ACC 211-FINANCIAL ACCOUNTING 1 COURSE OUTLINE

ACC 211-FINANCIAL ACCOUNTING 1       

Goal: This course is designed to provide the students with the basic knowledge

         of accounting procedures in partnership and other special accounts

Objectives: On completion of this module the students should be able to:

1.0     Know changes in the constitution of partnerships and the accounting procedures.

2.0     Understand joint ventures accounts.

3.0     Understand Insurance claim s for losses.

4.0     Know Contract Accounts.

5.0     Understand containers Accounts.

6.0     Understand investments account.

7.0     Understand Bills of Exchange.

8.0     Understand Hire Purchase Accounts.

So learn!
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PILOT ON FINANCIAL ACCOUNTING 1


ILLUSTRATION 1

Adetoun, Mary and Emeka are in partnership sharing profits and losses in the ratio 2:2:1 respectively.

The partnership agreement provides:

i.  Payment of interest at 15% per annum on the credit balance of each partner`s capital and 15% on current account ( credit balance) at the beginning of each year.

ii. That no interest on drawings be charged.

iii. For the payment of a salary of N2,500 per annum to Emeka together with a 2% commission on the trading profit after charging current account interest, salary and the commission but before charging interest on capital.

The partner`s balances as at 1st January 2018 were as follows:

Partners	Current Account	Capital Account
	N	N
Adetoun	2,000 Cr	16,000
Mary	200 Dr	12,000
Emeka	400 Dr	4,000

Drawings for the year were:

Partners	Drawings
	N
Adetoun	5,200
Mary	3,700
Emeka	4,800

The trading profit for the year ended 30th December, 2018 was N22,282.

You are required to prepare:

(a) The Profit or Loss Appropriation Account for the year ended 30th December, 2018.

(b) The Current Account for each partner in columnar form

(c) The Capital Account for each partner in columnar form

SUGGESTED SOLUTION

(a)  ADETOUN, MARY AND EMEKA

     PROFIT OR LOSS APPROPRIATION ACCOUNT

     FOR THE YEAR ENDED 30TH DECEMBER, 2018.

                                                           N                                        N

Interest on capital account:                          Net Profit B/d      22,282

Adetoun (15% x 16,000)                2,400

Mary (15% x 12,000)                      1,800

Emeka (15%  x 4,000)                       600

Interest on current account:

Adetoun                                             300

Salary- Emeka                                 2,500

Commission-Emeka (W.1)                382

Sharing of profit:

Adetoun (2/5 x 14,300)                   5,720

Mary (2/5 x 14,300)                         5,720

Emeka (1/5  x 14,300)                    2,860

                                                       22,282                               22,282

Working 1:

Computation of Commisssion for Emeka:

                                                            N

Trading Profit                                                         22,282

Less: Interest on current account      300

Salary                                             2,500                 2,800

                                                                               19,482

Commission = 2/102 x 19,482   = N382

Proof  =             382         x    100   =   2%

                   19482 – 382           1

(b)    PARTNERS CURRENT ACCOUNTS

Particular	Adetoun	Mary	Emeka	Particular	Adetoun	Mary	Emeka
	N	N	N		N	N	N
Balance b/d		200	400	Balance b/d	2,000
Drawings	5,200	3,700	4,800	Interest on capital	2,400	1,800	600
				Interest on current account	300
				Salary			2,500
				Commission			382
Balance c/d	5,200	3,620	1,142	Share of profit	5,720	5,720	2,860
	10,420	7,520	6,342		10,420	7,520	6,342

(c)  PARTNERS CAPITAL ACCOUNTS

Particular	Adetoun	Mary	Emeka	Particular	Adetoun	Mary	Emeka
	N	N	N		N	N	N
Balance c/d	16,000	12,00	4,000	Balance b/d	16,000	12,000	4,000
	16,000	12,000	4,000		16,000	12,000	4,000

ILLUSTRATION 2

(a) What do you understand by Investment?

(b) Explain the following investment terms:

i.  Quoted Investment    ii.  Unquoted Investment   iii. Fixed Income Investment

iv. Cum Dividend/ Cum Interest     v. Ex-Dividend/ Ex-Interest

(c) Adetoun Limited acquired 200,000 10% preference shares in Glory Limited cum div on 31^st July, 2018. Each of the preference shares has a nominal value of N1.00 but the purchase price was N1.30. On 31^st October, 2018, Adetoun Limited received the dividend due for the year. Both the investor and investee companies make up account to 31^st October, 2018.

Required: Show the investment account in the book of Adetoun Limited for the year end 31^st October, 2018.

SUGGESTED SOLUTION

(a)  Investment are asset acquired by an enterprise for the purpose of capital appreciation or income generation without activities in the form of production, trade or provision of services.

(b) i.  Quoted Investment: These are investments that are listed on a recognised stock exchange such as the Nigeria Stock Exchange. The listed price are determined through the interaction of the forces of demand and supply. 

ii.  Unquoted Investment: These are investment other than quoted investment. The market value of this type of investment cannot be readily ascertained. They are not traded on the Stock Exchange.

iii. Fixed Income Investment: These are investment on which interest or dividend is receivable at fixed / specified rates. Examples of such investments are preference shares , debentures, government development stock and so on.

iv. Cum Dividend/ Cum Interest: Investments are usually purchased cum dividend or cum interest unless otherwise stated. This means that the new owner of the investment will be entitled to receive the next dividend or interest payment offer the date of acquisition.

v. Ex-Dividend/ Ex-Interest: Investments are purchased ex-dividend or ex-interest. This means that the seller of the investment will be entitled to receive the next dividend or interest payment after the date of acquisition.

(c)    10% PREFERENCE SHARES IN GLORY LIMITED

Particular	Nominal	Income	capital	Particular	Nominal	Income	capital
	N	N	N		N	N	N
31/07/2018 Cash	200,000		260,000	31/7/18 Income			15,000
07/07/2018 Capital		15,000		31/10/18 Cash Book		20,000
31/7/18 Profit or                Loss		5,000		31/10/18 Balance c/d	200,000		245,000
	200,000	20,000	260,000		200,000	20,000	260,000

ILLUSTRATION 3

Don and Ton agreed to enter into joint venture to buy and sell boats. Profit or losses to be shared Don 2/3, Ton 1/3. On 1^st July, 2018, Don purchased 3boats for N750,000. One of the boat was refurbished for N36,000, the amount of which was paid by Don. On July 31^st, 2018.

Don had sold 2 of the boats for N620,000 paying the proceeds to his bank account. The remaining one boat was sold for N240,000, the amount was handed over to Ton who paid it into his private bank account.

On July 15, 2018 Ton purchased a boat for N202,500 and refurbished it for N12,000 after which he sold it for N250,000 . On July 22, 2018 paying the proceeds into his own private bank account.

The boat developed mechanical trouble and on July 28, 2018, Ton agreed to take the boat back at a price of N195,000 which he paid out of his private bank account. It was later agreed that Ton should take it over for his personal use at a valuation of N180,000. Other expenditure incurred were as follows:

	Don N	Ton N
Harbour Dues	2,000	600
Marine Insurance	4,000	1,200

Required:

(a) The Accounts of the Joint Venture as they would appear in the books of Don and Ton.

(b) The Memorandum Joint Venture Account

SUGGESTED SOLUTION

(a)    IN THE BOOKS OF DON

            JOINT VENTURE WITH TON

		N			N
01/07/2018	Boat purchase	750,000	31/07/2018	Boat sold	620,000
	Refurbishing of boat	36,000		Remitance from Ton	229,800
	Harbour dues	2,000
	Marine Insurance	4,000
	Share of profit	57,800
		849,800			849,800

IN THE BOOKS OF TON

JOINT VENTURE WITH DON

		N			N
7/518	Boat purchase	202,500	31/07/2018	Boat sold	250,000
	Refurbishing of boat	12,000		Boat sold by Ton	240,000
	Refund for boat	195,000		Boat taken over	180,000
	Harbour dues	600
	Marine Insurance	1,200
	Share of profit	28,900
	Remitance	229,800
		670,000			670,000

(b)   THE MEMORANDUM JOINT VENTURE ACCOUNT

	N		N
Boat Purchsed:		Sales by Don	860,000
By Don	750,000	Sales by Ton	250,000
By Ton	202,500	Boat taken over	180,000
Refurbishing:
By Don	36,000
By Ton	12,000
Harbour Dues:
By Don	2,000
By Ton	600
Marine Insurance:
By Don	4,000
By Ton	1,200
Refund by Ton	195,000
Share of profit:
By Don( 2/3x86700)	57,800
By Ton( 1/3x86700)	28,900
	1,290,000		1,290,000

ILLUSTRATION 4

(a) Define Bill of Exchange.

(b) State four advantages of Bill of Exchange.

(c) David on 1^st July, 2015 drew a 3 month bill on Daniel for N200,000 for the purpose of accommodating the later. Daniel accepted the bill on the same date and David immediately discounted it with his bank for N195,000 as remitted this sum to Daniel. To enable Daniel settle the bill at its maturity on 1^st October, 2018, David had 5 days before sent a cheque of N200,000 to Daniel.

On 31^st October, 2018, Daniel paid a cheque of N200,000 to David to settle his indebtedness.

Required: Show the entries in the books of David and Daniel.

SUGGESTED SOLUTION

(a) Bill of Exchange is an unconditional order in writing addressed by one person to another, signed by the person giving it, requiring the person to whom it is addressed to pay on demand or at fixed or determinable future time a sum certain in money to or to the order of a specified person or to bearer.

(b) Four advantages of Bill of Exchange are as follows:

i. A bill of exchange enables the debtor to postpone payment to a later date.

ii. It enables the creditor to receive money immediately despite the fact that the debtor is yet to pay his debt.

iii. A bill is a proof of indebtedness of the debtor to the creditor.

iv. By means of an accommodation bill, a person can lead his name and reputation to another person thus enabling that other person to enjoy same benefit which could not have enjoyed otherwise.

(c)  BOOKS OF DAVID (THE ACCOMODATION PARTY)

BILL RECEIVABLE ACCOUNT
	N		N
7/7/18  Daniel	200,000	1/7/18  Bank	195,000
		1/7/18 Discount Charge	5,000
	200,000		200,000

                     

DANIEL  ACCOUNT
	N		N
1/7/18  Bill receivable	5,000	1/7/18  Bill receivable	200,000
1/7/18 Bank	195,000	31/10/18 Bank	200,000
26/9/18  Bank	200,000
	400,000		400,000

BANK ACCOUNT
	N		N
1/7/18  Bill receivable	200,000	1/7/18  Daniel	195,000
31/10/18  Daniel	200,000	20/9/18 Daniel	200,000
	400,000		395,000

BOOKS OF DANIEL (THE ACCOMODATED PARTY)

DAVID ACCOUNT
	N		N
1/7/18  Bill payable	200,000	1/7/18  Bank	195,000
31/10/18 Bank	200,000	1/7/18 Discount Charge	5,000
		26/8/18  Bank	200,000
	400,000		400,000

BILL PAYABLE ACCOUNT
	N		N
1/10/18  Bank	200,000	1/7/18  David	200,000
	200,000		200,000

BANK ACCOUNT
	N		N
1/7/18  David	195,000	1/10/18  Bill payable	195,000
26/9/18  David	200,000	31/10/18 Daniel	200,000
	400,000		395,000

ILLUSTRATION 5

.(a) Difference between Partnership and Limited Liability Company.

(b) State five reasons why partners might want to convert their business to Limited Liability Company.

(c) Explain the following types of Construction Contract.

i. Short Term Contract         ii. Long Term Contract         iii. Fixed Prices Contract  

 iv. Cost Plus Contract       v. Re-Measure Contract

SUGGESTED SOLUTION

.(a) The difference Partnership and Limited Liability Company.

Factors	Partnership	Limited Liability Company
1.  Legal Entity	Partnerships are not separate legal entity.	Limited Liability Companies are separate legal entity.
2. Liability	Liabilities of partners are unlimited.	Liabilities of members are limited to the amount contributed.
3. Activities	Activities of partnership are regulated by Partnership Deed.	Activities of Limited Liability Companies are regulated by Memorandum and Article of Association.
4.  Capital	Capital of the partnership is fixed by partners.	Capital of Limited Liability Companies is fixed by Memorandum and Article of Association and can only be increased by passing resolution.
5.  Statutory Audit	Statutory Audit are not required for Partnership business.	Statutory Audit of Financial Statements are required for Limited Liability Company.

                                      

(b) Five reasons why partners might want to convert their business to Limited Liability Company.

i. Legal Personality    ii. Perpetual Succession     iii. More Reputation

iv. Access to the Capital Market    v. Limited Liability of  members

(c) i. Short Term Contract: This is a contract which is expected to be completed within a period of twelve months.

 ii. Long Term Contract: This is a contract which is expected to take a period of more than twelve months to complete.      

iii. Fixed Prices Contract: Under this type of contract, the contractor agrees to fixed contract price or sum in some cases subject to escalation clauses.

 iv. Cost Plus Contract: Under this method, the contractor is reimburse for allowable or otherwise defined costs incurred plus a fixed fee or percentage uplift on the agreed cost incurred.    

v. Re-Measure Contract: This is type of contract that allows final contract price to be determine by the measurement of final quantities.

ILLUSTRATION 6

(a)  What do you understand by the term “Hire Purchase”?

(b) Ajimatanraeje Nigeria limited is a motor dealer selling both on cash basis and hire purchase on January 1, 2018 , the company sold on hire purchase to Sogbae Nigeria Limited, a car which its showroom price is N120,000 for N180,000.

The line purchase agreement provides as follows:

i. The hire purchase sales figure is to be settled by either hirer in 6 quarterly equal instalment.

ii. The hire purchase interest is assured to accrue evenly over the agreement period.

Sogbae Nigeria Limited depreciate motor vehicle at 20% per annum and closes it books annually on December 31, 2018.

Required: Prepare the following accounts in the book of Sogbae Nigeria Limited to 31^st December, 2018.

i. Ajimatanraeje Nigeria Limited                   ii. Hire Purchase Interest

iii. Motor Vehicle Account          iv. Provision for depreciation of Motor Vehicle.

SUGGESTED SOLUTION

(a)  The term “Hire Purchase” is one in which the seller of an item part with possession and transfer the same to a buyer who in return pay the seller an amount known as hire purchase price by way of an initial deposit plus periodic instalment over the hire period.

(b)  

i.           Ajimatanraeje Nigeria Limited
	N		N
31/3/18    Bank	30,000	1/1/18  Motor Vehicle	120,000
30/10/18  Bank	30,000	31/3/18 H.P Interest	10,000
30/9/18    Bank	30,000	30/6/18 H.P Interest	10,000
31/12/18  Bank	30,000	30/9/18 H.P Interest	10,000
31/12/18  Balance c/d	40,000	31/9/18 H.P Interest	10,000
	160,000		160,000

  

ii.                   Hire Purchase Interest
	N		N
31/3/18   Ajimatanraeje Nig. Ltd	10,000	31/12/18  Profit or Loss	40,000
30/6/18  Ajimatanraeje Nig. Ltd	10,000
30/9/18   Ajimatanraeje Nig. Ltd	10,000
31/12/18 Ajimatanraeje Nig. Ltd	10,000
	40,000		40,000

iii.                     Motor Vehicle Account
	N		N
1/1/18    Ajimatanraeje Nig. Ltd	120,000	31/12/18  Balance c/d	120,000
	120,000		120,000

 

iv.                    Provision for depreciation of Motor Vehicle.
	N		N
31/12/18   Balance c/d	24,000	31/12/18  Profit or Loss	24,000
	24,000		24,000

ILLUSTRATION 7

Tiwa and Wizkid who had been trading as a partner for many years decide to continue their business under a limited company`s arrangement by incorporating a company to be known as Tiwawizkid Limited.

The new company was incorporated on January1, 2019 with authorised share capital of N2million divided into ordinary shares of N1 each.

The business statement of affairs prior to the incorporation was as follows:

Non-Current Assets:               N             N                    N

Land and Building                              280,500

Plant and Machinery                           150,000

Furniture and Fitting                           204,000

Motor Vehicles                                    59,500           694,000

Current Assets:          

Stock                                  301,400

Debtors                              108,600

Bank                                   250,000     660,000

Current Liabilities:

Creditors                                             350,000

Working Capital                                                          310,000

Net Worth                                                                1,004,000

Financed By:

Capital:

Tiwa                                        325,000

Wizkid                                                325,000                       650,000

Current Account:

Tiwa                                        228,000

Wizkid                                                126,000                       354,000

Net Worth                                                                 1,004,000

As regard, the conversion, the partners agreed thus:

i. that the company takes over all assets and liabilities at their book values.

ii. that what is due to each of the partners should be settled by issuance of ordinary shares N1 per share.

Required:

(a) Close the books of the partnership business.

(b) Prepare in the books of Tiwawizkid Limited, Business Purchase Account.

SUGGESTED SOLUTION

(a) CLOSE THE BOOKS OF THE PARTNERSHIP BUSINESS

i.       REALISATION ACCOUNT
	N		N
Land and Building	280,500	Creditors	350,000
Plant and Machinery	150,000	Tiwawizkid Limited	1,004,000
Motor Vehicles	204,000
Furniture and Fittings	59,500
Stocks	301,400
Debtors	108,600
Bank	250,000
	1,354,000		1,354,000

ii.                          PARTNERS CAPITAL/ CURRENT ACCOUNT
	TIWA	WIZKID		TIWA	WIZKID
	N	N		N	N
Ordinary Shares in Tiwawizkid Limited	553,000	451,000	Balance b/f	325,000	325,000
			Current Account	228,000	126,000
	553,000	451,000		553,000	451,000

iii.  ORDINARY SHARES IN TIWAWIZKID LIMITED
	N		N
Tiwawizkid Limited	1,004,000	Partners` Capital:
		Tiwa			553,000
		Wizkid			451,000
	1,004,000				1,004,000

(b)  IN THE BOOK OF TIWAWIZKID LIMITED

BUSINESS PURCHASE ACCOUNT
	N		N
Creditors	350,000	Land and Building	280,500
Tiwawizkid Limited	1,004,000	Plant and Machinery		150,000
		Motor Vehicles			204,000
		Furniture and Fittings			59,500
		Stocks			301,400
		Debtors			108,600
		Bank			250,000
	1,354,000				1,354,000

  
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