d | 214500 | ||
214500 | 214500 |
:) Hope you liked the answer