NATIONAL OPEN UNIVERSITY OF NIGERIA

UNIVERSITY VILLAGE, PLOT 91, CASDASTRAL ZONE, NNAMDI AZIKIWE EXPRESS WAY, JABI, ABUJA.
FACULTY OF MANAGEMENT SCIENCES
SEPTEMBER/OCTOBER 2016 EXAMINATION

COURSE CODE: ACC311                                                        

COURSE TITLE:  INTERMEDIATE FINANCIAL ACCOUNTING I

CREDIT UNIT: 3

TIME ALLOWED:  2 HOURS 30 MINUTES

Instructions:

1. Attempt question number one (1) and any other three (3).
2. Question number 1 is compulsory and carries 25 marks while others carry 15 marks each.
3. Present all your points in coherent and orderly manner.

QUESTION ONE

Goodwill Electricals Nigeria Plc is an Electrical Components assembly outfit with authorised and issued share capital of ₦200 million, made up of 400 million ordinary shares of 50 kobo each. The following is the company’s trial balance as at 30 April 2014:

                                                                                                     Dr                Cr

                                                                                               â‚¦’000             â‚¦’000

Freehold land                                                                         25,000

Short-term deposits                                                               50,000

Sundry debtors                                                                      60,820

Cash and bank                                                                       50,862

Furniture and fittings- cost                                                    44,720

Accumulated depreciation                                                                           11,180

Machinery and equipment- cost                                          164,000

Accumulated depreciation                                                                           32,800

Stock at 1 May 2013                                                             20,000

Sundry creditors                                                                                           39,420

Bank overdraft                                                                                              25,000

Wages                                                                                    87,000

Postages and telephone                                                           2,100

General expenses                                                                    6,060

Bad debts written-off                                                                 560

Auditors’ remuneration                                                          2,000

Distribution expenses                                                             2,000

Insurance                                                                                2,060

Bank interest paid and received                                             6,000               5,000

Electricity                                                                               3,800

Salaries (including directors remuneration N2m)                76,850

Rates                                                                                      1,580

Purchases                                                                           182,388

Turnover                                                                                                     520,000

Dividends (interim)                                                             48,000

Profit and loss account                                                                                   2,400

Share capital                                                                                               200,000

                                                                                         835,800              835,800

The following adjustments are necessary for the year ended 30/4/2014:

1. The directors recommended that 5% of debtors should be set aside for possible bad debts.
2. Stock was valued at ₦15,000,000 as at 30^th April, 2014.
3. Wages outstanding at 30^th April, 2014 amounted to ₦1,300,000 and electricity accrued was ₦280,000.
4. Depreciation is to be written off machinery and equipment at 10% per annum and furniture and fittings at 5% per annum.
5. The sales manager is entitled to sales commission of 2% of gross profit. The commission is payable on 1 May 2014.
6. Insurance has been paid in advance amounting to ₦285,000
7. Machinery which stood in the books at 1 May, 2013 at ₦8 million has been sold for N6 million in part exchange for a new machinery costing ₦12 million. A net invoice for N6 million has been posted into the purchases account. No other entry has been made in respect of this transaction. The original cost of the old machinery was ₦10 million. It is the company’s policy to charge a full year’s depreciation in the year of purchase and none in the year of sale.
8. The directors proposed a final dividend of 5%, making a total of 29% dividend in respect of the year to 30 April, 2014.
1. Provision for company income tax was ₦35 million.

You are required to prepare the profit and loss account for the year ended 30^th April, 2014 and balance sheet as at 30^th April, 2014 in a form suitable for publication. Notes to the accounts are not required but you should show your workings.

QUESTION TWO

From the following information, compute consequential loss claim:

Financial year ended 31 December 2006 with turnover of ₦200,000.

Fire takes place 1 June- 1November.

Period of indemnity is 6 months

Net profit ₦12,000; plus insured charges ₦24,000

Sum insured ₦36,300

Uninsured standing charges ₦2,000

Standing turnover; that is, corresponding months (1 June – 1 November 2006 is ₦75,000).

Turnover in the period of interruption is ₦22,500.

Annual turnover for twelve months preceding the fire (1 June – 3 May 2007) is ₦220,000.

Increase in cost of working ₦4,000, during the period of interruption (with a saving of insured standing charges N1,500).

Reduced turnover avoided, through increase in cost of working ₦10,000 (that is) but for this expenditure, the turnover after the fire would have been only ₦12,500.

Owing to reserves acceptance to the insurer, the “special” circumstances clause stipulates for:

1. Increase of turnover (standard & annual) by 10%

(ii)   Increase of rate of gross profit by 2%.

You are required to compute the consequential loss claim. Show your workings.

QUESTION THREE

Exotic Furniture Nig. Ltd recorded the following transactions in the first week of January 2009:

1. Rented an office space in Port Harcourt for ₦1 million per annum and paid ₦5 million, being rent for five years demanded by the landlord.
2. Bought office equipment for ₦240,000 on credit from Modern Business machines Ltd. The expected useful life of the equipment is four years.
3. Received cheque of ₦1.3 million from Rivers State Polytechnic, Bori, being final payment for sales made to the Institution in 2007.
4. Sold furniture items on credit to a local government in Rivers State for ₦4 million. The local government did not pay until the following year.

You are required to prepare extracts of the income statement and balance sheet of the company for the year ended 31 December, 2009, on the assumption that financial statements are prepared under (a) the accrual basis and (b) the cash basis accounting.

QUESTION FOUR

a. According to the International Accounting Standard Board framework, define qualitative characteristic and mention the principal qualitative characteristics.

b. Define the term ‘accounting policies’.

c. with reference to accounting policies, explain how stock is recognised in the financial statement.

QUESTION FIVE

What are the limitations to the usefulness of ratios?

QUESTION SIX

According to the provision of Section 359(6) of the Companies and Allied Matters Act, Cap, C20 LFN, discuss the responsibilities of the Audit Committee.