Mock Questions

NUMBER ONE
The following is the trial balance of Scem Farm on 31st Dec 2002:

Sh.’000’ Sh.’000’
Debts: Creditors 270,00
Land and buildings 210,000 Capital 10,000
Farm machine 108,000 Profit & Loss account 60,000
Sundry debtors 30,000 Loan 60,000
Cash in hand 26,000 Provision for depreciation 30,000
Stock 1.1.2002 Sale of wheat 35,000
Growing crops, wheat seeds and Sale of livestock 75,000
fertilizers 20,000 Managers personal a/cs 2,000
Livestock 25,000 Bank overdraft 3,000
Feeding materials 6,000 Sandy creditors 15,000
Manager’s salary 6,000
Farm labour 5,000
Office expenses 4,000
Crop expenses 10,000
Livestock purchases 12,000
Livestock expense 28,300
Farm house expenses 12,000
Staff meals 500
Repairs on machinery 1,000
Interest on loan (crop) 4,000
Tool and implements 2,500 ______
500,000 500,000

Additional Information:

1. Stock on 31.12.2002 m
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Shs.’000’
Growing crops, wheat, seeds and fertilizers 10,000
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Livestock 40,000
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Tools and implements 2,000

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Feeding materials 1,000

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2. Depreciation on tool and implements is to be apportioned between crops and livestock equally.
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3. The livestock is charged with 20% of manager’s salary and staff meals.
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Required:
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Prepare Crop Account, Livestock Account, Profit and Loss Accounts and a balance sheet as at that date.
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NUMBER TWO
Excel Business services sells its goods in containers which are returnable. These containers are purchased by
the company at Sh.20 per container but each container is written down to the book value of Sh.15 per
container immediately it is purchased. For stock taking purposes all containers are valued Sh.15 per container
irrespective of whether they are still in stock or in the hands of customers. Containers are charged out to
customers at Sh.25 per container, but the customer is credited with Sh.18 per container if it is returned in
good condition within three months of receipt.

The following information relates to the year ended on 31st March 2003:

(i) Stock at 1.4.2002

Premises 10,000
Customers 2,000

(ii) During the year 15,000 containers were purchased

(iii) 40,000 containers were returned by customers within the time limit
(iv) 3,000 containers were not returned by customers within the time limit. These were
considered as kept by the customers permanently.
(v) 1,000 containers were scrapped and sold for Sh.3,000
(vi) Shs.7,000 were spent on the repair of the containers.
(vii) On 31st March 2003, 4,000 containers were in the possession of customers.

Required:
Prepare container stock and suspense account for the year ended 31st March 2003 and find the profit or loss
made on containers. (20 marks)

NUMBER THREE
(a) Explain briefly the application of the accruals and prudence concepts in the accounting for long term
construction contracts. (5 marks)

(b) Ujenzi Limited are engaged in a number of long-term contracts. The following details relate to the
three uncompleted contracts in the company’s books at 31 August 2003.

Contract No. X012 X022 X023

Sh.’000’ Sh.’000’ Sh.’000’
Cost of work to 31st Aug. 2003 1,218 1,091 545.6
Value of work 31 Aug. 2003 as certified by contract
architects
Progress payments invoice to 31 Aug. 2003
1,540
1,320
880
704
572
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Process payment received by 31 Aug. 2003 1,100 704 440
Final cost including future costs of rectification and
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guarantee work 1,320 1,540 2,640

Final contract price 1,672 1,232 3,520
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Note 1: The cost of work to 31 Aug. 2003 has been determined after crediting unused materials and
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written down for plant of use.

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Required:
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(a) Prepare a statement for the managing director showing your calculations for each contract of
valuation of W.I.P at 31 Aug. 2003 and of profit or loss included therein (use % of
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completion) (12 marks)

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 (b) Show as an extract the information which should appear in the balance sheet for the work in
progress. (3 marks)
(Total 20 Marks)

NUMBER FOUR
The following figures have been extracted from the books of Mananchi Bank Ltd. for the year ended
31.12.2000:

Sh.’000’
Share capital authorized and issued
1,000,000 shares of Sh.100, Sh.50 paid 50,000
Reserve Fund 2,500
Fixed deposit account 9,500
Saving bank deposits 30,000
Current account 80,000
Money at call and short notice 3,000
Investment (cost) 30,000
Interest accrued and paid 2,000
Salaries (including directors fee Sh.50,000) 800
Rent 200
General expenses including auditors fee Sh.20,000 100
Profit and loss (1.1.2000) 60,600
Dividend for 2,000 500
Premises (after depreciation to 1.12.000 Sh.10M) 120,000
Cash in hand 600
Cash with Central Bank of Kenya 15,000
Cash with other banks 13,000
Borrowed from other banks 7,000
Interest and discounts 11,500
Bills discounted and purchased 6,000
Bills payable 8,000
Loan overdraft and cash credits 70,000
Unclaimed dividends 300
Bills for collection 1,400
Acceptance and endorsements 2,000
Sundry creditors 300

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(i) Rebate on bills discounted and purchased for unexpired term amounts to Sh.50,000.
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(ii) Depreciation on premises is on straight line, 5% on cost while the provision for
doubtful debts Sh.300,000 is required.
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(iii) The bank has no business in outside Kenya, a provision for taxation Sh.1,000,000 is to
be credited.
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Required:
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Prepare:
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(a) Profit & Loss A/c for the year ended 31.12.2000
(b) Balance sheet as at that date. (Total 20 Marks)
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NUMBER FIVE
The approved estimate and actual expenditure details of the ministry of livestock development 1997/98 were
as follows:

Approved Actual
Estimates Expenditure
K£ K£
000 Personal emoluments 123,280 97,520
050 House allowances 19,550 14,260
080 Passages and leave 4,140 667
100 Transport maintenance 16,100 13,593
110 Traveling and accommodation 1,334 1,656
120 Postal and telecommunication expenses 4,600 3,312
190 Miscellaneous charges 17,480 16,882
196 Training expenses 5,980 4,738
230 Purchase of equipment 21,000 39,800
620 Appropriation-in-aid 1,000 5,560 (realized)

The Ministry made four equal withdrawals from Exchequer in Julyy 1997, October 1997, January 1998 and
May 1998. In total the Ministry had withdrawn Ksh.200,000 by the end of the year.

Required:
(a) Prepare the following Accounts

(i) General Account of Vote (G.A.V)

(ii) The Exchequer Account
(iii) The Paymaster-General (P.M.G)

(b) A Statement of Assets and Liabilities at 30th June ’98. (Total: 20 marks)

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 Answers

NUMBER ONE

Crop and Livestock A/c

Crop Livestock Crop Livestock
Opening stock
Growing crops, wheat, seeds Sale of wheat 35,000 -
and fertilizers 20,460 - Sale of livestock - 75,000
Livestock - 25,000
Feeding material - 6,000 Closing stock
Salaries and wages: Crops, wheat, seeds and
Manager’s salary 4,800 1,200 fertilizers 10,000
Labour 5,000 - Live stock 40,000
Crop expenses 10,000 - F. materials 1,000
Livestock expenses 28,300 Net loss
Livestock purchases 12,500 1,650
Farmhouse expenses 1,200 -
Staff meals 400 100
Repairs to machinery 1,000 -
Interest loan 4,000 -
Dep: tools and implements 250 250
Net profits 42,650
46,650 116,000 46,650 116,000

Profit and Loss A/c

Crop net loss 1,650 Net profit

Office expenses 4,000 Live stock
Net profit 37,000 42,650
42,650 42,650

Net profit 37,000

P & L bal c/d 47,000 P & L b/f 10,000
47,000 47,000

Balance sheet as at 31 December

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Capital 270,000 Land & buildings 210,000
Profit & Loss 47,000 Farm machinery (net of Dept) 78,000
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Loan 60,000 Tool and implements 20,000 290,000

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Current Liabilities Current Assets

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Creditors 15,000 Growing crops, wheat, seeds and

Manager’s personal A/c 2,000 fertilizers. 10,000
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Bank overdraft 3,000 Livestock 40,000

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Farm materials 1,000

Debtors 30,000
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______ Cash in hand 26,000 107,000

397,000 397,000
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Workings:
1. Depreciation of tools and implements

Sh.
Balance b/f 2,500
Less: balance b/f 2,000
500
Depreciation:
Crop 250
Livestock 250

2. Manager Salary
Sh.
Crop A/c 80% 4,800
Livestock 20% 1,200
6,000

3. Staff Meals
Sh.
Crop A/c 80% 400
Livestock 20% 100
500

NUMBER TWO

Container Stock Account

Rate Qty Amt Rate Qty Amt
B/f – Premiums 15 10,000 150,000 Bank – scrapped a/c - 1,000 3,000
- Customers 15 2,000 50,000 Customers Supenses a/c
Bank – Purchases 20 15,000 300,000 - - 280,000
- Repairs - - 7,000 Hiring charge
Profit & loss A/c - - 195,000 Containers kept by customers 18 3,000 54,000
Bal c/d:
Premises 15 19,000 285,000
Customers 15 4,000 60,000
27,000 682,000 27,000 682,000
Rate Qty Amt Rate Qty Amt
Customer P. A/c 1.4.2002
Returned by customers Bal b/f 18 2,000 36,000
C. Stock a/c 18 35,000 630,000
Hiring profit Customers Personal a/cs 25 40,000 1,000,000
C. Stock A/c - - 280,000
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Kept by customers
31.3 Bal c/d 18 3,000 54,000
18 4,000 72,000
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42,000 1,036,000 42,000 1,036,000

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Statement showing the profit on containers

Hiring charge 280,000

Add profit on containers kept by customers
(3 x 3000) 9,000
Less: Repairs 7,000 289,000
: Depreciation on containers
(5 x 15,000) 75,000
: Less: loss on scrapped containers
(15,000 – 30,000) 12,000 94,000
Profit on containers 195,000

NUMBER THREE
(a) Accrual and prudence concepts in accounting are applicable to the long term contracts.

Accruals: Revenues and costs are accrued i.e. recognized as they are earned or incurred (not when
money is received or paid) and recorded in the financial statements of the periods to which they
relate. It means an expense which is incurred in one period should be charged against profit of that
period whether or not it has been paid for by the accounting date. As per IAS 11 this concept is
followed under:

(i) The costs attributable to the contract can be clearly identified.

(ii) The cost included in the amount of the construction contract should comprise those costs
that relate directly to specific contracts.

Prudence Concept: Uncertainties inevitably surround many transaction and revenue and profits
should not be anticipated but recognized only when they are realized in form of cash or other assets
which can be treated as cash. This concept means that all anticipated losses must be taken into
consideration e.g. provision for bad debts etc. However the prudence does not justify the creation of
secret or hidden reserves. As per IAS 11 “a foreseeable loss on contract should be provided for in
the statement both for the stage of completion of contract reached on the contract and for future
work on the contract.

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(b) Ujenzi Ltd.

Contract No. X021 X022 X023 TOTAL

Sh.000 Sh.000 Sh.000 Sh.000
Contract price 1,672 1,232 3,520
Estimated total cost to completion 1,320 1,540 2,640
Foreseeable profit/loss 352 (308) 880

Degree of completion:
Value of work certified
Contract price 1,540 x 100 880 x 100 575 x 100
1,672 881 1,232 3,520

= 92% = 71% = 16%

Valuation of W.I.P
Cost to date 1,218 1,091 545 2,854.8
Profit/loss 324.84 308 - 15,480
151,840 783,200 545,600 2,870,640
W.I.P for balance sheet
W.I.P to date 1,541.80 783.2 545.6 2,870.64
Less invoiced amount 1,320.0 704.0 440.0 2,464.0
221,840 79.2 105.6 406.64

1. Notes contract No. X022

Has a foreseeable loss of Sh.308,000 which is to be charged in full against the Profit & Loss
account for the year. Actual loss to date is Sh. 211,200.

2. Contract No. X023

Has not advanced since its degree of completion of 16% is less than the recommended 20%.
No profit is to be recognized in this contract.

3. Value of W.I.P for balance sheet

W.I.P is valued less invoiced amount.

4. The difference between the invoiced and paid amount is either amount retained or the
receivable and is shown as separate asset in the balance sheet.

NUMBER FOUR

Mwananchi Bank

Profit and loss for the year ended 31 .12.2000 m

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Turnover Notes Sh.’000’
Profit before taxation 1 11,450
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Taxation 2 1,550
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Profit after tax 1,000

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Balance b/f 550

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Balance c/d 60,600

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61,150
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Balance sheet as at 31.12.2000

Premises (cost 130m) Sh. ‘000’ Notes Sh. ‘000’

Investment at cost 113,500
Current assets: 30,000
Money at call
Cash in hand 3,000
Cash with C.B.K 600
Cash with other banks 15,000
Bill discounted & purchased 13,000
Loans, O/D, cash credits 5,950 (3)
Nills for collection (receivable) 69,700 (4)
Acceptance and endorsement 1,400
2,000
110,650

Current Liabilities
Fixed deposit
Saving Bank deposit 9,500
Current accounts 30,000
S. creditors 80,000
Borrowed from banks 300
Bills payable 7,000
Unclaimed dividends 8,000
Taxation 300
Bills for collection (payable) 1,000
Acceptance and endorsed 1,400
2,000
139,500 28,850
114,650
Financed by:

Issued and authorized share capital 1,000,000

Ordinary shares of Sh.100 each, Sh.50 paid 50,000
Reserves:
Share premium 3,500
Profit and loss a/c 61,150
114,650 m
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Notes to accounts
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1. Turnover: Based on interest and discount earned

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Net rebate on bills discounted for Sh.50,000

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2. Profit before taxation: this is after accounting for:

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Depreciation charge 6,500

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Directors’ fee 50
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Auditors fee 20
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3. Bills discounted and purchased: This is net of Sh.50,000 being rebate on bills discounted.
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4. Loans, overdraft and cash credits – Is shown net of Sh.300,000 provisions for doubtful debts.

Working 1:
Profit before taxation 11,500
Interest and discounts (500)
Rebate on bill discounted (2,000)
Interest accrued and paid _____
9,450
Expenses
Depreciation on premises 6,500
Provision for doubtful debts 300
Salaries (Directors fees Sh.50,000) 800
Rent 200
General expenses (Auditors’ fee) 100 7,900
Profit before taxation 1,550

NUMBER FIVE

G.A.V A/c
1998 £ 1997 £
June 30 PMG a/c 192,428 Jul 1 Exchequer a/c 213,464
Excess A.I.A 4,560
Bal c/d 22,036 1998 Appropriation in Aid a/c 5,560
219,024 219,024

P.M.G A/C
1998 £ 1998 £
June 30 Exchequer 200,000 June 30 G.A.V 192,428
G.A.V A.I.A 5,560 Bal c/d 13,132
205,560 205,560

EXHEQUER A/C
1997 £ 1998 £
Profit A/c 200,000
July G.A.V 213,464 June 30 Bal c/d 13,464
213,464 213,464
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STATEMENT OF ASSETS AND LIABILITIES AS AT 30.6.1998
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£ £
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Liabilities Assets
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G.A.V 22,036 Exchequer A/c 13,464

Excess 4,560 P.M.G A/c 13,132
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A.I.A 26,596 26,596

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Notes:
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1. Total of the approved estimates is obtained by adding up the approved estimates in respect of
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expenditure of different heads. Appropriation in aid is not included.

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2. Total expenditure is obtained by adding up the actual expenditure of different heads A.I.A (realized)
is not included.

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