INSTITUTE OF CHARTERED SECRETARIES

AND ADMINISTRATORS IN ZIMBABWE

EXAMINATION QUESTION PAPER

SUBJECT: BUSINESS ACCOUNTING

PART: A
DATE: MAY 2021 TIME: 09:00 to 12:00 HOURS
DURATION: 3 hours; plus 15 minutes reading time

INSTRUCTIONS TO CANDIDATES

Answer ALL FIVE questions.

Students may use silent non-programmable calculators.

MARK ALLOCATION
Each question carries 20 marks.

Total: 100 marks

The examination script is the property of ICSAZ and is not to be removed from the examination
venue.
 QUESTION 1

Choose the letter that represents the most suitable answer.

i) Given three -digit inflation rate in Zimbabwe, what effect does the use of the historical
cost concept have on a company’s asset values and profit?
A. Asset values understated and profit overstated.
B. Asset values and profit both overstated.
C. Asset values and profit both understated.
D. Asset values overstated and profit understated.

ii) Which of the following correctly describe(s) why a bank reconciliation is prepared?
1. to identify errors in the entries in the cash book
2. to identify entries made by the bank, but not recorded in the cash book

A. 2 only
B. 1 only
C. Both 1 and 2
D. Neither 1 and 2

iii) A company buys a machine for $300 000. The depreciation policy for machinery is 15% pa
reducing balance. What is the net book value of the machine after two years of use?
A. $210 000
B. $656 990
C. $216 750
D. $255 000

iv) When a trial balance was prepared, land with valued at $500 000 was omitted. To make
the trial balance, a suspense account was opened.
What was the balance on the suspense account?

A. Nil
B. Debit $1000 000
C. Credit $500 000
D. Debit $500 000

v) Which of the following accounting concepts applies to accruals and pre-payments?

A. Matching concept.
B. Dual aspect concept.
C. Cost concept.
D. Entity concept.

vi) A payment, factory rent has been debited to the drawings account in error. What type of
error is this?
A. Error of omission.
B. Error of principle.
C. Error of commission.
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 D. Error of original entry.

vii) Which of the following is capital expenditure?

A. Purchase of tools.
B. Expenses of issuing new share capital.
C. Cost of extending the factory premises.
D. Annual cost of servicing a company car.

viii) Returns inward is over-cast by $8 000 and discount received is under-cast by $20 000.
What is the effect of the errors on profit?

A. Increased by $28 000

B. Decreased by $28 000
C. Increased by $12 000
D. Decreased by $12 000

ix) Depreciation is recorded in:

A. Sales daybook
B. Cash book
C. Purchases daybook
D. Journal

x) What is the main aim of accounting?

A. to produce a trial balance
B. to record every transaction individually
C. to provide financial information to users of such information
D. to maintain ledger accounts for every asset and liability

xi) Which of these statements are correct?

1. The IASB has the objective of enforcing IFRS.
2. The IASB is responsible for the development and issuing of IFRS.

A. 1 only
B. 2 only
C. both 1 and 2
D. neither 1 and 2

xii) Which of the following is NOT a benefit of harmonisation?

A. Users are able to compare the financial results of different companies internationally.
B. It removes barriers to the flow of capital between countries.
C. Protection of investors.
D. Takes into account the needs of a range of sizes and types of entities in diverse
economic setting.

xiii) Which of the following is an example of a liability?

A. trade receivables
B. plant and machinery
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 C. credit bank balance
D. loan

xiv) A sole trader makes a provision for bad debts equal to 5% of trade receivables. Trade
receivables at 31 December 2019 amounted to $82 000. Trade receivables at 31
December 2020 were $94 250 of which $4 000 were known to be bad.

What is the amount of the provision for bad debts to be debited to the statement of profit
or loss and other comprehensive income for the year ended 31 December 2020?

A. $4 125
B. $612.50
C. $4 712.50
D. $4 100

xv) A business purchased goods for $120 000 less 25% trade discount and was allowed 5%
cash discount for prompt payment.
What amount was entered in the purchases journal?

A. $85 500
B. $114 000
C. $90 000
D. $120 000

xvi) What is the main use of a computerised accounts receivable aged analysis?
A. reconciling sales ledger balances
B. show credit notes issued
C. to aid debt collection procedures
D. match sales invoices against orders

xvii) A, B and C are partners sharing profits in the ratio 3:2:1. A is entitled to interest of $1 200
on a loan made to the business. C was guaranteed $8 700 as her minimum profit. Profit
before interest on the loan is $46 000. The profit shares for the partners will be:
A. A $22 000, B $14 933, C $8 700
B. A $23 000, B $15 333, C $8 700
C. A $21 660, B $14 440, C $8 700
D. A $22 400, B $14 933, C 7 467

xviii) The following relates to a club for the year ended 31 December 2020.
Number of club members 100
Annual subscriptions per member $20
Subscriptions accrued at 1 January 2020 $300
Subscriptions accrued at 31 December 2020 $180

Subscriptions received in 2020 were;

A. $1 820
B. $2 000
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 C. $2 120
D. $2 180

xix) Sasai received a cheque for $1 000 from A Gosa. She credited the $1 000 to the account
of A Gosa in error. She made
A. a compensating error
B. an error of commission
C. an error of principle
D. an error involving the complete reversal of entries

xx) In a manufacturing entity loose tools will normally be depreciated using the
A. machine hour method
B. reducing balance method
C. straight line method
D. revaluation method
(20 marks)

QUESTION 2

Presented below is selected data for a business, which operates three departments:

Department X Department Y Department Z

$ $ $
Payroll 270 000 240 000 90 000
PPE average cost 180 000 108 000 72 000
Inventory 20 000 72 000 28 000
Floor space m2 6 000 3 000 1 000

During the year, the company’s indirect expenses included the following:
$
Depreciation (PPE) 60 000
Real estate taxes 40 000
Personnel department expenses 40 000

REQUIRED:
a) Using the appropriate basis, prepare a schedule allocating the indirect
expenses to the three departments. (15 marks)
b) Explain the purpose of segmental reporting of financial information. (5 marks)
[Total: 20 marks]

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QUESTION 3
A business uses the perpetual inventory system. The reporting period ends on 31 December.
The following transactions are for the month of December 2020:

01 Dec The owner deposited an amount of $500 000 directly into the business’s bank
account.

02 Dec The owner made the property that the business utilises available for the
exclusive use of the entity. The property was registered in the owner’s name a
few days before 2 December 2020. The purchase price of the property was $1
500 000 ($400 000 for the land and $1 100 000 for the buildings).

02 Dec A delivery vehicle, which would be paid for on delivery, was ordered. On 15
December 2020, the delivery vehicle was registered in the name of the business
and together with the invoice from the supplier, delivered to the business’s
premises. On the same day, the amount as indicated on the invoice, namely
$350 000, was paid to the supplier by RTGS.

04 Dec On 29 November 2020, the business ordered inventories at a cost of $274 770
from Popi. On 4 December 2020, these inventories were delivered.

20 Dec The amount due to Popi, in respect of the inventories that were received on 4
December 2020, was paid in full on 23 December 2020.

22 Dec The owner took cash to the amount of $45 000 by means of an RTGS as well as
inventories with a cost price of $8 000 for personal use.

31 Dec On 31 December 2020 an amount of $100 000 was invested in a fixed term
deposit with the bank by means of an electronic funds transfer. The term of the
deposit is 12 months, which ends on 30 December 2021 and the interest rate is
10% per year.

31 Dec The account for use of water and electricity during December 2020 was
received electronically on 31 December 2020. An amount of $4 000 is payable
before 24 January 2020.

31 Dec On 4 January 2021 the bank statement was received from the bank. This
statement indicates the bank charges for December 2020 as $4 250.

REQUIRED
Journalise the above transactions. (20 marks)

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QUESTION 4

The following balances are included in the books of Yemu at 31 December 2020:
$000
Sales 25 000
Purchases 14 400
Inventory at 1 January 2020 5 100
Motor vehicles (cost) 20 000
Provision for depreciation (1 January 2020) 9 600
Trade receivables 15 000
Trade payables 16 000
Cash at bank 3 700
Motor expenses 920
Rent and rates 2 160
Insurance 1 400
Electricity 1 440
Communications 1 000
Drawings 5 500
Sundry expenses 300
Capital 1 January 2020 ???

Additional information
i) Inventories at 31 December were $72 500.
ii) Depreciation of 15% on cost to be charged.
iii) Accruals at 31 December 2020: electricity $45 000, communications $85 000 and sundry
expenses $40 000.
iv) A provision for bad debts to be created at 2.5% of trade receivables at the end of the year.
v) Prepayments at 31 December 2020: rent and rates $340 000, insurance $100 000.
vi) A motor vehicle was sold for $5 500 000 (cost $10 000 000) in the first half of 2020. The
accumulated depreciation on the motor vehicle was $3 300 000. (Assume no depreciation
is charged in the year of disposal.)

REQUIRED:
a) Prepare a Statement of Profit or Loss and Other Comprehensive Income
for the year ended 31 December 2020. (13 marks)
b) Prepare a Statement of Financial Position as at 31 December 2020. (7 marks)
[Total: 20 marks]

QUESTION 5

a) Briefly explain any five purposes of the IASB Conceptual Framework. (10 marks)
b) Explain the fundamental qualitative characteristics of useful financial
information as laid out in the IASB Conceptual Framework. (10 marks)
[Total: 20 marks]

“End of Examination Question Paper”

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