SOLUTION: FINANCIAL ACCOUNTING FUNDAMENTAL, MAY (a) The role of the accountant in an organization can be analyzed as follows:

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1 SOLUTION 1 (a) The role of the accountant in an organization can be analyzed as follows: - Preparation and presentation of timely accurate financial/management accounts to manage to help management interpret the financial information. - Identification of areas of inefficiency and wastages of resources in the business. - Treasury functions such as raising finance, cash management etc. - Setting up an effective system of internal and accounting control. - Preparation of feasibility reports. - Investigation of fraud within an organization. (b) Financial accounting is the process of summarizing financial information in order to prepare the company s financial statements. Differences: Financial accounting is thus the manner in which an organization communicates financial information namely performance, position and cashflow to the outside world. Management accounting is the process of providing detailed information to management on current and planned events. This information assists managers in their role of planning, controlling and making decisions. Usually, management accounts are only available to internal users of accounting information. Management accounting will contain information such as department budgets, product profitability, and information on production costs. (i) (ii) (iii) (iv) Legal Requirement: Financial Accounting is required by law. Management Accounting is not required by law. Users: Financial Accounting: external users. Management Accounting: internal users. Professional Regulation/ Standards: Financial Accounting complies with standards. Management Accounting does not comply with standards. Time Line: Financial Accounting is historic. Management Accounting is more futuristic. Page 1 of 8

2 (v) Scope: Financial Accounting deals with the whole organization. Management Accounting deals with segments of the organization. SOLUTION 2 Visionrich Ltd Cashflow statement for the year ended 31 December, 2010 Operating Activites: 25,250 Interest paid (3,750) Tax paid (13,000) (16,750) 8,500 Investing Activities Payment for motor vehicles purchased (25,000) Receipt on sale of investment 15,000 (10,000) (1,500) Net cash flow before financing Financing Activities Payment of dividend (13,500) Payment of 15% PW loan (50,000) (63,000) Decrease in cash & cash equivalent (65,000) Opening cash & cash equivalent 73,000 Closing cash & cash equivalent 8,000 Reconciliation of operating profit to net cashflow from Operating Activities Profit before interest & tax 36,000 Adjust non- cash items Depreciation 14,000 50,000 Movement in net current assets Increase in inventories (82,000 58,000) (24,000) Increase in receivables (36,000 24,000) (12,000) Increase in payables (46,750 35,500) 11,250 (24,750) 25,250 Page 2 of 8

3 Workings Proposed dividend Payment 13,500 Bal b/d 13,500 Bal c/d 5,250 charge for year 5,250 Bal. b/d 5,250 Motor vehicles Bal b/d 95,000 Bal. c/d 120,000 Addition 25,000 12, ,000 Accumulated Depreciation Bal c/d 63,000 Bal. b/d 49,000 Charge for year 14,000 63,000 63,000 Long-term Investment Bal b/d 55,000 Sale of investment 15,000 Bal c/d 40,000 55,000 55,000 Taxation Payment 13,000 Bal b/d 13,000 Bal c/d 9,000 charge for year 9,000 22,000 22,000 Bal b/d 9,000 Page 3 of 8

4 SOLUTION 3 (a) (i) Accounting Concepts They are the basic assumptions that underlie the preparation of the periodic financial statements or a business entity. They are rules regulating the manner in which transactions are recorded. They are deemed to be in existence though not actually stated or referred to. The concepts and conventions give reasons why accounting data are prepared in a typical manner. Example Going Concern, Prudence. (i) Debit Note The buyer normally issues a debit note to a supplier to request for a credit note. The buyer may not debit the account of the supplier until his request is approved by him evidenced by the issue of the credit note to the buyer. A debit note is also prepared whenever it becomes necessary for one reason or the other to increase the amount due from a debtor. Example, When the seller has under-charged a customer on an invoice. Generally, any expenses that should have been charged to the customer but were erroneously omitted when the invoice was made out would be charged subsequently by means of a debit note prepared by the supplier. (ii) Purchase Order A purchase order is issued by a customer requesting the seller to supply certain quantities of goods of specified description. The purchase order will also state the agreed price and the delivery point and date. Invoices are compared with the purchase order when invoices are received. The goods received note is issued after it has been ascertained that the goods supplied meet the specification in the purchase order. An example of a purchase order is the Local Purchase Order (LPO) (b) (i) Bad Debt Accounts 31/12/09 Accounts Receivable 45,000 31/12/09 Income Statement 45,000 31/12/10 Accounts Receivable 15,000 31/12/10 Income Statement 15,000 31/12/11 Accounts Receivable 10,000 31/12/11 Income Statement 10,000 Page 4 of 8

5 (ii) Provision for Doubtful Debt Account 31/12/09 Balance c/d 35,250 01/01/09 Balance b/f 35,000 31/12/09 Income statement ,250 35,250 01/01/10 Balance b/d 35,250 31/12/10 Balance c/d 47,250 31/12/10 Income statement 12,000 47,250 47,250 01/01/11 Balance b/d 47,250 31/12/11 Income statement 4,250 31/12/11 Balance c/d 43,000 47,250 47,250 01/01/12 Balance b/d 43,000 (iii) Income Statement Extract 2009 Gross profit Less Bad debt 45,000 Increase in provision for doubtful , Gross profit Less Bad debt 25,000 Increase in provision for doubtful debt 12,000 27, Gross profit Less Bad debt 10,000 Decrease in provision for doubtful debt (4,250) 5,750 (iv) Statement of Financial Position 2009 Accounts Receivable (750,000 45,000) 705,000 Less provision for doubtful debt 35, , Accounts Receivable (960,000 15,000) 945,000 Less provision for doubtful debt 47, , Accounts Receivable (870,000 10,000) 860,000 Less provision for doubtful debt 43, ,000 Page 5 of 8

6 SOLUTION 4 Kekeli Trading and Profit and loss account for the year ended 31 st December 2010 Sales 240,000 Less return inwards (4,500) 235,500 Stock, 1 st January, ,000 Purchases 75,000 Carriage inwards 3,400 78,400 Less return outwards (2,000) 76,400 Less closing stock (18,500) 57,900 Cost of sales 77,900 Gross profit 157,600 Decrease in provision 5,000 Add discount received 15, ,600 Less expenses: Carriage outwards 8,000 Bad debts written off 10,000 Staff cost (45, ,000) 50,000 Discounts allowed 9,000 Advertising 22,000 Energy expenses 27,000 Rent and rates 15,000 Interest on loan 4,020 Sundry expenses 18,000 Dep. Equipment 24, ,020 Net profit (9,420) Statement of Financial Position as at 31 st December 2010 Non-current Assets: Property, plant and equipment at cost 120,000 Less depreciation (48,000) 72,000 Current assets: Inventory 18,500 Trade Receivables 35,000 Less provision (10,000) 25,000 Cash 15,000 Bank 48, ,400 Page 6 of 8

7 Current liabilities: Trade payables 40,000 Interest on loan 4,020 Staff cost owing 5,000 49,020 58, ,380 Less loans at 15% (26,800) 103,580 Capital, 1 st January, ,000 Net profit (loss) (9,420) 118,580 Less personal drawings (15,000) 103,580 SOLUTION 5 Realization Account Freehold premises 120,000 Creditors account 2,700 Bank: Motor vehicles 150,000 Freehold premises 84,000 Equipment 120,000 Equipment 180,000 Stocks 180,000 Stocks 114,000 Debtors 120,000 Debtors 110,000 Bank winding up expense 12,000 Agbeli-Capital a/c 132,000 Share of loss: Agbeli 39,650 Anagote 26,433 Abolo 13,217 79, , ,000 Page 7 of 8

8 Partners Capital Account Agbeli Anagote Abolo Agbeli Anagote Abolo Realization account 13,200 Bal b/d 240, , ,000 Realization loss 39,650 26,433 13,217 Current acc. 40,000 12,000 8,000 Bank 108, , , , , , , , ,000 Bank Account Balance b/f 30,000 Winding up expense 12,000 Realization account 488,000 Creditors 87,300 Capital Accounts: Agbeli 108,350 Anagote 185,567 Abolo 124, , ,000 Page 8 of 8

a] Outline four activities that accountants normally undertake within business organisations.

QUESTION 1 a] Outline four activities that accountants normally undertake within business organisations. (8 marks) b] Financial Accounting and Management Accounting are two different branches of accounting