You are on page 1of 5

QUESTION ONE

The following balances have been extracted from the books of Limuru Manufacturers, a small scale
manufacturing enterprise, as at 31 December 2002: Find homework answers at
http://allhomeworktutors.com/
Stocks as at 1 January 2002:
Purchases of raw materials
Direct labour
Factory overheads:
Administrative expenses:

Sales
Plant and machinery:
Motor vehicles (for sales deliveries):

Raw materials
Work in progress
Finished goods
Variable
Fixed
Rent and rates
Lighting
Stationery and postage
Staff salaries
At cost
Provision for depreciation
At cost
Provision for depreciation

Creditors
Debtors
Drawings
Balance at bank
Capital at 1 January 2002
Provision for unrealized profit at 1 January 2002
Motor Vehicle running costs

Sh.
000
7,000
5,000
6,900
38,000
28,000
16,000
9,000
19,000
6,000
2,000
19,380
192,000
30,000
12,000
16,000
4,000
5,500
28,000
11,500
16,600
48,000
1,380
4,500

Additional information:
1.
Stocks at 31 December 2002 were as follows:
Raw materials
Work in progress
Finished goods

2.
3.

4.

Sh.
000
9,000
8,000
10,350

The factory output is transferred to the trading account at factory cost plus 25% of factory profit.
Depreciation is provided at the rates shown below on the original cost of fixed assets held at the end
of each financial year.
Plant and machinery
10% per annum
Motor vehicles
25% per annum
Amounts accrued at 31 December 2002 for direct labour amounted to Sh. 3,000,000 and rent and
rates prepaid at 31 December 2002 amounted to Sh. 2,000,000.

Required:
(a)
Manufacturing, trading and profit and loss account for the year ended 31 December 2002.
(12 marks)
(b)
Balance sheet as at 31 December 2002.
(8 marks)
(Total: 20 marks)
QUESTION TWO Find the answers at http://allhomeworktutors.com/do-my-homework
(a)
(b)

Differentiate between a petty cashbook and a three-column cashbook.


(5 marks)
Briefly explain why it is important for a business entity to prepare a bank reconciliation statement.

(c)

(3 marks)
You have recently been employed in a medium size company and deployed in the accounts
department. Your head of section has given you the following extract from the cashbook for the
month of April 2003:

Receipts during the month


Balance carried forward
(30.4.2003)

Sh.
2,938,000
1,108,000

Balance brought forward


(1.4.2003)
Payments during the month

4,046,000

Sh.
1,522,000
2,524,000
4,046,000

The head of section further informs you that all receipts are banked intact and all payments are made by
cheque. On investigation, you discover the following:
1.
Bank charges and commissions amounting to Sh. 272,000 entered on the bank statement had not
been entered in the cashbook.
2.
Cheques drawn amounting to Sh. 534,000 had not been presented to the bank for payment.
3.
Cheques received totaling Sh. 1,524,000 had been entered in the cashbook and paid into the bank,
but had not been credited by the bank until May 2003.
4.
A cheque for Sh. 44,000 had been entered as a receipt in the cashbook instead of a payment.
5.
A cheque for Sh. 50,000 had been debited by the bank by mistake.
6.
A cheque received for Sh. 160,000 had been returned unpaid. No adjustment had been made in the
cashbook.
7.
All dividends receivable are credited direct to the bank account. During the month of April 2003.
Dividends totaling Sh. 124,000 were credited by the bank and no entries had been made in the
cashbook.
8.
A cheque drawn for Sh. 12,000 had been incorrectly entered in the cash book as Sh. 132,000.
9.
The balance brought forward should have been Sh. 1,422,000.
10.
The bank statement as at 30 April 2003 showed on overdraft of Sh. 2,324,000.
Required:
(i)
The adjusted cashbook as at 30 April 2003.
(ii)
Bank reconciliation statement as at 30 April 2003.

(6 marks)
(6 marks)
(Total: 20 marks)

QUESTION THREE
The following balances remained in the books of Ahadi Ltd. as at 30 April 2003 after the preparation of the
trading account:

Sh.
Share capital, authorized and issued:
2,400,000 Sh. 20 ordinary shares
800,000 8% Sh. 20 preference shares
Stock 30 April 2003
Accounts receivable and prepayments
Accounts payable and accruals
Balance at bank
10% debentures
General reserve
Bad debts
Gross profit for the year
Salaries and wages
Rates and insurance
Postage and telephone
Water and electricity
Debenture interest
Directors fees
General expenses
Motor vehicles (Cost Sh. 11,640,000)
Office fittings and equipment (Cost Sh. 17,856,000)
Land and buildings at cost
Profit and loss account 1 May 2002

48,000,000
16,000,000
33,540,000
10,880,000
5,488,800
3,118,400
6,400,000
11,200,000
136,000
32,603,200
11,280,000
564,000
248,000
486,400
320,000
1,000,000
1,243,200
2,720,000
10,976,000
52,880,000
9,700,800

Additional information:
1.
A bill for Sh. 219,200 in respect of electricity for the period up to 30 April 2003 has not been
accrued.
2.
The amount for insurance includes a premium of Sh. 120,000 paid in January 2003 to cover the
company for six months, February to July, 2003.
3.
Office fittings and equipment are to be depreciated at 15% per annum on cost and motor vehicles at
20% per annum on cost.
4.
Provision is to be made for:
Directors fees
Sh. 2,000,000
Audit fee
Sh. 480,000
The outstanding debenture interest.
5.
The directors have recommended that:
A sum of Sh. 4,800,000 be transferred to general reserve.
The preference dividend be paid.
A 10% ordinary dividend be paid.
Required:
(a)
Profit and loss and appropriation accounts for the year ended 30 April 2003. (10 marks)
(b)
Balance sheet as at 30 April 2003.
(10 marks)
(Total: 20 marks)
QUESTION FOUR
Munyaka and Opiyo commenced trading on 1 May 2002 as wholesalers, sharing profits and losses in the
ration 2:1, after allowing interest on the capital introduced by the partners at the rate of 10% per annum.
Opiyo was to receive a salary of Sh. 440,000 per annum. Munyaka and Opiyo do not operate a complete set
of accounting records. See the answers at http://allhomeworktutors.com/homework-answers
The following summary of the bank statements for the year ended 30 April 2003 has been provided:

Receipts:

Cash introduced as capital on 1 May 2002: Munyaka Sh. 3,500,000 and Opiyo Sh. 2,000,000.
Balance of receipts from customers amounted to Sh. 12,700,000.

Payments:

Equipment Sh. 2,500,000: Pick-up Sh. 1,000,000: furniture and fittings Sh. 375,000: go-down
rental Sh. 375,000, wages Sh. 1,772,000; salary of Sales Manager Sh. 1,200,000; purchases for
resale Sh. 9,900,000; rates Sh. 200,000; repairs Sh. 62,500; insurance Sh. 55,000; motor
expenses Sh. 186,500.

The following cash payments were made before banking the balance of the takings; Motor expenses Sh.
129,000, wages Sh. 148,000; Sundry expenses Sh. 25,000; Drawings Munyaka Sh. 7,500 per week and Opiyo
Sh. 6,000 per week.
Additional information:
1.
The partners had taken goods for their domestic use as follows:
Munyaka Sh. 50,000; Opiyo Sh. 75,000 (both at selling price).
2.
During the year to 30 April 2003, discounts allowed to customers amounted to Sh. 122,500 while
discounts received from suppliers amounted to Sh. 55,000.
3.
At 30 April 2003,l the amounts owing to suppliers amounted to Sh. 750,000 and the amount owing
by customers was Sh. 1,550,000. An amount of Sh. 200,000 owing by a customer proved
irrecoverable and was treated as a bad debt.
4.
As at 30 April 2003, rates and insureance were prepaid to the extent of Sh. 25,000 and Sh. 5,000
respectively. Stock on hand at cost amounted to Sh. 1,205,000.
5.
The go-down had been occupied since 1 May 2002 at an annual rental of Sh. 500,000.
6.
Depreciation is to be provided on a straight-line basis as follows: Motor vehicles 20% per amount:
Equipment, furniture and fittings at the rate of 10% per annum.
Required:
(a)
Trading, profit and loss and appropriation accounts for the year ended 30 April 2003.
(12 marks)
(b)
Balance sheet as at 30 April 2003.
(8 marks)
(Assume a 52 week year)
(Total: 20 marks)
QUESTION FIVE
(a)
(b)
(c)

What is an accounting policy?


(2 marks)
Briefly explain three circumstances under which goodwill can be recorded in a business firms
books of account.
(9 marks)
The following categories of people are recognized as users of the information contained in financial
statements:
Owners.
Financial analysts
Lenders.
For each of the above users of financial statements, identify the kind of information they may
require, why they require it and the decisions they make from that information.
(9 marks)
(Total: 20 marks)