INSTRUCTIONS: Attempt ALL Questions 1. What are some of the shortcomings of teaching accounting only as a skill? 2. Outline the factors that facilitated the emergence of early bookkeeping. 3. What would you consider to be Luca Pacioli's major contribution to the development of double- entry bookkeeping? 4. What need has the changing definition of accounting fulfilled? 5. Discuss the view that accounting is a social science 6. Describe the main events that characterize the various phases in the development of accounting in the USA. 7. Describe how accountants in Britain responded to public criticisms. 8. What has been the major role(s) played by professional accounting bodies in the development of accounting in the USA, UK and Ghana? 9. Discuss the major characteristics of a theory 10. Justify the need for an accounting theory. With references ACCRA BUSINESS SCHOOL PROGRAMME: MSC ACCOUNTING AND FINANCE MFA 553: ACCOUNTING THEORY AND PRACTICE Credit GH 50,000 20,000 QUESTION 1 The trial balance of Beta Limited as at 31st December, 2016 is as follows: Debit GH Sales and Purchases 20,000 Inventory 8,000 Distribution costs 8,000 Administration expenses 15,550 Trade Receivables and Payables 12,400 Cash and bank 8,100 Ordinary shares (GH0.50) Revaluation reserve 10% Redeemable preference shares (GH1) 10% Loan Notes Property, Plant and Equipment 75,000 Investment property 10,000 Rental income from investment property Retained profits at 19 January, 2016 Loan note interest 400 Preference dividend 450 Interim ordinary dividend 1,600 Corporate Tax Suspense 159,500 52,000 8,000 9,000 8,000 1,000 3,000 500 8,000 159,500 Cart The following is to be taken into account: 1. The inventory at cost on 31" December, 2016 was GH 14,500and the net realizable value was GH12,000. NRV 2. The Property, Plant and Equipment include a building whose net book value is currently GH5,000 is to be revalued to GH49,000. (4660 3. The balance on the corporation tax account represents an overprovision of tax for the previous year. Tax for the current year is estimated at GH3,000. 4. The directors have decided to make an allowance for doubtful debts of 2% of trade receivables. This amount should be charged to administrative expense. MONAC 5. Depreciation charges for the year ended 31" December 2016 amounted to GH8) This figure should be included in the administrative expense. 6. The investment property was acquired in January, 2016. The rental income from the investment property GH1,000 relates to the two-year period ending 31" December, 2017 The company adopts fair value model in subsequent measurement of the investment property and fair value assessment at 31" December, 2016 puts the valuation at GH15,000. 7. The suspense account represents the corresponding credit for cash received for a fully subscribed issue of ordinary shares made on 30th December, 2016. The terms of the share issue was 4,000 new ordinary shares were issued at GH2.00 each. Required: In compliance with the Companies' Code provisions and in conformity with relevant International Financial Reporting Standards, prepare for publication; (i) The statement of profit or loss and other comprehensive income for the year ended 31* December, 2016. (ii) The statement of changes in equity for the year ended 31" December, 2016. (iii) The statement of financial position as at 31" December, 2016. QUESTION 3 A) Adom Ltd, is a private company in Ghana operating in the manufacturing sector. Below is a Statement of financial position and a summarized statement of income with comparatives for the year ended 31st December 2019. Statement of Financial Position as at 31 December 2019: 2019 2018 Non-Current Assets GH 250,000 Property, Plant & Equipment Research & Development GH 200,000 40.000 240,000 250,000 Current Assets Available For Sale Investments Inventory Trade Receivables Cash and Cash equivalents adland 12,000 20,000 70,000 45,000 230,000 23,000 18.000 17.000 130.000 105.000 370.000 355.000 Equity Equity Share Capital(GH1 per Share) 10%Preference ShareCapital Retained Earnings 150,000 50,000 60,000 260.000 100,000 50,000 55,000 205.000 Non-Current Liabilities 10% Loan Note 12% Debenture 50,000 5,000 55.000 90,000 3,000 93,000 Current Liabilities Trade & Other Payables 30,000 20,000 Bank Overdraft 25,000 37.000 55,000 57.000 355.000 De Coto toad one dirbo 370,000 Statement of Financial Position as at 31st December 2019 2019 2018 COD1 GH GH Sales Cost of Sales Gross profit Operating expenses Operating profit Income Tax Expense Finance Cost Profit for the period 365,000 (219,000 146,000 (55,000 91,000 (17,000) (9,000 65,000 219.000 (156,000) 63,000 (4,000) 59,000 (8,000) (6,000) 45,000 Additional Information Industry Ratios Current Ratio: Acid test ratio: Debt to Equity Ratio: Gross Profit Margin: Net Profit Margin: Return on Capital Employed: 2.0 times 1.0 time 50% 32% 20% 22% S DOS Required: A) Prepare a report and address it to the Chief Executive Officer, analysing the financial performance and financial position of Adom Ltd based on the industry ratios above for the years 2018 and 2019. B) IAS 23 Borrowing Costs regulates the extent to which entities are allowed to capitalize borrowing costs incurred on money borrowed to finance the acquisition of certain assets. Required: State two (2) conditions to be met for: i) Capitalization of borrowing costs to commence. ii) Capitalization of borrowing costs to cease. QUESTION 5 The following are the Statements of Financial Position of Yomi Limited for the years ended December 31, 2020 and 2021. 2021 2020 Assets GHC GHC GHC GHC Land 560,000 300,000 Building and Equipment 2,000,000 1.900.000 2,560,000 2,200,000 Accumulated Depreciation (800,000) (770.000) 7 1,760,000 50,000 1,430,000 25,000 Long-Term Investments Current Assets Inventory Accounts Receivable Cash Prepaid 300,000 410,000 30,000 20.000 320,000 460,000 50,000 15.000 845.000 2.300.000 760.000 2.570.000 Equities and Liabilities Ordinary shares (GHC2 par value) Share premium Retained Earnings bodo Bonds Long-Term Note Payable 200,000 710,000 670,000 500,000 the 150,000 160,000 550,000 620,000 800,000 0 Current Liabilities Accountable Payable Accrued Liabilities 300,000 40.000 2.570,000 120,000 50.000 2.300,000 Additional information about 2021 transactions and events: i) Net profit for the year was GHC110,000 ii) Depreciation expense on buildings and equipment was GHC60,000 Voorde iii) Sold equipment with a cost of GHC50,000 and accumulated depreciation of GHC30,000 for cash of GH17,000 iv) Declared and paid cash dividends of GHC60,000 v) Issued a GHC150,000 long-term note payable for buildings equipment. vi) Purchased long-term investments for GHC25,000 To logo vii) Paid GHC300,000 on the bonds payable viii) Issued 20,000 shares of GHC2 par value ordinary shares for GHC200,000. COM ix) Purchased land for GHC260,000. Required: Prepare the company's statement of cash flows for the year ended 31 December 2021, using the indirect method, adopting the format in IAS 7 Statement of cash flows 0.000 rupa beszbi QUESTION 6 A Case Study of Brother Kofi and Olamide Limited You are the Group Chief Accountant of Kofi Limited and Olamide Limited. Kofi Limited is a holding company while Olamide Limited is a subsidiary company registered in Nigeria. Kofi Limited is a medium-sized retailer of imported and retailer of hand sanitizers in Ghana. Due to numerous requests from the customers in Nigeria for the company's product, Kofi Limited decided to expand its operations to Nigeria to increase sales and make more profits for the shareholders. In 2016 the business registered a new company in Nigerin and named it Olamide Limited. The sole purpose of incorporating Olamide Limited in Nigeria was to boost the company's market share and make more profits for the shareholders. But the financial performance of Olamide Limited has not been encouraging to the management of the business, and shareholders have complained about the decision to expand into the Nigerian Market. Shareholders have noted with dismay that Olamide Limited has reported continuous losses for the business for the past two years. The financial statements show that the Nigeria expansion strategy was extremely bad and management is blamed for the bad decision to expand into the Nigerian market. Management explained the past performance at the Annual General Meeting and provide forecast to the future performance of the business. At the meeting, the management assured the shareholders that measures taken in 2019 is going to put an end to the loss making of Olamide Limited. The Managing Director explained that the losses recorded were temporal and that the future financial performance will be better. Contrary to the promise made to the shareholders, 2019 financial performance was also not encouraging, because Olamide Limited has recorded a net loss of GH GH100,000 for the year ended 31" December, 2019. The Managing Director argued that unless something drastic is done to the figures in the 2019 financial reports for the period under review, the going concem assumption for Olamide Limited has to be revoked. This net loss recorded for 2019 was due to high expenditure on advertisement incurred for that period, while sales fell below the expected target. The Managing Director is concerned about Olamide Limited continuous reporting of losses to the group and called for an emergency meeting to be held to decide on the figures to be included in the 2019 financial statements. At the Board meeting to discuss the figure to be included in the financial statements, the following key managers made some statements for the consideration of the Managing Director. Notable among them were reprinted for the consideration of the board. "The Group General Manager argued and was quoted here that: Figures to be included in the financial statement are always grey and that there are very little absolute figures in the financial statement. A smart manager is able to save the reputation of the business in times of financial difficulties by simply changing accounting policies to boost performance of the business. Just a change of the company's depreciation policy from straight line method to reducing balance method is enough to change the company's net loss to net profit for the business". The Group Operational Manager sided with the comment made to change net loss to net profit using the company's policy and defended his position that "Managers are engaged to maximize profits for the shareholders, 9 therefore, any financial performance that does not show profit, simply means that management has failed. Therefore, there is the need to adjust the company's policy on depreciation in order to maximize profit for shareholders. The Group Marketing Director contributed to the discussion and said that "He knows of companies that have manipulated their financial statements and the reputations of the managers involved were enhanced due to better performance recorded by the business. Therefore, to boost the financial performance of Olamide Limited, there is the need to double the company's sales figures and reduce the operating expenses by half to boost net profit of the business". He commented further that the stakeholders will not know that the figures in the financial statements were manipulated unless they are informed about it". As the Group Chief Accountant and a young professional accountant in the making, you tried to object to some of the comments made by your colleagues at the meeting. You reiterated the concerns of International Financial Reporting Standards (IFRS) regarding the issues of qualitative characteristics of financial statement at the meeting. Your concerns were due to several seminars you attended on IFRS on the conceptual and regulatory framework used to prepare financial statements by businesses. IFRS requires that the financial statements prepared should comply with accounting concepts, assumptions that are commonly referred to as qualitative characteristics. Despite your worries, the Managing Director deliberately refused to take your advice into consideration and prepared the final accounts of Olamide Limited against the ethical and moral considerations that show the net profit for the business as shown below: Kofi Limited GHCOOO 7,500 Statement of Financial Position as at 31 December, 2019 Olamide Limited GHC000 GHCOOO GHCOOO Assets Noncurrent assets (Note 1) 9,400 Current assets Inventory 2,000 2.400 Trade receivables 2,400 3,700 Bank 600 1,200 5,000 Total Assets 14,400 Equity and liabilities Equity Stated capital (GHCI each) 2,000 2,000 Retained Earnings 3,500 800 5,500 Noncurrent liability 7% Debenture 4,800 Current liabilities Bank overdraft 400 1,700 Trade payables 3,100 3,800 7,300 14,800 2,800 6,300 Taxation 600 200 Total equity and liabilities 4,100 14,400 5,700 14,800 1,500 Statement of Comprehensive Incomes for the year ended 31 December, 2019 Olamide Limited GHC000 Revenue 12,000 Cost of sales 10,500 Gross profit Operating expenses 240 Operating profit 1,260 Finance cost 210 Profit before tax 1,050 150 Profit after tax 900 Dividend paid for the year 250 Note 1: There were no disposals of plant during the year by either company. Kofi Umited GHCOOO 20,500 17,000 3,500 500 3,000 600 2,400 400 2,000 700 Tax expense Refers Reli As a professional accountant who is concemned about the qualitative characteristics of preparing financial statements. (a) You are required to: (i) Explain five (5) qualitative characteristics of IFRS that is used to prepare financial statements to your colleagues at the meeting. (10 marks) (ii) Explain the difference between profit and profitability. (4 marks) (iii) Explain the concept of going concern and the implication of revocation of going concern assumption when financial statements are prepared. (6 marks) (b) With reference to the case study above. You are required to calculate for Kofi and Olamide Limited, two ratios of significance to: (i) Management. (2 mark) (ii) Creditors. (2 mark) (iii) Shareholders. (2 mark) (iv) Comment on the profitability ratios, liquidity ratios and efficiency ratios calculated between Kofi Limited and Olamide Limited for the period under review. (10 marks) (v) Explain three (3) advantages for using ratio analysis. (2 mark) (vi) Explain two (2) disadvantages associated with the use ratio analysis. (2 mark) (Total marks 40)