SOLUTION FINANCIAL ACCOUNTING FUNDAMENTALS MAY 2010

QUESTION 1

(a) Four merits of accounting standards include:

(i) Reduction or elimination of confusing variation in the methods used in the preparation
of accounts.
(ii) Provision of a social point for debate and discussions about accounting practice.
(iii) It obliges entities to disclose the accounting policies used in the preparation of accounts.
(iv) There are less rigid alternatives to enforce conformity.
(v) It contributes to transparent, understandable and high quality financial report to users of
financial statements over the world.
(vi) It increases comparability and transparency in financial statements.
(vii) It removes barriers to cross-border trading in capital market and leads to a more
effective allocation of capital.
The disadvantages include the following:
(i) It represents a set of rules which gives backing to one method which might not
be suitable for all businesses.
(ii) User groups are often not actually involved in the development of standards.
(iii) The danger of standard over load is real.

(b) Components of a complete set of financial statement are:

- A statement of financial position

- An income Statement/Statement of Comprehensive Income
- A statement of changes in equity
- A statement of cash flow

- Note comprising a summary of significant accounting policies and other explanatory

notes.
(c) Five sources of finance for companies include:

- Issue of shares
- Issue of debentures
- Bank loans and overdraft
- Trade Credits/Suppliers Credits
- Sales and lease back
- Debt factoring
- Retained profit
(d) Three main factors that govern the formulation of accounting policies are:
- Prudence

1
 SOLUTION FINANCIAL ACCOUNTING FUNDAMENTALS MAY 2010
- Substance over form
- Materiality

QUESTION 2 ADZEWODZIE

Statement Showing Adjustments to Profit for Year Ended 30th September 2008
ADD LESS
GH0 GH0 GH0
Net profit b/f
8,000
Depreciation: Freehold land & buildings 1,000
: Plant & machinery 420
Bad debts 480
Increase in provision for bad debts Undercast of
160
closing stocks 2,840
400
Cash sales (Drawings) Interest on loan 200
112
Bank charges Dividends 150
Provision for electricity charges 110
Insurance prepaid 52
3,442 2,482 960
Corrected/Adjusted Profits 8 960

ADZEWODZIE
Corrected Statement of Financial Position at 30th September 2008
GH0 GH0 GH0
NON-CURRENT ASSETS
Freehold land & building less depreciation 6,000
Plant and Machinery less depreciation 5,500
11,500
Investment at cost 2,800

CURRENT ASSETS
Inventory (7,280 + 2,840) 10,040
Trade receivables (9,680 - 480 - 1,280) 7,920
Prepayments 52
Bank (2,880 + 150 - 112 - 200) 2,718
Cash 160
20,890

2
Less CURRENT LIABILITIES 7,520
Trade payables Interest on loan 200
Provision for Electricity charges 110 7,830 _____
SOLUTION
Net current assets FINANCIAL ACCOUNTING FUNDAMENTALS MAY 2010
13,060
27.360
Financed by:
Capital Net profit 15,000
8,960
Less drawings (400 + 200) 23,960
600
10% Medium Term Loan 23.360
4,000
27.360

QUESTION 3 Nii,

Nene and Nana

REALISATION ACCOUNT
BANK ACCOUNT
GH0 GH0
Balance b/f 14,000 Trade payables 9,900
4,300 Capital Account:
Petty cash Trade receivable 12,600 Nii 27,110
Inventory 12,200 Nene 26,193
Plant and machinery 20,000 Nana 12,797
Furniture 12,900
76,000 76,000

REALISATION ACCOUNT
GH0 GH0
Plant & machinery 10,000 Bank: Trade receivable 12,600
Motor vehicle 3,600 Inventory 12,200
Furniture 7,400 Plant & machinery 20,000
Inventory 10,200 Furniture 12,900
Trade receivables 13,500 Capital: Nii - Motor vehicle 3,780
Share of profit Discount 600
Nii (1/2) 8,690
Nene (1/3) 5,793
Nana (1/6) 2,897
62,080 62,080

3
 SOLUTION FINANCIAL ACCOUNTING FUNDAMENTALS MAY 2010
PARTNER’S CAPITAL ACCOUNTS
Nii Nene Nana Nii Nene Nana
GH0 GH0 GH0 GH0 GH0 GH0
Motor vehicle 3,780 Balance b/f 15,000 9,000 6,00
Current account 7,200 5,400 3,90
0
Loan 6,000 0
Bank 27,100 26,193 12,797 Share profit 8,690 5,797 2,89
30,890 26,193 12,797 30,890 7
26,197 12,797

Joint Venture is a temporary business association limited to particular speculation in which two or more
persons agree to contribute specified amounts of capital and share profits and loss in the same manner
in any other fair proportion.

Advantages

Combination of skills and capacities may prove very profitable

Pool financial resources to achieve set goal.

QUESTION 4 DEE &

CEE BOOKS
MEMORANDUM JOINT VENTURE ACCOUNT
GH0 GH0
Purchases: 1,650 Sales: Dee 3,500
Dee
Cee 1,150 Cee 2,600
Traveling: Dee 360
Cee 450
Advertising: 90
Dee
Cee 91
Market Tools: Dee 70
Cee 95
Wages: 50
Dee
Cee 10
Sundry Expenses: Dee 70
Cee 30
Share of Profit: Dee (3/5*1984) 1,190
Cee (2/5*1984) 794
6,100 6,100

4
 SOLUTION FINANCIAL ACCOUNTING FUNDAMENTALS MAY 2010
Cee’s Books (Ledger)
JOINT VENTURE WITH DEE’S ACCOUNT
GH0 GH0
Purchases 1,150 Sales 2,600
Traveling 450 Cheque from Dee 10,000
Advertising 91
Market tools 95
Wages 10
Sundry expenses 30
Profit 794
Cash to Dee 9,980
12,600 12,600

Dee’s Books (Ledger)

JOINT VENTURE WITH DEE’S ACCOUNT
GH0 GH0
Cheque to Cee 10,000 Sales 3,500
Purchases 1,650 Cash from Dee 9,980
Traveling 360
Advertising 90
Market tools 70
Wages 50
Sundry expenses 70
Profit 1,190
Cash to Dee 13,480 13,480

Sales Ledger Control Account

GH0 GH0
Balance b/f 12,000 Cash 50,000
Sales ledger control account 84,500 Discount 500
Returns 1,000
Balance c/f 45,000
96,500 96,500
Purchases Ledger Control Account
GH0 GH0
Cash 15,000 Balance b/f 10,000
Discount received 200 purchases 40,200
Balance c/f 35,000
50,200 50,200

5
 SOLUTION FINANCIAL ACCOUNTING FUNDAMENTALS MAY 2010
QUESTION 5

TOM TOM ENTERPRISE

STATEMENT OF AFFAIRS AS AT 31ST DECEMBER 2008 GH0

40.000
GH0 12.0
Equipment Office furniture Inventory Trade receivables 10,000
Prepayments Cash and bank 12,000
400
Less: 20,000
10% Loan 18,000 94,400
Trade payables 10,000
Electricity accrued 800
Capital
28,800
TOM TOM ENTERPRISE 65,600
INCOME STATEMENT FOR THE PERIOD ENDING 31ST DECEMBER 2009
GH0
Sales
GH0
Less returns Less cost of sales
84.500
Opening stock 10,000 1,000
Add purchases 40,200 83.500
50,200
Closing stock 18,000
Gross profit Discount received Less expenses

Discount allowed 500 32,200

Rent 650 51,300
Electricity 2,200 200
Lighting 2,000
General expense 1,800
Advertising 4,300
Loan interest (900 + 900) 1,800
Depreciation: Furniture 2,200
Equipment 6,000
Net profit

21,450
30,050

6
 SOLUTION FINANCIAL ACCOUNTING FUNDAMENTALS MAY 2010 TOM
TOM ENTERPRISE
STATEMENT OF FINANCIAL POSITION AS AT 31ST DECEMBER 2009
GH0 GH0 GH0
NON-CURRENT ASSETS Office
equipment 40,000
Less depreciation 6,000 34,000

Furniture 22,000
Less depreciation 19.800
2,200
53.800

CURRENT ASSETS Inventory 18,000

Trade receivables 45,000
Prepayments 600
Cash 33,650
97,250
Less CURRENT LIABILITIES Trade
payables 35,000
Loan interest 900
Accrual 1,500 37,400
Net current assets 59,850
Total net assets 113,650

Financed by Capital 65,600

Add net profit 30,500
95,650
10% Loan 18,000
113,650