No.

of Questions : 06
No. of Pages : 06
Department of Entrepreneurship
Faculty of Management Studies and Commerce
University of Sri Jayewardenepura
Small and Medium Enterprises Development Support Unit
Certificate in Entrepreneurial Business Management 2016/2017
CEBM 1302: Accounting for Entrepreneurs

Instructions :
1. This paper consists of Six (06) Questions.
2. Time allowed : Three (03) hours.
3. Part I is compulsory. Select two questions from the Part II. Accordingly, altogether 04 questions
must be answered.
4. Calculators are allowed.
5. Total 100 Marks.

Part I - Compulsory

Question No. 01

a) What is the primary objective of Accounting ? Explain.

(03 Marks)
b) Briefly explain the total process of accounting.
(05Marks)
c) Name separately the components and elements of Financial Statements.
(05 Marks)
d) Explain what “source documents” are and name four (04) examples for source documents that used
are in a business.
(03 Marks)
e) Identify the type of transactions recoded in the following journals.
i. Journal of Sales
ii. Journal of Purchase
iii. Cash Book
iv. General Journal
(04 Marks)
(Total 20 Marks)

Question No. 02
Following are the transactions taken place in the month of April, 2017 of Mrs. Nimali Perera’s new
printing business opened on 01.04.2017. State those transactions in the accounting equation using the
provided format at the end of this question.

No Transaction
1' The business was started with 1,000,000.00 personal savings and 250,000.00 bank loan as the
capital. (The bank loan has been obtained to be repaid within 05 years and a 01 year grace period
has been received)
2' A machine was purchased for cash for Rs. 400,000.00.
3' Purchased office furniture and equipment for cash Rs. 125,000.00.
4' Purchased raw material for cash Rs. 75,000.00.
5' Purchased raw material on credit basis Rs. 25,000.00.
6' Printed books were sold at Rs. 240,000.00 on cash basis. The cost of the books was
Rs. 100,000.00
7' Printed leaflets were sold at Rs. 70,000.00 on credit basis. The cost of the leaflets was
Rs. 50,000.00
8' Mrs. Nimali handed over her motor bicycle to the business which had a value of
Rs.150,000.00
9' Raw materials of the value Rs. 125,000.00 was purchased for cash.
10' Raw materials of the value Rs. 55,000.00 was purchased on credit.
11' Paid Rs. 25,000.00 for creditors.

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 12' Printed leaflets were sold at Rs. 45,000.00 on credit basis. The cost of the leaflets was Rs.
30,000.00.
13' Received Rs. 70,000.00 cash from debtors.
14' Electricity bill was paid Rs. 15,000.00 by cash.
15' Salaries and wages were paid for the employees Rs. 60,000.00
16 Mrs. Nimali used Rs. 60,000.00 cash from the business for her private purpose.
17' Monthly water bill was Rs. 3000.00. It has not been paid yet.
18' Rs. 5,000.00 was given to a Charity.
19' Printed books were sold at Rs. 75,000.00 on credit. The cost of the books was Rs. 60,000.00
20' Some inventorie were damaged in a way that cannot be used. The cost was Rs.4,500.00

Accounting Equation

Figures in Sri Lankan Rupees

No of Non- Cash Inventories Debtors Equity Non Current

Translation Current + + + = + Current + Liabilities
Assets liabilities

(Total 20 Marks)

Part II – Select only two questions.

Question No. 03

Following are the few transactions occurred for the period ended 31 March 2017 in the Mr. Sumal
Fernando’s business who runs a shoe distribution business. Show the double entries through relevant
accounts. Prepare separate accounts for each transaction.
i. Rs. 500,000.00 cash have been invested as additional capital in this year. Capital accounts balance
as at 01st April 2017 was Rs. 3,200,000.00.

ii. Rs. 30,000.00 inventories have been destroyed in this year due to fire. Rs. 5000.00 inventories have
been sold from that batch. Insurance was claimed for the rest of inventories for Rs. 25,000.00.
Insurance company informed that Rs. 15,000.00 have been approved as compensation. It has not yet
been received in cash.

iii. Yearly sales revenue of the business is Rs. 2,000,000.00. It includes an amount of Rs. 15,000.00
which was earned from selling old bottles.

iv. The balance of the debtors as at 31.03.2017 was Rs. 92,000.00. Sales executive revealed that Rs.
12,000.00 cannot be recovered due to the sudden death of a debtor. It was decided to make a
provision of 5% for doubtful debts based on the year end balance of debtors. The balance of the
provision for doubtful debts account as at 01.04.2016 was Rs. 3,000.00.

v. Paid electricity bill of Rs. 48,000.00. An electricity bill of Rs. 12,000.00 has to be paid which is
relevant to this year.

vi. A Sales Executive and an Accounts Clerk have been employed and their salaries are Rs. 30,000.00
and Rs. 20,000.00, respectively.

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 Payment of EPF is as follows;
Contribution of the employer- 12%
Contribution of the employee- 8%
Payment of ETF is as follows
Contribution of the employer- 3%

Mr. Sumal submits the payments to the contributions to EPF and ETF at a regular basis. He has not
yet sent the EPF and ETF contributions in the month’s of March 2017. This transaction that is
required from you to record is only the last month (March, 2017) accounts.

vii. Mr. Sumal’s wife has taken Rs. 40,000.00 cash from the business for private purpose.
(Total 30 Marks)

Question No. 04
Mr. Nimal started an Exercise Book distribution business as a sole proprietorship on 01.04.2016 utilizing
Rs. 1,200,000.00 of his personal savings and a Rs. 500,000.00 loan taken from the Bank of Ceylon. The
loan taken from the Bank of Ceylon should be paid from 01.04.2018 within a 05 years time period in 60
installments calculated by an interest of 12% under the reducing balance method. Till then only an interest
should be paid at 15% annual rate.

2016.04.04 cash purchases 400,000.00

Paid wages for employees 480,000.00
Paid Rent 130,000.00
Cash purchases on 28.04.2016 400,000.00
Cash sales in May 2016 700,000.00
Purchases on Cash 04.05.2016 100,000.00
Purchases on Cash 12.07.2016 400,000.00
Cash sales in July 2016 400,000.00
Credit Purchases 10.09.2016 120,000.00
Credit Sales in September 2016 200,000.00
Purchases on Cash 04.10.2016 80,000.00
Purchases on Cash 04.12.2016 200,000.00
Cash sales in January 2017 900,000.00
Credit purchases on 05.02.2017 60,000.00
Paid electricity bill 55,000.00
Income on selling old newspapers 12,000.00

Additional Information:
1. Rs. 40,000.00 interest has been paid on 11.03.2017 for the loan obtained from the bank.
2. Monthly rent of the building is Rs. 10,000.00.
3. Mr. Nimal’s personal monthly insurance installment is Rs. 12,000.00. It has not been paid yet.
4. Additional capital was invested Rs. 800,000.00 in 1st of May 2016.
5. Books of the value Rs. 15,000.00 were donated to a child care center.
6. Goods purchased at Rs. 2,000.00 were returned in January 2017.

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 7. In February 2017 a bank account was opened depositing Rs. 50,000.00
8. It was revealed on 08.02.2017 that the exercise books valued Rs. 25,000.00 have been damaged due
to rain. This stock had been sold at Rs. 5,000.00 on 18.02.2017.
9. A motor cycle was purchased on 01.07.2016 for Rs. 200,000.00. It is expected to use it for 05 years
and it has been estimated that it could be sold at Rs. 40,000.00 at the end of 05 years.
10. Further Rs. 12,000.00 salaries have to be paid for employees.
11. Rs. 25,000.00 was paid to creditors.

Required:
Account for the above transactions and prepare a trial balance as at 31.03.2017
(Total 30 Marks)

Question No 05

Given below is the adjusted account balances of Mr. Kamal’s business drawn for the financial year ended

31.03.2017. You are required to prepare the Income Statement and Statement of Financial Position of Mr.

Kamal’s business for the year ended 31.03.2017.

01.04.2016 Opening Inventories 54,000.00

Sales Revenue 2,150,000.00
Return Inward 12,000.00
Discounts Provided 9,000.00
Purchases 876,000.00
Carriage Inwards 14,000.00
Donation of Finished Goods 12,000.00
Damages of Finished Good 8,500.00
Sundry Income 37,500.00
Discounts Received 7,500.00
Return Outwards 9,000.00
Building Rent 36,000.00
Stationary Expenses 12,500.00
Insurance Expenses 36,000.00
Insurance Payable 6,000.00
Sales Employees’ Salaries 360,000.00
Administrative Employees’ Salaries 240,000.00
EPF Expenses 43,200.00
EPF Expenses Payable 10,000.00
ETF Expenses 18,000.00
ETF Expenses Payable 1,500.00
Bad Debtors 5,000.00
Debtors 150,000.00
Creditors 90,000.00
Provision for Doubtful Debtors as at 31.03.2017 7,500.00
Doubtful Debts 2,500.00
Distribution Expenses 33,000.00
Advertising Expenses 21,000.00
Commissions 12,000.00
Bonus- Marketing Staff 24,000.00
Bonus- Other Staff 12,000.00
Loan Interest Expenses 21,000.00

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 Long-term Creditors 700,000.00
Overdraft Interest 4,500.00
Land 2,000,000.00
Building 1,000,000.00
Motor Vehicles 3,200,000.00
Furniture and Equipments 110,000.00
Building Depreciation 10,000.00
Motor Vehicle Depreciation 32,000.00
Furniture Depreciation 5,000.00
Provision for Depreciation- Building as at 40,000.00
31.03.2017
Provision for Depreciation- Motor Vehicle 64,000.00
as at 31.03.2017
Provision for Depreciation- Furniture as at 10,000.00
31.03.2017
Cash in hand 162,000.00
Bank Overdraft 50,000.00
Electricity Expenses 48,000.00
Water Expenses 12,000.00
Loan given to Employees- Short Term 24,000.00
Water Bill- Paid in Advance 4,000.00
Drawings 36,000.00
Sundry Administrative Expenses 12,000.00
Capital 5,488,200.00

8,671,200.00 8,671,200.00

Closing Finished Goods as at 31.03.2017 120,000.00

^Total Marks 30&

Question 06
Following are the financial statements of Anjali Ekanayake’s business for the year ended 31.12.2016.

Income Statement for the year ended 31-12-2016

Rs. Rs.
Turnover 900,000
(-) Cost of Sales 550,000
Gross profit 350,000

(-) Expenses
Administration expenses 30,500
Sales expenses 20,000
Loan interest 2,500 53,000
Net Profit 297,000

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 Statement of financial position as at 31-12-2016

Non - Current Assets

Property, Plant and Equipment 1,820 000
(-)Accumulated Depreciation 320 000 1500 000

Current assets
Inventories 240 000
Debtors 150 000
Cash & bank 160 000 550 000
Total assets 2050 000

Equity and liabilities

Capital 1,250 000

Non - current liabilities

Bank loan 575 000

Current liabilities
Creditors 175 000
Accrued expenses 50 000 225 000
Total equity and liabilities 20,50 000

Other Information:-

1) Following balances were as at 01-01-2016

a. Inventories Rs.280 000
b. Debtors Rs.260 000
c. Creditors Rs.190 000
2) 2/3 of sales are credit sales and credit purchases are Rs.400 000.

Required:-

1) Gross profit ratio

2) Net profit ratio
3) Current ratio
4) Quick assets ratio
5) Inventory turnover ratio
6) Debtors’ turnover ratio
7) Creditors’ turnover ratio
8) Debtors’ collection period
9) Return on capital
10) Gearing ratio
(Total 30 Marks)

** End of the Paper **