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 CEOs reservations about the financial statements: a. He argued that the values of the companys assets be shown at current market values since these values will provide a better view of the companys 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 companys efficient staff. He argued that the companys 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 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 Accountants 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 GH338,000 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 customers 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 GH54,500; 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 firms 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 CEOs reservation in Sefakors assignment. Explain your reason for choosing the concept. NB: Present your answer in a tabular form as illustrated below Concept/Principle Definition/Explanation Reason (5 marks) 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. (3 marks) 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. (2 marks) (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. GHS000 GHS000 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 GH5million) 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 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 (10 marks) ii) Statement of financial position as at 31st December, 2019 (10 marks) (Total 20 marks)