Most frequent accounting questions

 

Question 1

1. a) You are provided with the following information relating to V ltd

Equity and liabilities

12% debentures (shs1000 at par) 16,000

10% preference shares 6,250

Ordinary shares (Sh. 10 par) 12,500

Retained earnings 28,125

Additional information

1. The debentures are currently selling at Sh. 950 in the market
2. The company paid a dividend of Sh. 5.00 per ordinary share and they are expected to grow at a rate of 10% per annum.
3. The corporation tax is 40%

Required

Effective Cost of debt (3 marks)

Cost of equity (3 marks)

Weighted Average cost of capital (4 marks)

Question 2

What is the meaning of the term Unit contribution Margin? Contribution to what? Briefly explain each of the following methods of computing Break-Even Point Units: a. Contribution Margin Approach b. Equation Approach c. Graphical Approach 3.

Question 3

What information is conveyed by a Cost-Volume-Profit graph in addition to the Company s Break-Even Point? What information is conveyed by a cost volume profit graph in addition to the company’s break-even point?

Question 4

Tax Declaration Assignment

The complexity of the tax regulations applicable to the infinitely diverse nature of business and personal transactions and diversification and growth of Business Enterprises in form and size forced taxation to branch out as a distinct specializing area in accounting. The most important function of tax accounting is preparing and filing tax returns. Currently, there are 17 types of tax declaration forms in Ethiopia to comply with the Federal Tax Laws. These are:

1. Personal Income Tax Declarations (ERCA Form 1101 and 1102)
2. Employment Income Tax Declarations (ECRA Form 1103 and 1104)
3. Withholding Income Tax on Payments (ERCA Form 1105 and 1106)
4. Rental Income Tax Declarations with Books of Accounts (ERCA Form 1201)
5. Rental Income Tax Lessee Details Declarations (ERCA Form 1202 and 1203)
6. Rental Income Tax Declaration without book of Accounts (ERCA from 1205 and 1206) –is the form used by the taxpayer (lessor) not marinating books of Accounts
7. Business income Tax Declaration with Annexes (ERCA) from 1301)-This form shall be used by businesses with an annual turnover of over Birr 100.000 it is a profit and loss account with the necessary annexes
8. Balance sheet Declaration with Annexes (ERCA from 1302) this form is used by large businesses whose annual turnover is birr 500.000 or more. All businesses are not to declare balance sheets only large businesses are required to declare balance sheets with necessary annexes Both income statements and balances sheet are declared annually
9. Capital Gain Tax on Building Declaration with (ERCA from 1401)-is a Formby  used business to assess dispose of its factory building
10. Capital Gain Tax on Shares Declaration (ERCA from 1402)-is a form used by any person or body while selling shares of incorporated companies
11. Schedule D withholding Tax Declaration (ERCA from 1404 and 1405)-is a form used to declare withholding on royalty income, games of chance income, and dividend income
12. Casual Rental income Tax Declaration (ERCA form 1406):
13. Presumptive Tax Declaration (ERCA from 1501):
14. Turnover Tax Declaration ERCA form 2301):
15. Excise Tax Deformation from (ERCA A form 2101and2102):
16. Value Added Tax Declaration (ERCA from    3001): And
17. cost Sharing Declaration (ERCA from 4103)

As a student of taxation, one is required to understand exhaustively and completely the tax laws of the story as to comply with them and car carry one out’s duty or accountability and accurately manner the duty of reporting is directly linked to students’ complete tax declarations. The objective of this project is to introduce students to tax declarations and enable them to complete all tax declarations that are required at the Federal level. You should read all the instructions before you complete the declaration forms. The declaration forms are available at http://www.erca.gov.et.

1. Consider ABC real estate Commission Agent plc with Tin (00051919400) located at Addis Ababa Lideta sub-city Woreda (n.a) Kebele 03/15) House No (441) Telephone No (+251-115-511625) and fax No (+251-115-511868). During the tax year 2006, ABC real estate commission Agent plc leased a building from a lessor (PLC) with TIN (0006549124) located at Addis Ababa Bole sub-city Woreda (n.a) Kebele (26) House No (356) Telephone No(+251116-181869) and Fax No(+251-116-181216).

The building has 105 m2 of rentable spaces (3 equal size rooms) on each floor including the ground floor. As per their agreement, the sub-lessor leased each m2 of rentable space on the ground floor at Br 100, 1^st floor at Br 90, 2^nd floor at Br 80, and so forth per month that is it declines by Br 10 for each m2 of rentable space from one floor to the next upper as we go upstairs till the 5^th floor. The land lease costs will be borne by the lessor. The land lease cost amounted to Br 15,000. The building was constructed at Br 4 million. The sub-lessor has agreed to pay the cost of repairs and maintenance of the building. All other costs related to generating rental income from lessees will also be borne by the sub-lessor as per the lease term. The sub-lessor has withheld the withholding tax required by the law from rental payment to the lessor.

The sub-lessor leased the building to numerous small and medium Size businesses at the following rates: each m2 of rentable space on the ground floor at Br 280, 1^st floor at Br 270, 2^nd floor at Br 260, 3^rd floor at Br 250, and so forth per month that is the rental income decreases by Br 10 from the lower floor to the next upper floor as we go upstairs to the 5^thfloor. The spaces (the rooms) were occupied throughout the tax year 2006 and the sub-lessor (ABC Real Estate Commission Agent plc) incurs the following expenses per annum:

o Administrative salary expenses………………………………….Br25,000

o General expense……………………………………………………27,000

o Advertising expenses……………………………..………………..78,000

o Cost of repair and maintenance…………………………………….20,000

Sub-lessees withhold tax from rental payment to the sub-lessor as required by law. All sub-lessees are PLCs except those on the fourth and fifth floor, which are all sole trading.

Required:

1. Determine withholding tax on payments of rental income to lessor and sub-lessor.
2. Determine Taxable Rental income, Rental Income Tax liability, and Net Rental income for both the lessor and sub-lessor for the tax year 2006

ANSWER The taxable rental income of a taxpayer for a tax year is the gross amount of income derived by the taxpayer from the rental of a building or buildings for the year reduced by the total amount of deductions allowed to the taxpayer for the year.

1. Complete Rental income tax Declaration (ERCA form 1201) for the tax year 2006 for the lessor
2. Complete Rental Income Tax declaration (ERCA form 1201) for the tax year 2006 for the sub-lessor
3. Complete Rental Income Tax lessees Details Declaration (ERCA form 1202and 1203) for the tax year 2006 both for the lessor and sub-lessor

1. ABC Shoe Factory, VAT registered PLC purchased 10,000 kgs of processed leather from AWASH Leather Factory at VAT exclusive price of Br 800 per kg. It has also imported chemicals and other raw materials worth Br 500,000 (including C.I.F and other duty excluding VAT) for shoe making in the month of Tir 2007 E.C. ABC exported international standard shoes to Canada and India worth Br 4 million and sold 30,000 pairs of shoes at VAT inclusive price of Br 400 for each pair of shoes to the local market.

Required: Determine the total VAT payable or refund for the given month assuming Ethiopian Standard Vat Rate and a Vat credit Carried forward from the previous month Br 15,000.

3. Assume Lemma Café and Restaurant plc with TIN (0006231011) located at Addis Ababa Woreda (22) Kebele (03) house No (453) Telephone No )+251-911-201717) and fax No (+251-116-181414). The TAN for employment income tax of this business is 654-01 and the factory has 2 administrative workers. Each is expected to work 160 hours per month. The details about basic salary, overtime hours, overtime duration and other employment benefits of the administrative staffs for the month of Ginbot 2007 E.C are given as follows:

S No	Employee Name	Basic salary	Overtime Hours	Overtime duration	Transport Allowance
1	Teshome Ayehu	Br 3,800	10	10:00p.m– 6:00a.m.	500
2	Gezhahegn Meshesha	3,200	16	Weekly rest days	1000

Both of the above employees are permanent ones and subject to pension contribution.

Required: ( Use tax law at the Federal Level)

1. Determine Taxable Employment income and the Employment income tax liability of each employee under the tax laws currently in force in Ethiopia.
2. Prepare the Employment income Tax Declaration that must be filed with the ERCA revenue office using Demissie Enyew as a preparer
3. Determine the amount that must be reported on line 20 and line 30 of ERCA form 1103
4. Show the entries required to account for salary payment.
5. Record payroll tax expense
6. Record payment to the revenue authority
7. Record payment to Pension Fund

1. Consider ARTISTIC PRINTING ENTERPRISE TIN 0000014909 located at Addis Ababa LEDETA sub-city Woreda (21) Kebele (13/53) house No(355) Telephone No(+251-115-5143388) and Fax No(+251115-511433). During the tax period, Meskerem 2005(September 2012), acquired different goods and received different services from the suppliers below. The enterprise mpaymentsment to suppliers on Meskerem 20, 2005.

Name of Suppliers	Region	Zone/sub-city	Woreda	Kebele	House No	Gross Payment
Tibebe printers Trading plc	14	Kirkose	–	02/03	236	40,300.00
Zemili paints Factory pls	14	Bole	–	11	499	17,360.86
Tibebe priners Trading pls	14	Kirkose	–	02/03	236	19,000.00

Required:

1. Complete ERCA from 1105 and 1106 (withholding Tax on payment Declaration and the Continuation sheet)
2. Record the purchase transaction on Meskerem 20, 2005
3. Record the payment of withholding tax on Tikimt 10, 2005.
4. What amount should have been reported on line 20 of ERCA form 1105 by ARTISTIC PRINTING ENTERPRISE for the period Meskerem 2005?

1. Consider Ato MELAK MIKERU H/GEBRIEL with TIN(0002345673), TAN 321-05 Addis Ababa Nefas Silke Lafto sub-city, Woreda 24, Kebele 14/53, House No 289, Telephone No (+251-114-162657) and No Fax No is declaring Rental income at Kebele 14/53 Revenue Office. He has two houses that are leased for residential purposes each was let out in the following manners:

1. The first house with one salon, two bedrooms, one shower, and one kitchen was let out at Br1,800.00 per month to Ato Tolla Hagos and occupied throughout the tax year 2005
2. The second house with one salon and one bedroom was let out at Br700 per month to W/zo Sinedu Bekele and warrant the tax year 2005

Additional information

The owner of the building has paid Br 800 land building tax during the tax year.

Required: Complete Rental income Tax Declaration assuming the taxpayer does not-maintain books of accounts (form 1205 and1206)

1. Consider DMX plc with TIN(0000014909)VAT Registration No (456871)located at Addis Ababa Gulelie sub-city Woreda (01) Kebele (09/15) house No (433)Telephone No (+251-111-273810)Fax No (+251-111-271433) which is a Vat registered trader and has three Branches, one of the Branches is engaged in the manufacturing of drugs, the second Branch is engaged in the manufacturing of Leather products and the third Branch is engaged in Coffee Export. During the month of Tahisas 2005 the sales and purchases were as follows:

1. Br 700,000 coffee was purchased from a VAT registered coffee traders and birr 300,000 from non-registered traders
2. Raw Materials purchased and imported to manufacture drugs was birr 100,000 and 250,000 respectively from a VAT registered traders
3. Raw Material for leather products purchased from local VAT registered tannery was birr 150,000
4. Repair and Maintenance Expense of Birr 30,000 Telephone Expense Br 1,200 and stationery Materials of Br 20,000 were incurred during the month. Telephone expense is subject to VAT but others are not.
5. The Business exported Br2,000,000 coffee during the month
6. DMX sold drugs drugugsdrug during the month
7. DMX sold Br 1, 200,000 leather products during the month

Required: Complete VAT Return (ERCA form 3001) for the month of Tahsas assuming Ethiopian Standard Vat Rate and a Vat credit Carried forward from d the previous month Br 9,000. Assume the monetary figures given above are exclusive of VAT.

Question 5

Calculate the amount of goodwill at 3 years purchase of the last 5 years aaverageprofit2000-250002001-230 002002-300002003-(10000)2004-(8000)

Question 6

File Details 50185 BSAD B53A – Intro…
0,
(60 min) 1.02,3 Irb 2B-5. The chart of accounts of Aikman’s Delivery Service is as follows: Chart of Accouni3
Assets Revenue Cash 111 Delivery Fees Earned 411 Accounts Receivable 112 Expenses Office Equipment 121 Advertising Expense 511 Delivery Trucks 122 Gas Expense 512 Liabilities Salaries Expense 513 Accounts Payable 211 Telephone Expense 514 Owner’s Equity Andrea Aikman, Capital 311 Andrea Aikman, Withdrawals 312
Aikman’s Delivery Service completed the following transactions during May: A. Andrea Aikman invested $20,000 in the delivery service from her personal savings account. B. Bought delivery trucks on account, $13,000. C. Bought office equipment for cash, $1,500. B. Paid advertising expense, $450. E. Collected cash for delivery services rendered, $2,600. P. Paid drivers’ salaries, $700. G. Paid gas expense for trucks, $900. H. Performed delivery services for a customer on account, of $1,700. I. Telephone expense due but unpaid, $500. 3. Received $900 as partial payment of transaction H. Andrea withdrew cash for personal use, $200.
As Andrea’s newly hired accountant, you must perform the following: 1. set up T accounts using the chart of accounts. Record transactions in the T accounts. (Place the letter of the transaction next to the entry.) 2. Font the T accounts where appropriate and determine the ending balances. 3. Prepare a trial balance at the end of May. 4. Prepare from the trial balance, in proper form, (a) an income statement for May, (b) a statement of owner’s equity, and (c) a balance sheet as of May 31, 201X.
Check Figure: Trial Balance Total 337,800
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