Professional Documents
Culture Documents
FINANCIAL ACCOUNTING
LEVEL 1
PAPER ONE
0752-818-204 / 0787-818-404
OBJECTIVES
After going through this lesson, you should be able to-
Know the meaning, advantages and disadvantages of single entry system.
Differentiate single entry system and double entry system.
Compute profit or loss under single entry system.
Differentiate between statement of affairs and balance sheet.
Small size businesses do not write their accounts in double entry form because either they don’t have technical
know-how or the volume of their transactions doesn’t warrant an elaborate accounting system. These humble
businesses record their cash transactions (not necessarily in a professionally written cash book) and simply
list their debtors and creditors. Only single records are made, important records for conformity to double entry
are omitted and therefore incomplete. Figures for credit sales, credit purchases, opening capital etc are
missing in many instances. This is why their records are called single entry and incomplete records.
Obviously this book – keeping system is unsuitable. It is important to extract any trial balance. Financial
statements cannot therefore be prepared from information supplied under single entry and incomplete records
because some key figures for financial statements preparation are missing as observed above and the trial
balance cannot be prepared.
When preparing final accounts/ financial statements from single entry and incomplete records possibly for tax
purposes ( income tax returns), the hitherto single entry records must be re-organised into a double entry
form and incomplete records.
In the Double entry system we keep the books on the basis of the Dual Aspect Concept i.e. every debit has
a respective credit. The firms that do not keep their accounting books as per this system follow the single
entry system. Under the single entry system, a firm maintains only cash account and the accounts of the
debtors and the creditors properly.
it does not maintain the accounts of expenses, incomes, assets, and liabilities properly. Hence, as the
information provided by these records is incomplete, they are known as Incomplete Records.
Characteristics of incomplete records
Characteristic features
Small operations Used by small operators where ownership and management are in the same hands
Personal accounts Only personal accounts of trade debtors and creditors are maintained while real and
nominal accounts are ignored.
Cash book A cash book is maintained which contains both business transactions and private
transaction.
Purchases and sales To compute total purchases and sales one has to depend on original invoices
No uniformity The System does not follow any uniformity and differs from business to business
Step 1
Calculation of the opening capital
In many cases, the sole trader may not know with how much capital he/she started business. The opening
capital can be determined by preparing the statement of affairs. A statement of affairs is simply an opening
balance sheet.
Step 2
Re-write the cash book
Sometimes it may be necessary to re-write the cash book professionally in a columnar form applying double
entry system. This is especially necessary where the closing cash / bank balances are not provided. Re-write
the cash book may also reveal “hidden” drawing etc. it is also necessary to complete the double entry for all
items entered into the cash book.
Step 3
Calculating credit sales and credit purchases
Since single entry, debtors and creditors are simply listed, credit sales and credit purchases cannot easily be
ascertained. There are no purchases or sales accounts maintained in a double entry fashion. These key figures
can be determined by preparing control accounts. Debtors control account for credit sales and credit control
accounts for credit purchases. In some instances credit sales and credit purchases could be computed from
accounting ratios – mark up and margin.
Example 1
From the following, calculate credit sales for James for the year ended 31.12.1996
1.1.1996 Debtors balance 10,000,000
31.12.1996 Debtors balance 15,000,000
Cash received from debtors during the year 12,000,000
Example 2
From the following information, calculate Jame’s credit purchases for the financial year ended 31.12.1996
1.1.1996 Creditors balance 14,000,000
31.12.1996 Creditors balance 10,000,000
Cash payment to creditors during the year amounted to 20,000,000
Step 4
Adjusting some expenses account
Some expenses accounts may require to be adjusted. This is because in these accounts information is
scattered and disorganized. It may occur that in the same expenses account there were prepayments and /
or accruals and cash payments during the year. This scattered information needs to be brought together so
that the figures to be posted to the profit or loss account are determined. This step will require T- accounts.
Example
Calculate the rent figure to be taken to profit or loss account from the following information.
1.1.1996 31.12.1996
Prepaid rent 300,000 350,000
Rent paid by cheque during the year was shs 500,000
Step 5
Preparation of the trial balance
Previously it was impossible to prepare the trial balance when the entries were in single form and some key
figures were missing. Having transformed single entry records into double entry , all the ledger accounts
created for completion of double entry and cash book are balanced off or closed and together with previously
missing figures for credit sales, credit purchases, opening capital etc, a trial balance can be prepared.
Step 6
Preparation of financial statements
Once the trial balance has agreed, final accounts / financial statements can be prepared. The financial
statements that are prepared by sole traders are income statements and balance sheet.
Note
In examination some of the above steps may be omitted especially step V above.
Sources of information when reconstructing financial statements from incomplete records.
Bank statements
Stock taking to establish the values of stock.
Receipts to and from customers and suppliers respectively
Interviews with the owner and employees
Note books containing vital information for example a list of suppliers and customers.
Invoices issued against credit sales and received against credit purchases
Debit notes and credit notes
Cheque counters folio
Challenges likely to be faced by businesses that maintain incomplete records in the process
of carrying out their operations:
Defects of incomplete records
The information supplied by the owner depends on his memory and he may forget some transactions,
which were not recorded.
Impossible to prepare trial balance and, therefore, arithmetical accuracy of the records cannot be
checked.
Frauds and misappropriation can be perpetuated with the absence of the test of arithmetic accuracy
of the records
In the absence of the expense, revenue and some accounts of assets it becomes difficult to prepare
the final financial statements.
Information obtained from the records is not free from doubt
𝑔𝑟𝑜𝑠𝑠 𝑝𝑟𝑜𝑓𝑖𝑡
Mark up = 𝑐𝑜𝑠𝑡 𝑝𝑟𝑖𝑐𝑒
𝑋 100
𝑔𝑟𝑜𝑠𝑠 𝑝𝑟𝑜𝑓𝑖𝑡
Margin = 𝑠𝑒𝑙𝑙𝑖𝑛𝑔 𝑝𝑟𝑖𝑐𝑒
𝑋 100
Example I
Using the following information determine the values of COS, purchases and sales
Details UGX
Opening stock 4,000,000
Closing stock 600,000
Gross profit 25,000,000
Mark-up 25%
Example
Tom who operates a shop in Wandegeya had stock in trade on 1.7.2014, valued at Ugx 9,000,000. The
stock taking exercise on 30.06.2015 showed stock valued at Ugx 13,000,000. Sales for the year to
1
30.06.2015 amounted to Ugx 85,000,000 and the business makes a gross profit margin of 33 3 %.
What were the purchases during the year?
Example
Mr. Mukasa owns a shop, which sells fashion clothes. On 1st January 2018, he had stock in trade
amounting to UGX7, 345,000. During the nine months, to 30th September 2018, he purchased goods from
suppliers costing UGX 106,420,000. Sales during the same period were UGX 154,000,000. He makes a
gross profit markup of 40% on cost for everything he sells. On 30th September 2018, there was fire in
the shop which destroyed most of the stock in it. Only a small amount of stock known to have cost UGX
350,000 was undamaged and still fit for sale.
Example 2
Accounting for stock destroyed/stolen/lost If the lost goods were not insured, the business must
bear the loss and this loss is shown in the income statement
Dr. Income statement
Cr. Trading A/c
Page 5 of 31 by kimuli Fred 0752818204. Oracle business college school
If the lost goods were insured, the business would not suffer a loss, because the insurance would pay
back the cost of lost goods. This means that there is no charge in the Income statement and the
appropriate double entry would be;
Dr. Insurance receivable A/c
Cr. Trading A/c
The insurance receivable A/c is a current asset and shown in SOFP.
When the insurance claim is paid, the account is then closed by;
Dr. Cash/bank account
Cr. Insurance receivable Account
Particulars `
Example
The profit earned by a business in 20X7 was shs 72,500. The proprietor injected new capital of shs
8,000 during the year and withdrew goods for his private use which had cost shs 2,200.
If net assets at the beginning of 20X7 were shs 101,700, what were the closing net assets?
= Shs (72,500 + 8,000 - 2,200)
= Shs 78,300
Therefore, closing net assets = shs (101,700 + 78,300) = shs 180,000.
Page 6 of 31 by kimuli Fred 0752818204. Oracle business college school
Example 2
The profit made by a business in 20X7 was shs 35,400. The proprietor injected new capital of shs 10,200
during the year and withdrew a monthly salary of shs 500.
If net assets at the end of 20X7 were shs 95,100, what was the proprietor's capital at the beginning of
the year?
= Shs (35,400 - 6,000 + 10,200)
= Shs 39,600
Therefore, opening capital = opening net assets = shs (95,100 – 39,600) = shs 55,500.
Ram maintains books on Single Entry System. He gives you the following information
Capital on April 1, 2013 60,800
Capital on April 1, 2014 67,600
Drawings made during the Period : April 2013 to March 2014 19,200
Capital introduced on August 1, 2013 8,000
Example 1
Increase in net assets = capital introduced + profit – drawings
32,000 – 25,000 = 10,000 + Profit – 7,000 7,000 = Profit + 3,000
Profit = shs 4,000
Example 2
On 1 January, the net assets of a business were shs 118,000. On 31 December, the net assets were
shs 150,000. During the year the owner had introduced no additional capital, and the profit for the
year was shs 54,000
How much were the drawings during the year?
Increase in net assets = capital introduced + profit – drawings
150,000 –118,000 = 0 + 54,000 – drawings
32,000 = 54,000 – drawings
2. What is the total value of purchases for the year ended 31 December 2003, given the following
information?
Shs.
Trade payables at 31 December 2002 15,000,000
Trade payables at 31 December 2003 3,000,000
Total payments to credit suppliers during the year ended 31 December 2003, 44,250,000
Returns outwards during the year 3,750,000
A. Shs. 60,000,000. C. Shs. 31,500,000.
B. Shs. 36,000,000. D. Shs. 52,500,000.
4. The following information relates to Lubengo, a sole trader, who does not keep books on double
entry basis. Use it to answer questions (i) and (ii).
30 November 2006 30 November 2007
Shs ‘000 Shs ‘000
Cash at bank 36,500 43,500
Furniture 15,000 12,500
Inventory 58,000 65,500
Cash in hand 1,500 2,000
Receivables 74,500
Payables 47,000
Sales for the year ended 30 November 2007 amounted to Shs 288,000,000; cash received from debtors
during the year amounted to Shs 270,500,000. Purchases for the year ended 30 November 2007
amounted to Shs 203,000,000; cash paid to creditors amounted to Shs 194,500,000. There were no
bad debts and discounts incurred.
i. Calculate the amount of receivables as at 30 November 2007.
A. Shs 55,500,000. C. Shs 47,000,000.
B. Shs 92,000,000. D. Shs 74,500,000.
6. Calculate the capital at the beginning of the year from the following information:
Capital at close of the year Shs 100 million
Net profit for the year Shs 20 million
Drawings during the year Shs 5 million
A. Shs 75 million. C. Shs 115 million.
B. Shs 85 million. D. Shs 95 million.
7. XYZ Ltd had the following information for the year ended 30 June 2008:
Opening inventory Shs 400,000
Purchases Shs 990,000
Closing inventory Shs 350,000
The gross profit as a percentage of sales is always 20%. Based on these figures, what is the sales
revenue for the year?
A. Shs 1,248,000 C. Shs 1,040,000
B. Shs 1,300,000 D. Shs 1,740,000
8. At the close of the period ending on 31 March 2009, a firm had capital of Shs 60 million. Net profit
for the year amounted to Shs 17 million and drawings amounted to Shs 10 million. What was the
capital as at 1 April 2008?
A. Shs 33 million. C. Shs 53 million.
B. Shs 67 million. D. Shs 57 million.
9. If the opening capital of a business was Shs 39,000,000 and closing capital is Shs 5,700,000, then
A. Profit for the year was Shs. 6,800,000.
B. Loss for the year was Shs. 6,800,000.
C. Loss for the year was Shs. 12,500,000.
D. Loss for the year was Shs. 18,200,000.
10. Given opening capital of Shs. 30 million, closing capital of Shs 80 million and drawings of Shs 40
million, then the:
A. loss for the period was Shs 90 million.
B. profit for the period was Shs 90 million.
C. loss for the period was Shs 10 million.
D. profit for the period was Shs. 10 million.
11. Given that creditors were shs 25,000 and shs 42,000 on 1st January 1991 and 31st December 1991
respectively and if payments made to creditors amounted shs 32,000 during the year. What was
the total amount of invoices received from the creditors?
A. 74,000
B. 42,000
C. 49,000
D. 67,000
13. Calculate the capital at the beginning of the year from the following information:
Capital at close of the year Shs 100 million
Net profit for the year Shs 20 million
Drawings during the year Shs 5 million
A. Shs 75 million. C. Shs 115 million.
B. Shs 85 million. D. Shs 95 million.
14. Which of the following represents the calculation of gross profit for a company whose year-end is
31 December 2009?
A. Net profit for 2009 plus expenses for 2009.
B. Purchase for 2009 plus inventory at 31 December 2009 less inventory at 1 January 2010.
C. Purchases for 2009 less inventory at 31 December 2009 plus inventory at 1 2009.
D. Cost of goods sold during 2009, plus sales for 2009.
15. James commenced business with Shs 2 million. At the end of the year, his capital was Shs 7 million.
His drawings amounted to Shs 500,000. During the year, he introduced more capital amounting to
Shs 3 million. James, therefore, made a:
A. Profit of Shs 2.5 million. C. Profit of Shs 5.5 million.
B. Loss of Shs 2.5 million. D. Loss of Shs 5.5 million.
16. Dannie is a sole trader and does not maintain a full set of accounting records but wishes to calculate
her sales revenue for the year. The following information is available for the year ended 31
December 2006:
Opening inventory Shs 450,000
Closing inventory Shs 600,000
Purchases for the period Shs 900,000
Standard gross profit percentage on sales revenue 40%
What is the sales revenue figure for the year ended 31 December 2006?
A. Shs 750,000. C. Shs 800,000.
B. Shs 1,200,000. D. Shs 1,250,000.
17. Karitas does not keep accounting records. She provides you with the following information:
Net assets at the beginning of the year Shs 1,470,000.
Net assets at the year end Shs 2,800,000.
Drawings during the year Shs 336,000.
Capital introduced during the year Shs 700,000.
Based on this information, what is Karitas’ profit for the year?
A. Shs 966,000. C. Shs 1,330,000.
B. Shs 1,694,000. D. Shs 2,366,000.
18. Given the opening Debtors shs. 1,150,000, Closing Debtors shs. 1,450,000 and cheques from
Debtors shs 4,500,000. Find the total credits.
A. Shs 2,600,000 C. Shs 300,000
B. Shs 4,800,000 D. shs 9,300,000
Page 11 of 31 by kimuli Fred 0752818204. Oracle business college school
19. Given that the cost of goods amounts to shs 40,000, gross profit amounts to shs 20,000; opening
and closing stocks were shs 15,000 and shs 10,000 respectively. What were the amounts of
purchase and sales?
Purchase : sales
A. 55,000 : 70,000
B. 35,000 : 60,000
C. 45,000 : 80,000
D. 65,000 : 90,000
20. Edimu owns a shop on 1st Jan he had stock in trading accounting to shs 9,500,000. During the
tenth month he purchased goods from suppliers costing shs 162,000,000. Sales during the year
amounted to shs 154,000,000. He makes a gross profit mark – up of 40% on cost for everything he
sells. On 30th October there was fire in shop which destroyed most of the stock in it. The stock
undamaged was costed at shs 1,500,000. How much stock was lost in fire?
A. Shs 57,000,000
B. Shs 108,000,000
C. Shs 14,500,000
D. Shs 60,000,000
Question 21
a) Musoke is a sole trader who does not keep a complete set of books on the double entry system.
From his books, however, the following amounts have been extracted.
31 May 2008 31 May 2009
Shs ‘000’ Shs ‘000’
Inventory 11,880 12,960
Trade receivables 43,500 48,480
Trade payables 24,840 33,780
Additional information
i. For the year ended 31 May 2009, Musoke received cash payments from debtors amounting to
Shs 134,760,000.
ii. The trade receivables total of Shs 48,480,000 at 31 May 2009 was arrived at after writing off
bad debts amounting to Shs 2,460,000 and allowing for discounts of Shs 4,020,000.
iii. During the year ended 31 May 2009, Musoke made cash payments to creditors amounting to
Shs 103,140,000.
iv. The trade payables total of Shs 33,780,000 was arrived at after allowing for discounts
amounting to Shs 2,820,000.
Required:
i. Calculate the total sales.
ii. Calculate the total purchases.
iii. Prepare Musoke’s statement of comprehensive income for the year ended 31 May 2009.
Question 22
Josephine runs a retail shop in Kawempe dealing in household plastics. She does not keep her books
of account following the double entry principle. However, she has been able to provide the following
balances relating to assets and liabilities for the year ended 31 December, 2017.
1 January, 2017 31 December, 2017
Shs ‘000’ Shs ‘000’
Furniture & fittings (cost Shs 45 million) 25,000 ?
Prepaid electricity 1,450 1,240
Trade receivables 24,500 35,400
Trade payables 34,500 23,400
Page 12 of 31 by kimuli Fred 0752818204. Oracle business college school
Inventory 14,800 23,500
Accrued rent 8,500 5,340
Motor vehicle (cost Shs 65 million) 37,500 ?
Furniture and motor vehicles are depreciated at 10% and 20% respectively.
Required:
Prepare, for Josephine for the year ended 31 December, 2017 a statement of:
a) Affairs as at 1st January
b) Profit or loss
c) Financial position as at 31st December
Question 23
Wogasi is a sole trader who does not keep a complete set of books on a full double entry system. From
his records, however, the following figures have been extracted.
31 May 2007 31 May 2008
Shs ‘000’ Shs ‘000’
Inventory 7,920 8,640
Receivables 29,000 32,320
Payables 16,560 22,520
Additional information during the year:
i. Cash received from debtors amounted to Shs 89,840,000.
ii. The trade receivables total of Shs 32,320,000 was arrived at after writing off bad debts
amounting to Shs 1,640,000 and allowances for discounts of Shs 2,680,000.
iii. Cash paid to creditors amounted to Shs 68,760,000.
iv. The trade payables total of Shs 22,520,000 was arrived at after allowing for discounts received
amounting to Shs 1,880,000.
v. Expenses for the year amounted to Shs 10,000,000.
Required:
a) Calculate the total sales for the year ended 31 May 2008.
b) Calculate the total purchases for the year ended 31 May 2007.
c) Prepare Wogasi’s income statement for the year ended 31 May 2008.
Question 25
(a) Explain the sources of information that can be helpful when reconstructing financial
statements from incomplete records.
(b) Grace maintains her gross profit at 7.5% of the cost of sales and all sales are on credit
basis. The following information is given:
Shs ‘000’
(i) Inventory as at 1 January, 2017 600
(ii) Inventory as at 31 December, 2017 300
(iii) Accounts receivable as at 1 January, 2017 450
(iv) Bad debts written off 75
(v) Collections from credit customers 2,250
(vi) Accounts receivable as at 31 December, 2017 300
Required:
Determine the purchases for the year.
(c) The following are transactions of Jackson relating to his business bank account during the
month of July, 2018:
Jackson has been recording information relating to his bank drawings in his smart phone.
Unfortunately, his phone was stolen. Therefore, he is not certain of how much he drew out
of the business.
Required:
Determine the drawings made by Jackson through his bank account.
(d) The following are closing balances extracted from the books of Jackson as at 31 December,
2017:
Shs ‘000’
Trade receivables 43,400
Trade payables 32,400
Cash at hand and bank 32,450
Inventory 13,560
Non-current assets 356,000
Further information:
1. Capital as at 1 January, 2017 Shs 274,350,000.
2. Drawings during the year amounted to Shs 12,450,000.
Required:
Determine the profit for the year using the business equation.
Question 26
The following information was extracted from the books of Super Hardware Enterprises (SHE) for year
ending 31 December, 2017:
Account title 1 January 31 Dec
Shs ‘000’ Shs ‘000’
Bank (26,000) 52,400
Cash 19,200 8,700
Equipment at Net Book Value 120,000 ?
Computers (cost) 5,900 ?
v. The proprietor made drawings i n cash a n d from t h e b a n k of Shs 48,500,000 and Shs
20,800,000 respectively.
vi. The business obtained a 3 year bank loan Shs 200 million at end of the year. The money was
deposited into the business bank account.
vii. The business depreciates its non-currents assets, per annum, as follows: Asset Rate
Equipment 20% (reducing balance)
Computers 25% (on cost)
Motor vehicle 20% (on cost)
Furniture and fittings 5% (on cost)
Required:
Prepare, for SHE for the year ended 31 December, 2017 a statement of:
a) profit or loss
b) Financial position as at 31 December.
Question 27
Droite is a bee farmer in the West Nile region in the second year of operation. During the first year, his
cousin, a senior six finalist, was responsible for the book keeping. Upon her departure, Droite was
unable to keep proper books of accounts as he lacked the basic accounting skills. He has approached
you for assistance and provided the following information:
Item 1 January, 2015 31 December, 2015
Shs ‘000’ Shs ‘000’
Receivables 5,000 9,325
Question 28
Johnson Aliga has been running a small business for a number of years with limited knowledge of
bookkeeping. In order to ascertain the true financial performance and financial position of his business,
he has provided the following information:
i. Opening and closing balances for the year 2018:
31 December 1 January
Shs ‘000’ Shs ‘000’
Bank ? 25,750
Cash 5,000 17,900
Inventory 42,000 21,500
Trade receivables 10,750 39,750
Trade payables 22,250 18,500
Prepaid utilities 1,450 1,275
Accrued staff costs 5,340 4,560
Land at cost ? 45,600
Furniture & fittings (cost Shs 65 million) ? 38,600
Accrued rent 1,560 2,340
Capital ? 164,975
Payments by cash:
Shs ‘000’
Purchase of inventory 80,775
Rent 1,200
Utilities 350
iii. The business depreciates furniture and fixtures at 10% per annum on cost.
iv. Legal costs and brokerage fees relate to the acquisition of land during the year. Security costs relate
to money paid to a security company for the services of a guard for the land.
v. All sales were made at a margin of 20%. 40% of total sales in the year related to cash sales. 70%
of cash sales were received through the bank, the balance in cash. Credit purchases were Shs
43,750,000.
vi. 50% of the collections from debtors went through the bank, the balance was received in cash.
vii. A full year’s depreciation is provided for in the year of acquisition of non-current assets.
Required:
Determine Aliga’s:
i. Total purchases, total sales and collections from debtors
ii. Cash drawings during the year and closing bank balance
iii. Amount of rent and utilities for the year
iv. Total value of land as at 31st December 2018
Question 29
John is a sole trader in Owino Market and operates a business account at Green Land Bank. The
following information was extract from the bank account during the financial year ended on
30.june.2020
Question 30
The following information relates to Dannox, a trader for the year ended 31 May 2011:
Statement of Affairs at 31 May 2010
Shs ‘000’
Trade payables 15,770
Rent and rates unpaid 600
Plant and machinery 10,810
Equipment 800
Inventory 8,040
Trade receivables 16,530
Bank 6,960
4. She received money from debtors through the bank and paid Shs 6,228,000 to creditors through
the bank during the year.
5. Mamma Pheena offered the two shop attendants gift vouchers worth Shs 150,000 each during
the Christmas season. The items were picked from the shop.
6. Banked cash shs 5,156,250
7. It was discovered that she:
withdrew money monthly from the business’ bank account for personal use but could not
remember total amount withdrawn in the year.
sublets part of the business premises at Shs 100,000 monthly effective 1 August, 2019. By the
year end, only rent for 4 months had been received through the business’ bank account.
recalls depositing Shs 3.2 million received from mobile money customers into the retail shop’s
business bank account and withdrawing Shs 2.3 million from the same bank account and putting
it in the retail shop’s cash box.
7. The business’ depreciation policy is as below:
Assets: Rate per annum Method
Question 32
a) Explain why small businesses find it difficult to keep proper books of account.
b) Rukundo is a sole trader dealing in stationery but does not keep proper books of account. She
approached the bank for a loan and the bank whereupon the bank asked her to submit financial
information pertaining to her business. She approached you with the following information relating
to the financial year ended 31 December, 2016.
4. Assets and liabilities:
1 January, 2016 31 December, 2016
‘000’ ‘000’
Buildings 7,500 ?
Land 5,500 ?
Inventory 7,500 11,250
Trade receivables 4,500 6,750
Trade payables 3,400 3,000
Prepaid electricity 250 158
Bank balance 725 ?
Accrued salaries 225 300
Question 34
a) Briefly explain the advantages of maintaining complete records to an organization.
b) The preparation of financial statements from incomplete records takes a process.
Required:
Describe the accounting process followed in the preparation of financial statements from
incomplete records.
c) Identify the sources of information when preparing financial statements from incomplete
records.
d) Kakumirizi is a trader at Kakuuto trading centre. The following are transactions from his trading
account for the year ended 31 December, 2015.
Shs Shs
Sales 3,700,000
Less cost of goods sold:
Inventory 1 January, 2015 650,000
Add: purchases 3,300,000
3,950,000
Less: inventory 31 December, 2015 (710,000) (3,240,000)
460,000
Required:
Determine the mark-up and margin for Kakumirizi.
Question 35
Magala the proprietor of Magala Enterprises, has been operating without keeping accurate accounting
records. He has approached you to examine his records and prepare appropriate financial statements
for the year ended 31 December, 2018 so that he can comply with tax laws.
He maintains various records of transactions relating to receipts, payments, payables and receivables.
From your examination of the records and from an interview with Magala, you are able to ascertain
the following:
a) Balances as at 1 January, 2018.
Shs ‘000’
Wages 250
Sundry expenses 95
Accountancy fees 900
d) Magala’s total drawings by cheque for the year amounted to Shs 130,000.
e) Accrued electricity at the beginning of the year was settled by cash during the year while the
interest free loan was paid by cheque during the year.
f) Depreciation of non-current assets at net book value is as follows:
Shs ‘000’
Inventory 8,925
Receivables 9,150
Payables 7,775
Prepare
i. Statement of affairs
ii. Income statement
iii. Balance sheet
Question 36
Question 37
John has been trading since 2012 and his nephew who is not trained in accounting has been assisting
him to keep records, in addition to helping in the shop. John would like to know the profit he made in
2017. You have been hired by John who has availed the following information:
1 Analysis of payments made during the year:
Cash payments: Shs ‘000’
Rent 18,000
Water bill 1,500
Electricity bills 5,600
Bank payments:
Salary and wages 6,500
Trading license 750
2. Cash sales for 2017 were Shs 66,734,000 and 60% of purchases for the year were in cash.
John usually makes sales at a margin of 35%.
3. Cash and bank receipts from credit customers were Shs 15,500,000 and Shs 50,450,330
respectively. Payments to suppliers during the year were through the bank.
4. John’s nephew has provided the following balances as at 1 January and 31 December, 2017.
1 January 31 December
Shs Shs
Motor cycle (cost Shs 4,500,000) 3,600,000 ?
Furniture (cost Shs 9,000,000) 7,500,000 ?
Cash 8,650,000 ?
Bank 2,300,000 ?
Inventory 4,560,400 7,560,500
Trade payables 9,567,000 10,564,000
Salaries outstanding 1,700,000 3,400,000
Trade receivables 15,450,000 18,765,670
8. The motorcycle and furniture have a useful life of 5 years and 6 years respectively and are
depreciated using the straight line method.
9. It was John’s habit to take out cash Shs 100,000 every two weeks from the business for non-
business use. This went on for the whole year.
Page 25 of 31 by kimuli Fred 0752818204. Oracle business college school
8. Further information available shows that:
The total bill for water for the year was Shs 2,340,000.
The rent paid covers a period of 18 months to June, 2018.
9. During the year John acquired an interest free loan Shs 15,000,000 cash from his cousin and
used the whole amount to pay for land where he is to relocate the business. He had repaid the
cousin Shs 6,000,000 in cash by the end of the year. The balance was to be repaid in 2018.
Required:
Prepare for John for the year ended 31, December, 2017
a) A statement of affairs at at 1st January
b) Cash book
c) A statement of profit or loss
(Hint: show all the working)
Question 38
The following is a statement of financial position for KMB Enterprises as at 31 December, 2015.
Assets Shs ‘000’
Non-current assets:
Land & buildings 120,000
Furniture 6,000
Motor vehicles 50,000
Investments 20,000
Current assets:
Inventory 2,500
Accounts receivable 3,150
Prepaid rent 500
Cash at hand 28,550
Cash at bank 55,200
Total assets 285,900
Equity & liabilities:
Capital 281,150
Accounts payable 1,750
Accrued salaries 3,000
Total equity & liabilities 285,900
Additional information:
a) All payments to credit suppliers as well as receipts from credit customers were by cheque.
b) KMB Enterprises made a profit margin of 20%.
c) The balances on 31 December, 2016 were as follows:
Shs ‘000’
Accounts receivable 44,500
Inventory 3,500
Accounts payable 6,200
Cheboi is a retailer who does not keep records using double entry principles. He has approached you
to assist him prepare financial statements from the following records extracted from his small
business.
Assets and liabilities as at 1 January, 2019:
Shs ‘000’
Motor vehicle-UAT 2XXS (cost Shs 40 million) 32,000
Land 48,000
Trade payables 24,500
Trade receivables 35,400
Cash at bank 44,400
Cash at hand 12,250
Inventory 18,500
3 year, 18% bank loan 50,000
2 year, 9% investment 20,000
1. The cash book (bank column) for the year shows the following:
Shs ‘000’ Shs ‘000’
Balance b/d 44,400 Rent 6,500
Investment income received 1,600 Legal fees 1,800
Cheques banked (credit sales) 51,450 Insurance 800
Cheques banked (cash sales) 12,400 Utilities 400
Proceeds from sale of land Cash portion of invoice value of
(banked) 50,000 vehicle UBA XX4T (note 6) 10,000
Non-refundable taxes, freight and
insurance of vehicle UBA
XX4T (note 6) 18,000
Trade payables 38,600
Balance c/d 83,750
159,850 159,850
1. Other cash transactions were:
Shs ‘000’
Transport & repairs 700
Salary & wages 1,300
Cash purchases 8,250
Cash sales 17,900
Collections from trade receivables 6,200
2. Credit purchases for the year were Shs 33.7 million.
3. Cheboi drew cash Shs 4.2 million from the business to pay school fees for his children.
4. Cheboi made gross profit of 45% on selling prices. He is certain that no goods were damaged
or stolen but he took goods worth Shs 250,000 during the year for home use and picked Shs
50,000 cash every week throughout the year for personal use.
5. Cheboi partly financed the purchase of the new motor vehicle - UBA XX4T on 1 June, 2019
through a part exchange of the old motor vehicle
- UAT 2XXS valued at Shs 28.5 million.
6. Interest on bank loan accrued while the balance of the interest on investment remained
outstanding at the year end.
7. Cheboi received Shs 50 million in cash as proceeds from sale of his grandfather’s land which he
had inherited. He banked it in the business’ bank account.
8. Some of the balances as at 31 December, 2019 were as follows: Shs ‘000’
Trade receivables 42,650
Trade payables 19,600
Cash at hand 10,900
Inventory ?
9. The business depreciates motor vehicles at 20% per annum on cost. Full year
depreciation is provided in the year of purchase and none in the year of disposal.
Required:
Prepare for Cheboi’s business, a statement of:
i. Affairs as at 1 January, 2019.
ii. Profit or loss for the year ended 31 December, 2019.
iii. Financial position as at 31 December, 2019.
Hint: Provide all workings
Hannah Enterprises has provided the following information relating to the financial year ended 31
December, 2017:
Assets and liabilities at the beginning and end of year are as follows:
Details 1 January 31 December
Shs ‘000’ Shs ‘000’
Trade payables 56,400 34,300
Bank loan 100,000 130,000
Land 300,000 300,000
Buildings 230,000 200,000
Trade receivables 87,500 98,500
Bank and cash 45,600 67,400
Inventory 23,400 34,500
1 The drawings by Hannah during the year totalled to Shs 4,500,000.
2 Additional capital during the year was Shs 12,000,000.
Required:
Using the business and accounting equation, determine Hannah Enterprises’ profit or
loss for the year ended 31 December, 2017.
Question 41
a) Explain five challenges small businesses are likely to face because of incomplete records.
b) Janet has been running her business for many years but has failed to keep adequate accounting
records. She is in the process of acquiring a bank loan and the bank has requested for some
financial information to be able to assess credit worthiness.
The following information is provided by Janet regarding her business:
1. Information as at
1 July, 2020 30 June, 2021
Shs ‘000’ Shs ‘000’
Inventory 42,500 61,400
Cash bank 120,000 (174,794)
Utilities outstanding 12,500 10,300
Trade receivables 65,000 76,400
Trade payables 75,300 43,400
Prepaid rent 7,500 2,300
3. Cash sales are usually banked weekly after deduction of the following payments
Per week in Shs
Cash drawings 50,000
Payments to credit suppliers 200,000
Electricity (Yaka) 15,000
Airtime 7,000
6. The total cash sales banked during the year amounted to Shs 60 million.
7. The following payments are reflected on Jane’s bank statement for the year ended 30
June, 2021.
i. Sales and purchases were both on cash and credit basis. Credit sales and credit purchases made
during the year were Shs 40.9 million and 81.7 million respectively.
ii. The following expenses were paid in cash from the cash sales realised: wages Shs 200,000
(paid every Friday throughout the year), drawings Shs 120,000 (picked by the owner every
Monday from the cash till throughout the year).
Additional payments in cash during the year related to:
Shs ‘000’
Purchases 29,120
General expenses 5,200
Electricity 3,380
Motor vehicle repairs 2,340
The remaining cash balance from cash sales realised after paying the above
expenditures was banked. The cash banked during the year after paying expenses above
was Shs 15 million.
iii. The bank statement reflected Shs 45 million as receipts from credit customers.
iv. By the end of the year, the company had made the following payments by cheque.