LEVEL IV

Project Information
Given the necessary equipments, tools, materials, supplies and information the
candidate is expected to perform the following six projects.

Project 1: Perform cost accounting

Hassan Company produces digital watches in large quantities. The company has
Assembly department and finishing department. The manufacturing costs of Assembly
Department were direct material added Br. 1,620,000.00 and Conversion costs Br.
750,000.00 (i.e. direct labour Br. 475,000.00 and overhead Br.275, 000.00). There were
600,000 units completed and transferred to finishing department. The 300,000 units in
ending work in process were fully completed regarding direct material but half-
completed regarding conversion costs. There was no beginning work in process.
Suppose 900,000 units were begun in the assembly department.
Instructions
Task 1: Calculate
A. The equivalent units and costs in the Assembly department
B. The costs of units completed and transferred to finishing Department.
C. Cost of the ending work in process in the assembly Department
Task 2.Detemine the unit cost of goods transferred to finishing Department.
Project 2: Provide management accounting information

Lembo Snack Plc produces biscuits called “Lovely”. Recently, company management

decided to investigate the profitability of producing new biscuits. They have different

proposal to evaluate. Under all of the proposals, the fixed costs for new biscuits would

be Br.110, 000.00. Under proposal A, the selling price of the new biscuits would be

Br.99 and the variable costs per unit would be Br.55.00. Under proposal B, the selling

price of the biscuits would be Br.135.00 and variable cost would be remaining the same.
Under proposal C, the selling price would be Br.99.00 and variable cost would be

Br.49.00 to produce a carton of biscuits.

Task1. Calculate the break even quantities and sales

revenue under proposal A, B and C.
Task2. How did the increased selling price under proposal B,
impact the break even quantities and sales revenue
compared to break even quantities calculated under
proposal A?
Task3. Why the change in variable cost under proposal C
did not impact the break even quantities and sales
revenue as significant as proposal B did?

Project 3.: Prepare tax return

BMS Trading, an importer of electronics started the business recently. Its turnover is
assumed to be less than birr 500,000.00 for the first year. So, it did not register for VAT.
The following cash sales data were taken from the company’s from Meskerem to Tir
2001E.C

Meskerem Birr 40,000.00

Tikmit 50,200.00
Hidar 60,500.00
Tahisas 35,800.00
Tir 80,000.00
Instructions
1. Make the necessary journal entries
2. Prepare turnover tax BMS Trading is
A. Category “A” tax payer
B. Category “B” tax payer and make the necessary journal entry
when the turnover tax liability is paid with in one month at the
end of the quarter.
C. Category “C” tax payer

Project 4.: Perform Audit and Report on Financial Systems and Records
On Sene 30, 2002 E.C cash position investigation of BMS Trading company indicates
that the balance of cash on hand and at bank was birr 8,425.00 as per the firm’s record.
A credit birr 100.00 for a note collected by the bank and bank service charge of birr 5.00
on the bank statement does not disclose on the firm’s record. The bank statement
balance is birr 6,750.00.Outstanding checks are as follows
CK. Number Amount in birr
83 260.00
820 180.00
821 204.00
822 173.00
The cashier prepared to the following reconciliation statement.
Balance per bank statement birr 6,750.00
Less: outstanding check
No, 820 birr 180.00
No, 821 204.00
N0, 822 173.00
457.00
Subtotal 6,293.00
Add: unrecorded credit 100.00
Subtotal 6,393.00
Add: cash on hand (this count is correct) 2,032.00
Cash per company records sene 30, 2002 8,425.00
Instructions
Task1. Prepare the correct bank reconciliation statement
Task 2. Determine the amount of shortage or overage
Task 3.How did the cashier attempts to cover the shortage or Overage?
Task4: Comment the internal control of the Company and give your recommendations
Project 5: Perform Accounting for Governmental and Not-for Profit Entities
Debre Markos City Administration approved and adopted the budget for the year
2002E.c on July 1. The estimated revenues from property tax is birr 2,440,000.00,
interest and penalty birr 13,000.00 and license and permits birr 147,000.00; and the
amount of authorization for appropriations for general government is birr 1,200,000.00,
public safety birr 750,000 and health and welfare birr 150,000.00.

Instructions
Task 1.caluculate the fund balance
Task 2. Make the necessary journal entries including the
Subsidiary accounts
Project 6: Perform accounting for decentralized operations

Shewa supermarket operates with three branches in Addis Ababa. One item is omitted
from each of the following condensed branch income statements.
Branches
Merkato Piassa Bole
Sales Br.500, 000 Br.750, 000 Br. -------
Cost of sale 310,000 ------------ 440,000
Gross profit ---------- 350,000 360,000
Operating expense 120,000 ------------ 250,000
Operating income ---------- 140,000 ----------
Instructions
Task 1. Calculate
A. Gross profit and operating income for Merkato branch
 B. Cost of sale and operating expense for Piassa branch
C. Sale and operating income for Bole branch

Task 2.Which branch is most profitable based on their respective

Operating income.
Task 3.Calculate the return on investment (ROI) for each branch
and indicate the profitable branch in terms of return on
asset, by assuming Shewa Supermarket invested in
each branch.
Merkato branch……………….Br. 250,000
Piassa branch………………... Br. 200,000
Bole branch……………………Br. 150,000
Acceptable answers
Project 1
1 a,
Equivalent units
Physical Direct
Units Material conversion
Started and completed 600,000 600,000 600,000
Work in process, ending 300,000 300,000 150,000*
Units accounted for 900,000
Work done to date 900,000 900,000
*Equivalent units in 150,000
Total costs direct conversion
Material costs
Costs to account for, Br.2, 370,000 Br.1, 620,000.00 Br.750, 000.00
Divide by equivalent 900,000.00 750,000.00
Units
Unit cost Br. 2.80 Br. 1.80 Br. 1.00
Application of costs:-
To units completed and
transferred to finishing
department (600,000x Br.2.80) Br.1, 680,000
To units not completed and still
In process, end of month April, 31.
Direct material ……… Br.540, 000 300,000(Br.1.8)
Conversion costs ……. Br.150, 000 1,500(Br.1)
C, WIP ending …………. Br.690, 000
Total cost account for
Finishing department Br.2, 370,000**
** Costs in the assembly department is Br.2, 370,000.00
b, Cost of units completed and transferred to finishing
Department: - (600,000xBr.2.80) = Br.1,680,000.00
C, Cost of units in work in process in the Assembly department
= Direct material costs + conversion costs
= (300,000xBr.1.80) + (150,000x Br.1.00)
= Br.540, 000+Br.150, 000
=Br.690, 000.00
2, Br.1.80+Br.1.00=Br.2.80

Project 2
1. Break even quantity (BEQ) = Fixed cost
Unit price - Variable cost per unit

Proposal A, BEQ = 110,000

99-55
= 2,500 units

Sale revenue = quantity @BEP x unit price

= 2500 x Br.99
= Br.247, 500.00

Proposal B, BEQ =110,000

135-55
= 1375units

Sale revenue = quantity @BEP x unit price

= 1375 x Br.135
= Br.185, 625.00

3, Proposal C, BEQ = 110,000

99-49
= 2,200 units

Sale revenue = quantity @BEP x unit price

 = 2,200x Br.99
= Br.217, 800.00

2, Proposal B has equal variable cost per carton with that of proposal A, but with higher
selling price. So, the contribution margin of proposal B is significantly high per carton.
Therefore, Lembo snack needs to produce and sale 1375 cartons, which is the lowest
from all proposals, to remain at break even point.

3. In proposal C, the variable cost decreased by Br.6 per carton compared with proposal
A. This results Contribution margin increased by Br.6.00 per carton. Where as, the
selling price in proposal B, Br.135, is higher than proposal A, by Br.36 which means
Contribution margin increased by Br.36 per carton.

The higher contribution margin has impact on break even quantity and revenue. So,
proposal B has higher impact than proposal C.

Project 3
1. Journal entries
Meskerem
Cash………………………………………………40,800.00
Sales……………………………………………………40,000.00
Turnover tax payable…………………………………… 800.00
Tikmit
Cash …………………………………………………51204.00
Sales………………………………………………… 50,200.00
Turnover tax payable…………………………………1004.00
Hidar
Cash …………………………………………………61,710.00
Sales…………………………………………………… 60,500.00
Turnover tax payable……………………………………1210.00
Tahisas
Cash …………………………………………………36,516.00
 Sales………………………………………………………35,800.00
Turnover tax payable…………………………………… 716.00
Tir
Cash …………………………………………………81,600.00
Sales……………………………………………………80,000.00
Turnover tax payable………………………………… 1,600.00

2. Turnover tax return

A, Category “A” taxpayer files the turnover tax return on monthly basis. So the monthly
turnover tax return report is shown below.
BMS Trading Company
Turnover Tax Return
For the month of meskerem 2001E.C
Sales……………………………………………………40,000.00
Turnover tax rate……………………………………………2%
Turnover tax payable………………………………………800.00

BMS Trading Company

Turnover Tax Return
For the month of Tikmit 2001E.C
Sales………………………………………………………50,200.00
Turnover tax rate……………………………………………2%
Turnover tax payable………………………………………1004.00

BMS Trading Company

Turnover Tax Return
For the month of Hidar 2001E.C
Sales……………………………………………………60,500.00
Turnover tax rate……………………………………………2%
Turnover tax payable……………………………………1210.00
 BMS Trading Company
Turnover Tax Return
For the month of Tahisas 2001E.C
Sales…………………………………………………………35,800.00
Turnover tax rate................................................................ 2%
Turnover tax payable………………………………………… 716.00

BMS Trading Company

Turnover Tax Return
For the month of Tir 2001E.C
Sales……………………………………………………………80,000.00
Turnover tax rate…………………………………………………2%
Turnover tax payable…………………………………………1,600.00

b, Category “B” tax payer files turnover tax return quarterly. The quarterly turnover tax
return report is shown below

BMS Trading Company

Turnover Tax Return
For the month ended Hidar 2001E.C
Sales during the quarter
Mekerem………………………………………………….40, 000.00
Tikmit……………………………………………………..50,000.00
Hidar………………………………………………………..60,000.00
Total sales/receipt…………………………………………...... 150,700.00
Turnover tax rate………………………………………………………2%
Turnover tax payable……………………………………………3014.00
@ Journal entry when the turnover tax liability is paid with in one month at the end
of the quarter.
Turnover tax payable……………………………3014.00
Cash……………………………………………………3014.00
C, Category “C” taxpayer do not keep acceptable accounting records to the tax
authority because taxpayer “C” pay presumptive turnover tax based on turnover tax as
base for income tax

Project 4
A, Balance per bank statement …………………………..birr 6,750.00
Less: Outstanding checks
No.83……………………birr 260.00
No.820………………….birr 180.00
No.821…………………birr 204.00
No.822………………….birr 173.00 birr 817.00
Adjusted balance……………………………….….birr 5,933.00
Balance per company record………………………………...birr 8,425.00
Add:-Credit note collected by bank………………..birr 100.00
Birr 8,525.00
Less:-Bank service charge ……………birr 5.00
Cash on hand………………..birr 2,032.00
Cash shortage……………..….birr 555.00 birr 2,592.00
Adjusted balance….……………………………...birr 5,933.00
B. Cash shortage amount birr 555.00
C. Company’s internal control looks very weak. A single person, cashier should not be
assigned to collect and made payments as well as reconcile bank statements. It creates
an opportunity for fraud and theft.

Project 5
1. Fund balance = estimated revenues-appropriations
Estimated revenues
Property tax………………… Br. 2,440,000.00
Interest and penalty……………………13, 000.00
License and permits…………………147.000.00
Total ……………………………………………………………….Br.2, 600.000.00
 Appropriations
General government……Br.1, 200, 000.00
Public safety……………………… 750,000.00
Health and welfare……………… 150,000.00
Total………………………………………………………….. 2,100,000.00
Fund balance………………………………………………………… 500,000.00

2. Journal entries
Estimated revenues……………………………………Br.2, 600,000.00
Appropriation………………………………………………2,100,000.00
Fund balance………………………………………………… 500,000.00

Estimated revenues subsidiary ledgers

Debit
Property tax………………… Br. 2,440,000.00
Interest and penalty……………………13, 000.00
License and permits…………………147.000.00
Appropriations subsidiary ledger
Credit
General government……Br.1, 200, 000.00
Public safety……………………… 750,000.00
Health and welfare……………… 150,000.00

Project 6
A. Gross profit = Sales - Cost of good sold
= Br.500, 000 – 310,000
= Br.190, 000.00
Operating income= Gross profit – Operating expense
=Br.190, 000.00 -120,000
=Br.70, 000
B. Cost of sale = Sales - Gross profit
 = Br.750, 000 -350,000
=Br.400, 000
Operating expense= Gross profit – Operating income
= Br.350, 000 – 140,000
= Br.210, 000
C. Sales= Cost of sale + Gross profit
=Br.440, 000 + 360,000
=Br.800, 000
.
Operating income= Gross profit – Operating expense
= Br.360, 000 - 250,000
= Br.110, 000
2. Piassa branch is most profitable branch because it generates
Operating income of Br.140, 000.00
3. Return on investment (ROI) = Operating income
Investment
Merkato = Br.70, 000.00
250,000
=0.28

Piassa= Br.140, 000.00

200,000.00
=0.70

Bole= Br.110, 000.00

150,000.00
=0.73

*Bole branch is most profitable because it generates Br.0.73 for every

One birr investment.