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THE PUBLIC ACCOUNTANTS EXAMINATIONS BOARD

A Committee of the Council of ICPAU

CPA(U) EXAMINATIONS
LEVEL ONE
FINANCIAL ACCOUNTING PAPER 1
WEDNESDAY, 5 JUNE 2013
INSTRUCTIONS TO CANDIDATES
1.

Time allowed: 3 hours 15 minutes.


The first 15 minutes of this examination have been designated for reading
time. You may not start to write your answer during this time.

2.

This examination contains Sections A, B, C and D.

3.

Section A is bound separately from Sections B, C and D.

4.

Attempt all the 20 multiple-choice questions in Section A. Each question


carries 1 mark.
Attempt the compulsory question in Section B carrying 30 marks.

5.
6.

Attempt two of the three questions in Section C. Each question carries


20 marks.

7.

Attempt one of the two questions in Section D. Each question carries 10


marks.

8.

Write your answer to each question on a fresh page in your answer


booklet.

9.

Please, read further instructions on the answer booklet, before attempting


any question.
2013 Public Accountants Examinations Board

Financial Accounting Paper 1

SECTION B
This section has one compulsory question to be attempted.
Question 2
Kefazo and Mario are partners sharing profits and losses equally. They do not
maintain proper books of accounts but the following information was obtained
from the available records as at 31 March:
2013
2012
Shs 000 Shs 000
Balance at bank
16,968
9,480
Inventory of goods for sale
48,864
54,120
Trade debtors
?
61,200
Trade creditors
30,576
?
Furniture
36,000
Motor vehicles (book value)
192,000
Total sales during the year ended 31 March 2013 amounted to Shs 384,912,000
while purchases, all on credit, for the same period were Shs 295,248,000. On 31
March 2012 Kefazos capital was Shs 20,000,000 less than that of Mario. The
analysis of the cash book for the year ended 31 March 2013 shows the following:
Shs 000
Receipts:
Cash from credit sales
349,152
Additional capital by Kefazo
24,000
Cash sales
58,680
Payments:
For purchases
Salaries
Rent (for 6 months to 30 September 2012)
Rates (for 6 months to 30 September 2013)
Electricity
Advertising
Motor vehicle expenses
Sundry expenses
Drawings: -Kefazo
-Mario

5 June 2013

307,008
42,000
14,400
12,000
6,000
4,176
11,952
3,360
13,248
10,200

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Financial Accounting Paper 1

On 31 March 2013 liabilities were as follows:


Electricity
Advertisement
Sundry expenses

Shs 000
1,248
624
360

On 20 March 2013 the firm decided to dispose of its motor vehicles. One vehicle
was sold on credit for Shs 64,000,000 while the other was taken over by Kefazo
at a valuation of Shs 25,000,000. The combined book value of the two vehicles
was Shs 66,000,000. These transactions have not been recorded in the books.
Depreciation at the rate of 10 percent is to be provided on furniture and motor
vehicles on hand at 31 March 2013. No depreciation is to be provided for the
vehicles which were disposed of.
Required:
(a)
(b)
(c)

Statement of comprehensive income for the year ended 31 March 2013.


(17 marks)
Statement of financial position as at 31 March 2013.
(8 marks)
Partners capital accounts.
(5 marks)
(Total 30 marks)

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Financial Accounting Paper 1

SECTION C
Attempt two of the three questions in this section.
Question 3
Wizcom Industries Limited specializes in the manufacture of floor and wall tiles.
The company also buys from other manufacturers for special tiles which it cannot
manufacture in its factory.
The following information was obtained from the books of the company for the
year ended 31 December 2012.
Purchases: raw materials
special tiles
Carriage on raw materials
Factory wages
Factory expenses
Warehouse expenses
Salaries
Office expenses
Carriage outwards
Advertising
Discounts received
Discounts allowed
Sales
Sales returns

Shs 000
1,125,000
176,250
18,750
1,816,875
478,125
129,375
1,826,625
178,500
61,500
270,000
52,500
45,000
7,366,500
16,500

Inventory on hand:

Raw materials
Finished tiles
Special tiles
Work in progress

1 January 31 December
Shs 000
Shs 000
150,000
93,750
356,250
414,375
127,500
88,125
285,000
262,500

The market value of tiles manufactured was ascertained to be Shs 4,567,500,000


as at 31 December 2012. Plant and machinery is to be depreciated by Shs
412,500,000.

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Financial Accounting Paper 1

Required:
Prepare, for Wizcom Industries Limited for the year ended 31 December 2012, a:
(a)

manufacturing account
manufacturing profit.

showing

the

cost

of

tiles

produced

and

(10 marks)
(b)

statement of comprehensive income.


(10 marks)
(Total 20 marks)

Question 4
The following balances were extracted from the books of New Polar Retailers on
1 January 2011:
Shs 000
Trade receivables
800,000
Bank overdraft
400,000
Provision for bad and doubtful debts
32,000
You ascertain the following information for two years:
For the year ended 31 December 2011:
Credit sales
Sales returns
Receipts from customers
Bad debts written off
Discounts allowed

Shs 000
8,000,000
80,000
7,200,000
40,000
32,000

For the year ended 31 December 2012:


Total sales (90% on credit)
Sales returns (90% relating to credit
customers)
Receipts from credit customers
Trade receivables balances settled by
contra against trade payables balances
Bad debts written off
Discounts allowed

Shs 000
8,000,000

5 June 2013

160,000
7,600,000
240,000
120,000
40,000

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Financial Accounting Paper 1

Notes:
(i)

(ii)

Provision for bad and doubtful debts is maintained at 5% of the net trade
receivables at the end of the year. At the end of 2011 a specific provision
for a debt of Shs 16,000,000 from an insolvent customer was required.
Bad debts written off during 2012 included 50% of the bad debts due from
the insolvent customer, the other 50% having been received in cash from
the relative of the insolvent customer during the year.

Required:
Prepare for the years 2011 and 2012 the:
(a)
(b)
(c)

receivables account.
provision for bad and doubtful debts account.
bad and doubtful debts expense account.

(8 marks)
(8 marks)
(4 marks)
(Total 20 marks)

Question 5
The accounts assistant of Mutale Ltd had just completed preparing the draft
financial statements for the year ended December 2012, showing a profit of Shs
406,040,000. On the same date the cash book showed a debit balance of Shs
24,450,000. Subsequently the following issues came to light:
1 Cheques amounting to Shs 5,000,000 paid to suppliers had been entered
in the cash book but had not yet been presented to the bank for
payment.
2 Cheques from customers totaling to Shs 14,450,000 entered in the cash
book on 31 December 2012 were not credited by the bank until 3
January 2013.
3 The bank had charged ledger fees amounting to Shs 1,600,000, which
amount appeared on the bank statement obtained from the bank on 31
December 2012. However, this amount had not yet been credited in the
cash book.
4 A cheque for Shs 64,500,000 for new furniture had been mistakenly
entered in the cash book and the furniture account as Shs 14,500,000. A
full years deprecation of 10% had been charged in the statement of
comprehensive income in respect of this furniture.
5 A cheque for Shs 4,900,000 from a credit customer paid into the bank on
28 December 2012 was subsequently dishonored by the bank. It was
decided that the debt be written off because the customer had become
bankrupt.
6 A cheque for Shs 12,000,000 in payment for motor vehicles insurance
had mistakenly been entered in the cash book as a debit and posted to
the credit of motor vehicles account. Depreciation of 25% per annum is
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Financial Accounting Paper 1

charged on the balance of motor vehicles account at the end of each


accounting year on 31 December.
The total of the payments side of the cash book had been under cast by
5,000.000.
It was also discovered that sales for the year were
overstated by Shs 5,000,000.
The bank had credited Shs 800,000 on the companys current account on
standing instructions from the company is respect of interest on a fixed
deposit account of the company maintained at the same bank. In
accounting for this transaction, the bookkeeper had made an entry on
the payments side of the cash book for this amount and had posted it to
the debit of interest payable account.

Required:
Prepare for Mutale Ltd for the year ended 31 December 2012:
(a)

(b)
(c)

an adjusted cash book showing the revised balance which should


appear in Mutale Ltds statement of financial position.
(8 marks)
a bank reconciliation statement.
(5 marks)
statement of corrected net profit.
(7 marks)
(Total 20 marks)
SECTION D

Question 6
Attempt one of the two questions in this section.
IAS 2: Inventories, among other things, prescribes the accounting treatment for
inventories and the disclosure requirements in the financial statements in respect
of such inventories.
Required:
(a)

Define the following terms as used under IAS 2:


(i)
(ii)
(iii)

(b)

Inventories.
Net releasable value.
Fair value.

(3 marks)
(1 mark)
(1 mark)

Briefly explain any five disclosures that must be made in the financial
statements in respect of inventories as per IAS 2.
(5 marks)
(Total 10 marks)

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Financial Accounting Paper 1

Question 7
The International Accounting Standards Boards Framework for the Preparation
and Presentation of Financial Statements requires financial statements to be
prepared on the basis that they comply with certain accounting concepts,
underlying assumptions and qualitative characteristics.
Required:
With reference to the above, explain the following:
(a)

(b)
(c)

Accruals concept and its application when preparing the statement of


comprehensive income.
(6 marks)
Prudence concept
(2 marks)
Prepayments and income in advance
(2 marks)
(Total 10 marks)

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