COC Level IV Preparation 2017 E.

C
PROJECT One: SALE BUDGET

Expected monthly sales of HIWOT Mechanization are as follows;

August September October November December

Br 8,000,000 Br 6,000,000 Br 5,000,000 Br 4,000,000 Br 3,500,000
Management expects futures sales collection past experience: 80% on cash sales, 20% on credit
sales and credit sales will be collected 80% on the current month, 10% collected on the next
month and the remaining balance collected on the following month.

Required:

Task 1.1. Prepare sales budget for the month October, November and December

Solution;

HIWOT Mechanization Company

Sales budget

For the month of October November & December

October November December

Sales Br 5,000,000 Br 4,000,000 Br 3,500,000
Sales on cash (80%) 4,000,000 3,200,000 2,800,000
Sales on credit (20%) 1,000,000 800,000 700,000
Total sales 5,000,000 4,000,000 3500,000
Task 1.2. Prepare sales Collection budget.

October November December Total

Current sale on cash Br 4,000,000 Br 3,200,000 Br 2,800,000
Collection on credit (80%) 800,000 640,000 560,000
Collection on credit (10%) - 100,000 80,000 70,000
Remaining (10%) - - 100,000 80,000 70,000
Total collection sales Br 4,800,000 Br 3,940,000 Br 3,540,000
Receivable Balance Br 150,000 Br 70,000 220,000

1
Task 1.3. Determine the Receivable balance

The Receivable Balance = Br 220,000

Sales, Production and Direct Materials Budget

ABC Company has budgeted sales of its innovative mobile phone for next four months as
follows:

Month July August September October

Sales Budget in Units 30,000 45,000 60,000 50,000
The company is now in the process of preparing a production budget for the third quarter.

Ending inventory level must equal 10% of the next month’s sales.

Calculate the ending inventory as of June 30.

Since the ending inventory level must equal 10% of the next month’s sales, the ending inventory
for the month of June must be;

Solution;

July Sales Budget in units = 30,000 units

The ending inventory as of June 30 = July Sales Budget in units X 30,000U X 10% = 3,000
units.

Prepare a production budget for the third quarter showing the number of units to be produced
each month and for the quarter in total

2
Production Budget;

Quarter
July August September Total October
Budgeted sales in units 30,000 45,000 60,000 135,000 50,000
+ ending inventory 4,500 6,000 5,000 5,000
= Total required units 34,500 51,000 65,000 140,000
- beginning inventory 3,000 4,500 6,000 3,000 5,000
= Required production 31,500 46,500 59,000 137,000
Prepare a direct materials budget for the third quarter

Each mobile phone requires 3 data chips to operate. Each data chip cost $50 to purchase. The
current beginning inventory at July 1 of data chips is 10,000. The desired ending inventory for
September is 32,300. The company requires of 20% the next quarter production requirements in
ending inventory.

Quarter
July August September Total
Required production 31,500 46,500 59,000 137,000
Direct material per unit 3 3 3 3
Total materials needed 94,500 139,500 177,000 411,000
+ ending inventory 27,900 35,400 32,300 32,300
Total material required 122,400 174,900 209,300 443,300
- beginning inventory 10,000 27,900 35,400 10,000
Direct material to purchase 112,400 147,000 173,900 433,300
Cost per direct material $50 $50 $50 $50
Total Cost of purchases $5,620,000 $7,350,000 $8,695,000 $21,665,000
July Ending Inventory= 139,500*20%

August Ending Inventory= 177,000*20%

3
Project Two:

The Naveed Manufacturing Co. present the following information for the year ended 31 st
December 1999

Sales------------------------------------------------------------------------- 252,000

Sales Returns and Allowances------------------------------------------------2,000

Purchases of Raw Material--------------------------------------------------96,200

Carriage In ---------------------------------------------------------------------300

Direct Labour-----------------------------------------------------------------40,000

Purchases Return---------------------------------------------------------------1200

Indirect Material---------------------------------------------------------------4300

Indirect Labour----------------------------------------------------------------4700

Rent of Factory---------------------------------------------------------------3500

Factory Taxes-----------------------------------------------------------------1150

Insurance of Factory Building----------------------------------------------1500

Depreciation of Plant and Machinery------------------------------------ 3425

Heat, Light and Power-----------------------------------------------------2225

Commission---------------------------------------------------------------2500

Advertising----------------------------------------------------------------4000

Depreciation of Sales Office-------------------------------------------- 2200

Traveling Expense--------------------------------------------------------1800

Bad Debts------------------------------------------------------------------700

4
Salaries-------------------------------------------------------------2000

Stationery Used --------------------------------------------------1125

Rent of Office--------------------------------------------------- 1500

Interest Received------------------------------------------------ 1110

Interest Paid------------------------------------------------------ 275

Inventories;

Jan. 1 Dec. 31
Raw Material 9000 12000
Work in Process 16100 13900
Finished Goods 17600 15300
REQUIRED:

Task 2.1. Prepare Cost Of Goods Manufactured and Sold Statement

Solution;

Cost of Goods Manufactured =

Beginning Work in process inventory

+ Total Manufacturing Cost

Less; - Ending Work in process inventory

5
 Naveed manufacturing co.

Cost of goods manufactured and sold statement

For the period ended 31st December, 1999

Direct Material Used;

Beginning Raw Material Inventory Br 9,000
Add Purchases Br 96,200
Less; Returns ( 1,200) 95,000
Add Carriage In 300 95,300
Material Available for use 104300
Less; Beginning Raw Material Inventory (12,000)
Direct Material used 92,300
Add Direct Labour 40,000
Prime Cost 132,300
Add Factory Overhead;
Indirect Material 4300
Indirect labour 4700
Rent of Factory 3500
Factory Taxes 1150
Insurance of Factory Building 1500
Depreciation of Plant & Machinery 3425
Heat, Light and Power 2225 20,800
Total Factory Cost / Manufacturing Cost 153,100
Add Work in Process Opening Inventory 16,100
Cost of Goods to be Manufactured 169,200
Less; Work in Process Closing Inventory 13,900
Cost of Goods Manufactured 155,300
Add Finished Goods Opening Inventory 17,600
Cost of Goods Available for Sale 172,900
Less Finished Goods Closing Inventory (15,300)
Cost of Goods Sold (at actual) 157,600
Task 2.2. Prepare Income Statement

6
 Naveed manufacturing co.

Income statement

For the period ended 31st December, 1999

Sales Br 252,000
Less; Sales Return 2000
Net Sales 250,000
Less Cost of Goods Sold 157600
Gross Profit 92400
Less Operating Expenses
Selling Expenses;
Commission 2500
Advertising 4000
Depreciation of sales Office 2200
Traveling Expenses 1800 10500
Administrative Expenses;
Bad Debts 700
Salaries 2000
Stationery 1125
Rent of Office 1500 5325 15825
Net Operating Profit 76575
Add Other Income;
Interest received 1110
Less Other Expenses; 77685
Interest paid 275
Net Income Before Tax Br 77,410

7
 Project Three;

Recording the Adopted Budget

To illustrate the budgetary journal entries, assume an entity called Tiny Town performs a single
function (public safety) within a single department (the Police Department). The legal level of
budgetary control is at object-of-expenditure level. The town council makes appropriations for
three objects-of-expenditure.

Tiny Town General Fund Budget Calendar on Year 2012 has the following General Fund
Budget;

Estimated Revenues;

Property taxes Br 900,000, Miscellaneous Br 100,000;

Appropriations;

Salaries Br 700,000

Materials Br 190,000

Police cars Br 100,000

Task; 3.1. Determine Budgeted Increase or decrease in Fund Balance

Solution;

Estimated Revenues;

Property taxes Br 900,000, Miscellaneous Br 100,000

Total Estimated Revenue = Property taxes + Miscellaneous

Total Estimated Revenue = Br 900,000+ Br 100,000 = Br 1,000,000

Appropriations;

Salaries Br 700,000

8
Materials Br 190,000

Police cars Br 100,000

Total Appropriations = Salaries + Materials + Police cars

Total Appropriations = Br 700,000 + Br 190,000+ Br 100,000 = Br 990,000

Budgeted Increase or decrease in Fund Balance = Estimated Revenues – Appropriations

Then, Budgeted Increase in Fund Balance = Br 1,000,000 - Br 990,000 = Br 10,000

Task 3.2. Prepare; budgetary accounting entry in the General Fund to record the adopted budget.

Estimated revenues------------------------------------1,000,000

Appropriations---------------------------------------------990,000

Budgetary fund balance -------------------------------------10,000

To record the 2012 budget.

Project Four;

Assume that Eser Contractor signs an agreement to construct a garage for Br 22,000. In January,
Eser begins construction, incurs costs of Br 18,000 on credit, and by the end of January delivers
a finished garage to the buyer. In February, Eser collects Br 22,000 cash from the customer. In
March, Eser Pays the Br 18,000 due the creditors.

Task 4.1. Prepare Income statement under Cash Basis Accounting

Solution;

Eser Contractor signs an agreement to construct a garage for Br 22,000

In January, Eser begins construction, incurs costs of Br 18,000 on credit

In February Eser collects Br 22,000 cash from the customer

9
 Eser Contractor

Income statement—Cash Basis

For the Month of

January February March Total

Cash receipts 0 Br 22,000 0 Br 22,000
Cash payments 0 0 Br (18,000) Br (18,000)
Net Income (loss) 0 Br 22,000 Br ( 18,000) Br 4,000
Task 4.2. Prepare Income statement under Accrual Basis Accounting

Eser Contractor

Income statement—Accrual Basis

For the Month of

January February March Total

Revenues Br 22,000 0 0 Br 22,000
Expenses Br (18,000) 0 0 Br (18,000)
Net Income (loss) Br 4,000 Br 0 Br 0 Br 4,000
Eser Contractor

Statements of Financial Position-cash basis

As of the Month of

January, 31 February,28 March,31

Assets
Cash Br 0 Br 22,000 Br 4,000
Total Assets Br 0 Br 22,000 Br 4,000
Equity and Liabilities;
Equity Br 0 Br 22,000 Br 4,000
Total Equity and Liabilities Br 0 Br 22,000 Br 4,000
Statements of Financial Position –Accrual Basis

10
 Eser Contractor

Statements of Financial Position- Accrual Basis

As of the Month of

January, 31 February,28 March,31

Assets
Accounts Receivable Br 22,000 Br 0 Br 0
Cash Br 0 Br 22,000 Br 4,000
Total Assets Br 22,000 Br 22,000 Br 4,000
Equity and Liabilities;
Equity Br 4,000 Br 4,000 Br 4,000
Accounts Payable Br 18,000 Br 18,000 Br 0
Total Equity and Liabilities Br 22,000 Br 22,000 Br 4,000
To illustrate assume that Dr. L. Liwan, like many small business owners, keeps her accounting
records on a cash basis. In the year 2022, Dr. Liwan, a dentist, received Br 300,000 from her
Patients and Paid Br 170,000 for operating expenses, resulting in an excess of cash receipts over
disbursements of Br 130,000 (300,000 – 170,000). At January 1 and December 31, 2022, she has
accounts receivable, unearned service revenue, accrued liabilities, and Prepaid Expenses.

January 1,2022 December 31, 2022

Accounts Receivable Br 12,000 Br 9000
Unearned Service Revenue Br 0 Br 4000
Accrued liabilities Br 2000 Br 5,500
Prepaid Expenses Br 1800 Br 2700
Conversion of Cash Receipts to Revenue—unearned Service Revenue;

Cash receipts from Customers Br 300,000

Less; Beginning Accounts Receivable Br (12,000)
+ Ending Accounts Receivable Br 9,000
+ Beginning Un earned Service Revenue Br 0
+ Ending Un earned Service Revenue Br (4000) Br (7000)
Service Revenue ( Accrual) Br 293,000

11
 Conversion of Cash Payments to Expenses—Accrued Liabilities;

Cash Paid For operating Expenses Br 170,000

+ Beginning Prepaid Expense Br 1,800
- Ending Prepaid Expense Br (2,700)
-Beginning Accrued Liabilities Br(2000)
+ Ending Accrued Liabilities Br 5,500 Br 2600
Operating Expenses ( Accrual) Br 172,600
Dr, L, Liwan

Conversion of Income Statement Data from Cash Basis to accrual Basis

For the Year 2022

Cash Basis Adjustments Accrual Basis

Account Titles Add Deduct
Collection From Customers Br 300,000
-Accounts Receivable, January 1 Br 12,000
+ Accounts Receivable, December 31 Br 9,000
+ Unearned Service Revenue, January 1 - -
-Unearned Service Revenue, December,31 Br 4,000
Service Revenue Br 293,000
Disbursement for Expenses Br 170,000
+ Prepaid expenses January, 1 Br 1800
-Prepaid expenses December, 31 Br 2700
-Accrued Liabilities January, 1 Br 2000
+Accrued Liabilities December, 31 Br 5,500
Operating Expenses Br 172,600
Excess of Cash Collection Over Disbursements cash basis Br 130,000
Net Income –Accrual Basis Br 120,400
The accounts listed below appear in the ledger of Yedil Kebir Company at June 30, the end of
the fiscal year. None of the year-end adjustments have been recorded.

12
Cash ……………………………..…….. 9,410

Fees Receivable ………………….…….. 48,310

Supplies …………………………….…….675.00

Prepaid Insurance ……………………….3, 725.00

Prepaid Advertising ………………….….. 1,000

Salaries Payable ……………………..……

Unearned Rent …………………………. 1,000

Capital ……………………………..…. 42,810

Fees Revenue …………….……….….62, 250.00

Salary Expense ………………………41,700.00

Advertising Expense …………………10,340.00

Insurance Expense ………………..…...

Supplies Expense ………………..…….

Rent Income …………………..……… 9,100.00

Additional Information;

a. Unbilled fees at June 30, Birr 7,750.00

b. Inventory of supplies at June 30, Birr 190.00

c. Birr 2,100.00 of insurance has expired during the year

d. Out of a prepayment of Birr 1,000.00 for advertising space in Ethiopian Herald News Paper,
75% has been used and the remainder will be used in the following year

e. Salaries accrued at June 30, Birr 1,140.00

13
f. Rent collected in advance that will not be earned until the following year, Birr 700.00

g. The company is registered for tax as per the Ethiopian tax law.

Required;

1. Pass the necessary adjusting entries based on the above information

a. Unbilled fees at June 30, Birr 7,750.00

Fees Receivable-------------------------------------------7,750

Fees Revenue---------------------------------------------------7,750

b. Inventory of supplies at June 30, Birr 190.00

Supplies Expense--------------------------485

Supplies---------------------------------------------485

c. Birr 2,100.00 of insurance has expired during the year

Insurance Expense…………2,100

Prepaid Insurance………………....2,100

d. Out of a prepayment of Birr 1,000.00 for advertising space in Ethiopian Herald News Paper,
75% has been used and the remainder will be used in the following year

Advertising Expense……….750

Prepaid Advertising………….……750

e. Salaries accrued at June 30, Birr 1,140.00

Salary Expense…………….1, 140

Salary Payable……………..…1,140

14
f. Rent collected in advance that will not be earned until the following year, Birr 700.00

Unearned Rent…………..300

Rent Income…………….……..300

Yedil Kebir Company

Adjusted Trial Balance

June 30, 2012

Account Title Debit Credit

Cash 9,410
Fees Receivable 56,060
Supplies 190
Prepaid Insurance 1625
Prepaid Advertising 250
Salary Payable 1140
Unearned rent 700
Capital 42,810
Rent Income 9400
Rent Revenue 70,000
Salary Expense 42840
Advertising Expense 11,090
Insurance Expense 2100
Supplies Expense 485
Total 124,050 124,050

15
 2. Prepare profit and loss statement, and Balance Sheet

Yedil Kebir Company

Profit and Loss Statement

For the month ended June 30, 2012

Revenues;
Fees Revenue 70,000
Rent Income 9,400
Total Revenue 79,400
Expenses;
Salary Expense 42840
Advertising Expense 11,090
Insurance Expense 2100
Supplies Expense 485
Total Expenses 56,515

Net Income 22,885.00

Yedil Kebir Company

Balance Sheet

June 30, 2012

Assets
Cash 9,410
Fees Receivable 56,060
Supplies 190
Prepaid Insurance 1625
Prepaid Advertising 250
Total Assets 67535
Liabilities
Salary Payable 1,140
Unearned Rent 700
Total Liabilities 1,840
Shareholders’ Equity

16
Capital 65,695
Total Liabilities & Shareholders’ Equity 67,535

Project Five;

Tec. IT Company engaged with IT activities having five employees who have
different professions. Their names and other important information regarding their payroll data
for the month of April 2013 are presented as follows:

Serial Name Basic Monthly OT Hrs Duration of Overtime Rates

No. Salary Allowance Worked OT Work
1 Tiru Tedla Br 10,000 Br 2,000 - - -
2 Nega Teka Br 680 - 20 Weekend Weekend (2.0 times)
3 Geleta Temam Br 4,500 Br 500 10 Up to 10 PM Up to 10 PM(1.25 times)
4 YemarAbat Br 2,600 Br 200 15 10PM to 5 AM 10PM to 5 AM (1.50 times)
5 Kuli Adamu Br 1,100 Br 100 10 Public Holiday Public Holiday (2.50 times)
Additional Information;

 All employees are permanent except Nega Teka

 The workers are expected to work 40 hours in a week or 160 hours per month
 Allowances in excess of Birr 800 are taxable.
 All permanent employees contribute 10% of their basic salary to Ethiopian Renaissance
Dam in this month.
 Pension is 7% and 11% from employee and employer respectively

Required:

Task 5.1. Prepare payroll Register sheet

Tax base Tax rate Deductions

0-600 0% 0.00
Over 600-1650 10% 60.00
Over 1650-3200 15% 142.50
Over 3200-5250 20% 302.50
Over 5250-7800 25% 565.00

Solution;
17
1. Tiru Tedla

Basic salary Br 10,000

Monthly Allwance Br 2,000

Gross earning = Basic salary + Overtime + Allowance

Gross earning = Br 10,000 + 0 + Br 2000 = Br 12,000

Taxable Allowance Br 2000-Br 800 = Br 1200

Taxable Income = Gross earning – Non-taxable Allowance

Taxable Income = Br 12000 – Br 800 =Br 11,200

Employment Income tax =Br 11200 X 35%-1500 = Br 3920-Br 1500 = Br 2,420

Pension Contribution = Basic salary X 7% = Br 10,000 X 0.07 = Br 700

Abay Payable = Basic salary X 10% = Br 10,000 X 10% = Br 1,000

Total Deductions = Br 4,120

Net Pay = Gross earning –Total Deductions

Net Pay = Br 12,000 – Br 4,120 =Br 7,880

2. Nega Teka

Basic salary Br 680

Monthly Allwance Br 0

Overtime = Basic salary/hour X OT Hrs Worked X Overtime Rates

Basic salary = Br 680 = Br 4.25

hour 160hr

Overtime = Br 4.25/hr X 20hr X 2 = Br 170

18
Gross earning = Br 680 + Br 170 + 0 = Br 850

Taxable Income = Br 850

Employment Income tax =Br 850 X 10%-60 = Br 85-60 = Br 25

Total Deductions = Br 25

Net Pay = Gross earning –Total Deductions

Net Pay = Br 850 – Br 25 =Br 825

3. Geleta Temam

Basic salary Br 4500

Monthly Allwance Br 500

Overtime =Br 4500 = 28.13

160hr

Overtime =Br 28.13 X 10 X 1.25 = Br 351.63

Gross earning = Basic salary + Overtime + Allowance

Gross earning = Br 4500 + Br 351.63 + Br 500 = Br 5351.63

Taxable Income = Gross earning – Non-taxable Allowance

Taxable Income = Br 5351.63– Br 500 =Br 4851.63

Employment Income tax = Br 4851.63X 20%-302.50= Br 970.33-Br 302.50 = Br 667.83

Pension Contribution = Basic salary X 7% = Br 4500 X 0.07 = Br 315

Abay Payable = Basic salary X 10% = Br 4500 X 10% = Br 450

Total Deductions = Br 667.83 + Br 315 + Br 450 =Br 1432.83

Net Pay = Gross earning –Total Deductions

19
Net Pay = Br 5351.63– Br 1432.83=Br 3918.80

4. YemarAbat

Basic salary Br 2600

Monthly Allwance Br 200

Overtime = Basic salary/hour X OT Hrs Worked X Overtime Rates

Overtime = Br 2600/160 hr X 15hr X 1.50

Overtime = Br 16.25/hr X 15 hr X 1.50 = Br 365.63

Gross earning = Basic salary + Overtime + Allowance

Gross earning = Br 2600 + Br 365.63 + Br 200 = Br 3165.63

Taxable Income = Gross earning – Non-taxable Allowance

Taxable Income = Gross earning – Non-taxable Allowance

Taxable Income = Br 3165.63-Br 200 = Br 2965.63

Employment Income tax =Br 2965.63X 15%-142.50 = Br 444.84-142.50 = Br 302.34

Pension Contribution = Basic salary X 7% = Br 2600 X 0.07 = Br 182

Abay Payable = Basic salary X 10% = Br 2600 X 10% = Br 260

Total Deductions = Br 744.34

Net Pay = Gross earning –Total Deductions

Net Pay = Br 3165.63– Br 744.34 =Br 2421.29

5. Kuli Adamu

Basic salary Br 1,100

Monthly Allwance Br 100

20
Overtime = Basic salary/hour X OT Hrs Worked X Overtime Rates

Overtime = Br 1100/160 hr X 10hr X 2.00

Overtime = Br 6.89/hr X 10 hr X 2.00 = Br 137.50

Gross earning = Basic salary + Overtime + Allowance

Gross earning = Br 1100 + Br 137.50 + Br 100 = Br 1337.50

Taxable Income = Gross earning – Non-taxable Allowance

Taxable Income = Br 1337.50– Br 100 = Br 1237.50

Employment Income tax = Br 1237.50 X 10%-60 = Br 123.75-60 = Br 63.75

Pension Contribution = Basic salary X 7% = Br 1100 X 0.07 = Br 77

Abay Payable = Basic salary X 10% = Br 1100 X 10% = Br 111

Total Deductions = Br 250.75

Net Pay = Gross earning –Total Deductions

Net Pay = Br 1337.50– Br 250.75=Br 1086.75

21
 TEC IT Company

Payroll Register

April 30, 2013

S. Employees Earnings Gross Deductions Total Net Pay Si

No Name Basic Allowan Over Earning Employmen Pension Abay Deducti gn
salary ces Time t Income Contrib ons .
Tax ution
1 Tiru Tedla 10,000 2,000 - 12,000 2,420 700 1,000 4,120 7,880
2 Nega Teka Br 680 - 170 850 25 - - 25 825
3 Geleta Br 4,500 500 351.63 5351.63 667.83 315 450 1432.83 3918.80
Temam
4 Yemer Br 2,600 200 365.63 3165.63 302.34 182 260 744.34 2421.29
Abate
5 Kuli Adamu Br 1,100 100 137.50 1337.50 63.75 77 111 251.75 1085.75
18,880 2,800 1024.76 22,704.76 3,478.92 1274 1,821 6573.92 16,130.84
Task 5.2. Prepared necessary journal entry for preparation of payroll and payment of deduction
to concerned party.

Journal Entries:

1. To record the payments of salary expense for the month:

Salary Expense----------------------------22,704.76

Income Tax Payable----------------------------------3,478.92

Pension Contribution Payable-----------------------1,274.00

Abay Dam Payable------------------------------------1821.00

Cash----------------------------------------------------16,130.84

2. To record the Payroll Tax (Employer’s Pension) Expense:

22
Payroll Tax Expense………….2, 002

Pension Contribution Payable…………..2,002

(18,200 x 11% = 2,002)

3. To record the Abay Dam Payment,

Abay Dam Payable------------------------1,821

Cash----------------------------------------1,821

4. To record the payment of payroll tax and withholding tax to the Inland Revenue
Authority:

Income Tax Payable------------------------3,478.92

Pension Contribution Payable--------------3,276.00

Cash------------------------------------------------------------6754.92

23