QUE (a) The trial balance of Bawa Ltd as at 31 December 2005 was as follows:
¢000 ¢000
| Stated capital Income surplus 01/101/05 Plant and machinery @ cost Trade debtors Trade creditors Stock Bank Turnover Printing and stationery General provision for doubtful debts 10% Bank loan repayment in 2010 Purchases Selling and distribution expenses Administration expenses Interest on loan | 155,000 30,000 10,000 3,400 10,000 60,000 40,000 15,000  1,600325,000 | 80,000 20,000 50,000 5,000 150,000 2,000 18,000
325,000 |
The following final adjustments are required:
(i) Stock at 31st December 2005 was valued at ¢12,000,000.
(ii) Selling and distribution expenses owing amounted to ¢4,000,000.
(iii) Audit fee was agreed at ¢5,000,000.
(iv) Administrative expenses of ¢6,000,000 were prepaid.
(v) Depreciation is to be provided for plant and machinery at 10% based on reducing balance method.
(vi) The directors declared a dividend of ¢1,450,000.
(vii) Bawa Ltd produces solely for the export market and attracts corporate tax at the rate of 8%.
(viii) The accountant and the sales ledger clerk met on 31st December 2005 . The sales ledger clerk reported that:
In his opinion the following debts were bad:
¢000
Madina Ltd 2,000
Hatso Ltd 1,500
He considered the following debts as doubtful:
Teshie Ltd 1,600
Nungua Ltd 900
Achimota Ltd 2,500
The management board agreed to the comments of the sales ledger clerk as above and decided that they should write off the bad debts, make a specific provision for all doubtful debts and make a general provision of 5% as at 31st December 2005 .
You are required to prepare for Internal use:
a. The trading, profit and loss account and income surplus account for the year ended 31st December 2005 . (10 Marks)
b. The balance sheet as at 31st December 2005 . (5 Marks)
QUE Adongo, Boateng and Coffie started a partnership on 1st January 2004 . The business of the partnership includes the sale of stationery and text books. The partnership is governed by an agreement drafted by the partners. Below are excerpts of some of the provisions of the agreement:
(i) The partners are to share profit and losses in the ratio of 3:2:1.
(ii) Partners’ capital is to attract interest at 15% per annum.
(iii) Drawings of capital by partners are to attract interest at the rate of 20% per annum.
The trial balance of the partnership as at 31/12/2005 after the preparation of the partnership profit and loss account is given below:
Adongo, Boateng and Coffie Partnership
Trial balance as at 31/12/2005
Dr Cr
¢’000 ¢’000
| Partners’ capital a/c: Adongo Boteng Coffie Buildings Furniture and fittings Motor vehicles Stock Debtors Creditors Bank Net profit for the year 10% Loan – Coffie Current accounts: Adongo Boateng Coffie | 2,500,000 187,500 812,500 437,500 337,500 262,500 50,000
4,587,500 | 1,250,000 1,125,000 1,000,000 225,000 425,000 250,000 200,000 112,500
4,587,500 |
The following entries have not been made in the books.
a) Coffie is the Administrative Manager of the partnership and is entitled to annual salary of ¢37,500,000.
b) Boateng paid an amount of ¢18,750,000 for general expenses from his personal resources on behalf of the partnership.
c) During the year, each of the partners made drawings totaling:
¢ million
Adongo 75
Boateng 50
Coffie 37.5
Additionally, Adongo took goods valued at ¢87,500,000 for his personal use. All of these have not yet been reflected in the accounts.
The interest on the loan has not yet been accounted for. The loan will be repaid in 2008.
It is the policy of the partnership to deduct interest on loan as well as expenses made by a partner on behalf of the firm before ascertaining distributable profit.
You are required to prepare the following accounts for the partnership.
i) Profit and loss appropriation account for the year ended 31/12/2005 .
ii) Partners’ current account.
iii) The balance sheet of the partnership as at 31/12/2005 .
QUE STC Ltd, which recently entered the express parcel delivery business, is evaluating a new venture; the establishment of a motorcycle courier service offering same-day delivery.
The venture would require the purchase of a building for ¢250 million, payable immediately. The building would need extensive alterations costing ¢150 million to enable it to become the control and distribution centre for the venture. The alterations would take a year, and operations could not commence until the building was ready. Immediately after completion of the building, STC Ltd would take delivery of 100 motorcycles at ¢4 million each and engage riders.
Running costs of the operation in current prices are expected to be fixed costs of ¢750 million per annum and a variable cost of ¢1000 per packet. Fixed costs are expected to increase by 8% per year and variable costs by 5% per year. ¢50 million of working capital would need to be injected immediately prior to the completion of the building.
A market research, undertaken at a cost of ¢40 million, suggests that the price per packet should be ¢5,000 or ¢8,000. At these prices the following numbers of packets are forecast:
Expected Packets Per Year
Probability of Demand Price of ¢5000 Price of ¢8000
0.10 0.20 0.40 0.20 0.10 | 175,000 275,000 350,000 375,000 400,000 | 160,000 190,000 210,000 230,000 260,000 |
The above prices are at current price levels and are expected to increase by 5% at the end of each year. Over the next 5 years, STC Ltd’s cost of capital is expected to be 15% per annum, constant. The board wishes to evaluate the venture over the first five years of operations, at the end of which the realizable value of the venture as a going concern is expected to be ¢1 billion.
Unless otherwise stated, assume all cash flows take place at the end of the year. Ignore taxation.
Required:
(a) Decide, with reasons, which price for the packets would maximize profit. (6 marks)
(b) Calculate the expected net present value of the venture for the first five years of operations.
ACCA QUESTION
Required:
ACCA QUESTION
QUE
ACCA QUESTION
QUE ASEM ABA Ltd manufactures two products, Asem and Beba, using one basic raw material and one grade of labour. The actual operating results achieved for eleven months ended June 2006 are shown below. GHC’000
Sales: Asem (GHC 12,000 each) Beba (GHC 20,000 each) Actual cost of sales: Direct material Direct labour Variable overheads Fixed overheads Profit | 48,000 40,000 88,000 44,000 14,000 6,000 10,000 74,000 14,000 |
Standard costing system is operated by the company.
During the above period, the actual material consumption was as specified in the standard, which for Asem is 3 kilos per unit, and for Beba, 4 kilos per unit.
The standard wage rate is GHC 3,000 per hour. The standard labour cost of Asem is GHC 1,500 and Beba, GHC 3,000 per unit. Labour achieved standard efficiency but, throughout the above period, the actual wage rate paid was higher than standard and consequently an adverse rate variance of GHC 2,000,000 was incurred.
Overheads were as stated in the standard. Variable overheads vary directly with labour hours worked. There was no change in any stock levels during the period.
Budgeted production for 2007 is 6,000 units of Asem and 4000 units of Beba. Material stocks are budgeted to decrease by 2,000 kilos; there will be no change in any other stocks. The standard material consumption per unit will be as specified in 2006 and, after careful consideration, it has been agreed that 2007 standard material price will be the actual average price paid during 2006.
The actual wage rate for 2006 will be increased by GHC 700 per hour for 2007, GHC 500 per hour of which is the result of a productivity agreement which will enable the company to reduce its standard time for each product by 20%.
Budgeted overheads will be at the same rate as shown for 2006 and it may be assumed there are no wages included in overheads.
(a) Calculate the material purchases budget and the wages budget, showing both quantities and values for the year ended July 2007 (14 marks)
(b) Calculate the net cost-savings which Asem Aba Ltd should achieve during 2007 as a result of the productivity agreement, assuming that there is no restriction on the number of labour hours which could be made available, if required. (6 marks)
ACCA QUESTION
QUE
Uncle Pee has been approached by a customer who would like a special job to be done for him and is willing to pay GH¢20,000.
The job would require the following materials.
Material | Total Units required | Units already in stock | Book value of units in stock GH¢ per unit | Realizable value GH¢ per unit | Replacement cost per unit |
A B C D | 1000 1000 1000 200 | 0 600 700 200 | - 2 3 4 | - 2.5 2.5 6 | 6 5 4 9 |
The following information is provided:
i) Material B is used regularly by Uncle Pee and if stocks are required for the job, they would need to be replaced to meet other production demands.
ii) Materials C and D are in stock as a result of previous over buying and they have a restricted use. No other use could be found for material C, but the units of material D could be used in another job as substitute for 300 units of material E, which currently costs GH¢5 per unit (the company has no units in stock at the moment).
Labour
The work requires 2 grades of labour; X and Y
i) Grade X labour is currently idle, and has no work to do; however they are kept in full employment and paid their normal wage of GH¢3 per hour. The contract would require 500 hours of Grade X labour.
ii) Grade Y labour is currently extremely busy, and if the contract is undertaken, labour would be diverted from other work which currently earns a contribution to fixed overheads of Gh¢4 per hour. The contract would require 200 hours of Grade Y labour, which is paid GH¢3.5 per hour.
Overheads
i) Variable Overheads are incurred and absorbed at the rate of GH¢1 per active working hour.
ii) Fixed Overheads (which exclude the cost of machinery) are absorbed as 250% of direct labour cost. The contract would require the help of an outside consultant, whose fee would be GH¢300.
Machinery Cost
i) A special machine will have to be hired for three months for production (the length of the contract). Hiring charges for this machine are GH¢75 per month, with a minimum hiring charge of GH¢300.
ii) All other machinery required for production under the contract has already been purchased by the company on hire purchase terms. The monthly hire purchase payments for this machinery are GH¢500. This consists of GH¢450 for capital repayment and GH¢50 as an interest charge. The last hire purchase payment is to be made in two months time. The cash price of this machinery was GH¢9,000 two years ago. It is being depreciated on a straight line basis at the rate of GH¢300 per month.
It is further estimated that the machinery would lose GH¢200 on its eventual value if it is used for the contract work.
Required:
(a) Summarize the relevant costs of material, labour, overheads and machinery and advise the directors whether or not the contract should be undertaken.
(b) Prepare the statement in a conventional form and advise management.
ACCA QUESTION
ACCA QUESTION
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