SOLUTION

MANAGERIAL ACCOUNTING

QN 1.

a) There might be Managerial Accounting differences in the Controlling dimension that will be determined in a variance analysis.
Does the spending make sense? Yes. The cost of the employee travel, training, commission costs must be added into the
employment consideration for wages, or it would eat out of the company actual costs.

b) Managerial accounting is just as important in a manufacturing company as it is in a merchandising company.

The manufacturing business is where raw materials and goods are used to produce finished goods while
merchandising business is that where finished products are bought and are sold to the end-users or consumers.
The difference between the income statement of a manufacturing business and a merchandising business is
explained below:
 Earnings: Manufacturing businesses buy raw materials and convert the same into finished products. These are
then sold in the market to earn profit, whereas merchandising businesses are the ones buying goods and
reselling the same in order to earn profits.
 Cost of goods sold: In the manufacturing business, cost of goods sold refers to the costs that are incurred in
acquiring or manufacturing of products. The cost of goods sold can be calculated by deducting the value of
ending inventory from purchases. The income statement in a merchandising business shows the variance
between gross revenue and cost-of-goods sold. In the merchandising business, the cost of goods sold is the
value that a seller pays for the inventory sold.
 Method: In the manufacturing business, the manufacturer also considers work-in-progress goods. These are
partially manufactured goods that aren’t finished before the end of the ongoing accounting period. Also,
manufacturers count finished products that are ready to be sold. Manufacturers should also consider labor and
factory overhead costs in determining expenses that are related to the cost of goods. This method is different
from that adopted by merchandisers because they do not include labor costs in cost-of-goods.

c)

COST CLASSIFICATION
President’s salary Administrative costs
Cost of electrical wire used in making appliances Direct Materials
Cost of janitorial supplies (the janitors work in the factory) Manufacturing overheads
Wages of assembly-line workers Direct labour
Cost of promotional displays Selling
Assembly-line supervisor’s salary Administrative costs
Cost accountant’s salary (the accountant works in the Administrative costs
factory).
Cost of cleaner used to clean appliances when they are Direct labour
completed
Cost of aluminum used for toasters Direct Materials
Cost of market research survey Selling

d)
COST CLASSIFICATION
President’s salary Period costs
Cost of electrical wire used in making appliances Product cots
Cost of janitorial supplies (the janitors work in the factory) Period costs
Wages of assembly-line workers Product cots
Cost of promotional displays Period costs
Assembly-line supervisor’s salary Period costs
Cost accountant’s salary (the accountant works in the Period costs
factory).
Cost of cleaner used to clean appliances when they are Product cots
completed
Cost of aluminum used for toasters Product cots
Cost of market research survey Period costs
QUESTION 2 a) WALK TOKI MANUFACTURING COMPANY STATEMENT OF COST OF GOODS MANUFACTURED
FOR THE YEAR ENDED 31 DEC 2020.

000' 000'
Direct material used
Direct materials January 1 14,
000
Direct material purchase 216,
000
Less Direct materials December 31 (44,0 186,
00) 000
Direct labour 468,
000
Manufacturing overheads
Indirect Labour 36,
000
Depreciation expense-manufacturing 50,
000
manufacturing supplies expenses 40000
Rent expense-factory 28,
000
Other manufacturing overheads 126, 280,
000 000
Total manufacturing costs 934,
000
Add work in progress- January 1 20,
000
Less work in progress-31 dec (56,0
00)
Cost of goods manufactured 898,
000
2b) WALK TOKI MANUFACTURING COMPANY’S INCOME STATEMENT FOR THE YEAR ENDED 31
DECEMEBER 2020

000' 000'
1,400
Sales revenue ,000
Cost of goods sold
128,0
Finished goods inventory January 00
1
898,0
Cost of goods manufactured 00
1,026,0
Costs of goods available for sale 00
Finished goods inventory (92,00 (934
December 31 0) ,000)
466
Gross profit margin ,000
Operating expenses
72,0
Selling expenses 00
60,0 (132
Administrative expenses 00 ,000)
334
Income from operations ,000
QUESTION 3

Oceanside gardens nursery

Selling price per unit -2.5 variable cost per unit- 1.0 fixed costs-2,100 & Sales Volume-5000 units

a) Contribution margin per unit = Selling price per unit- variable cost per unit

= 2.5-1.0 = 1.5 per unit

b) Break even point(units) = Fixed costs
Contribution margin per unit

= 2,100 = 2,100 = 1,400 units

2.5-1.0 1.5

c) Breakeven point in sales = Fixed costs

Contribution margin ratio

= FIXED COSTS contribution margin ratio= 1.5 =0.6

SP-VC 2.5
SP

= 2,100 = $3,500
0.6

d) Quantity to earn a profit

=Fixed costs + Profits = 2,100+5000 =7,100 = 4,733.33 units

 Contribution margin per unit 2.5-1.0 1.5

e) Margin of safety percentage

= Expected sales- Break even sales x 100
Expected sales
= 5000x2.5-1,400x2.5 x100 = 72%
5,000x2.5
 QUESTION 4
4a)
Dr. Process 1 Account Cr.

Kg $ Kg $

Ingredients 4,000 5,000 Normal loss(W1) 200

Labour 4,000
Overheads 2,000 Transfer to Process 2 (W2) 3,800 11,000

4,000 11,000 4,000 11,000

Workings

1) The staff normally eats 5% of the chocolate, so the normal loss is 4000x5%=200Kg. there is no work in progress or scrap
value or abnormal losses or gains, so we can now balance the account to obtain the amounts transferred to process 2.
2) Number of Kgs transferred = Kg input less normal loss=4000-200=3800kgs.

Dr. Process 2 Account Cr.

Kgs $ Kg $

Transferred from Process 3,800 11,000 Finished goods 3,800 30,000

1(above) (balancing figure)

Packaging 10,000
Labour 6,000
Overheads 3,000
 3,800 30,000 3,800 30,000

Cost per Kg = Total costs = 30,000 = 7.89 per kg

Number of expected Kgs 3,800

4b)
Dr. Finished goods account Cr.
Kg $ Kg $

Transfer from Process 2 3,800 30,000 Transferred to 3,800 30,000

(above) costs of goods sold
(balancing figure)
3,800 30,000 3,800 30,000

4 c)
Benefits of Process Costing
Process costing is straightforward to track versus the detailed record keeping in job costing. Each department tracks their
material and labor costs as the product moves through their department. Accountants divide costs by the number of units to
total an average production cost.
 
With the standardization of products, managers track performance, productivity, and costs over time. Process costing allows
for greater flexibility when making changes in the production process. Managers can target specific departments’ processes or
materials to lower production costs.

Process costing also allows budgeting of uniform output and usage costs as standard costs, making it possible to track
deviations from such standard costs with ease. It becomes possible to track the inefficiency or discrepancy to a specific process
or department without checking each department or process.
 QUESTION 7

a) ACTIVITY BASED COSTING

Workings

Activity cost = Total cost x Activity usage

Activity level

Production of components = 2,313,132x320 = 29,608.09

25,000
Assembly of components = 1,231,312x250 =15,391.40
20,000
Packaging costs = 213,123x150 =6,393.69
5,000
Shipping costs = 231,230x150 = 6,936.90
5000
Setup costs =34,243x15 = 2,140.19
240
Designing cost = 123,132x70 = 8,619.24
1000
Production testing = 24,234x22 = 1,066.30
 500
NINA INTERIOR’S COSTING SCHEDULE USING ABC SYSTEM AMOUNTS IN $

Direct costs
Direct material costs 25,000.0
0
Cost of purchased components 35,000.0
0
labour costs 15,600.0
0

Overhead costs
Production of components 29,608.0
9
Assembly of components 15,391.4
0
Packaging 6,393.6
9
Shipping costs 6,936.9
0
Setup costs 2,140.1
9
Designing costs 8,619.2
4
Production testing 1,066.3
0
Total costs 145,755.8
1

Units 150.0
 0
Cost per unit 971.7
1

Selling price = cost + 25% cost=125%x145,755.81=1,214.64 per unit

b)
ABC System seek to use only cause and effect cost drivers in allocation of costs which gives the accurate costs unlike traditional
costing system which often rely on arbitrary allocation bases.
ABC systems tend to establish separate cost driver rates for support departments unlike Traditional costing system which merges
support and production centre costs.
ABC System looks at all the activities in an organization and allocates costs to activities identified for example at Nina interior,
activities such as packaging, shipping, setups, production testing among others were separated and each with an activity driver
Whereas tradition costing system allocates costs to departments.
Traditional costing system rely on a small number of volume-based drivers such as machine hours and labour hours unlike ABC
system which considers both volume and non-volume-based cost drivers such as packaging, testing, production runs, assembly of
components among others.
Traditional costing system were appropriate when direct costs were more dominant costs and indirect costs were relatively small like
30% compared to 70% of direct costs but in this emerging economy, companies incur more indirect costs like shipping, test runs,
packaging and less direct costs such as labour and material costs hence making ABC system more applicable in emerging economies.
Tradition costing were appropriate in those days where the company was producing a single product, competition was not much but
today companies like Nina interior produces numbery of products and competition in the market is stiff which requires companies to
separate the activities so that each activity with its cost can be looked at and management decide which one is more costly and if they
require out sourcing of some of the core activities in order to reduce the costs of operation. This can only be achieved through the use
of ABC system.
 QUANTITATIVE METHODS

QUESTION 1
Price(Po Quantity(Qo Quantity(Qt
Fruits ) ) Price(Pt) ) Weights(W) PoQo PoQt PtQo PtQt PtW PoW

Mangoes 1,000 18 1,500 10 3 18,000 10,000 27,000 15,000 4,500 3,000

Oranges 500 30 800 20 1 15,000 10,000 24,000 16,000 800 500

Pineapples 1,000 6 2,500 6 4 6,000 6,000 15,000 15,000 10,000 4,000

Watermelons 7,000 2 12,000 3 2 14,000 21,000 24,000 36,000 24,000 14,000

Gallic 1,500 1 2,500 5 6 1,500 7,500 2,500 12,500 15,000 9,000

Lemons 300 20 800 30 5 6,000 9,000 16,000 24,000 4,000 1,500

TOTAL 11,300 77 20,100 74 60,500 63,500 108,500 118,500 58,300 32,000

a) Price Relatives
Pt-price for each element of each month in which we want the index Po-is the price of each element in the base month
Mangoes=Pt/Po*100 Gallic= (2500/1500) *100=166.67%
= (1500/1000) *100=150% Watermelon= (1200/7000) *100=171.43%
Oranges= (800/500) *100=160% Lemons= (800/300) *100=266.67%
Pineapples= (2500/1000) *100=250%
b) The simple aggregate quantity index numbers.
 SAQI= ∑Qt x 100
∑Qo

Qt-Quantity for each element of each month in which we want the index Qo-is the Quantity of each element in the base month
SAQIN= (74/77) *100=96.10%
c) Weighted price index number

d) Weighted aggregate price index numbers

= ∑PtW x 100
∑PoW
Where, Pt- price for each element of each month in which we want the index Po- price for each element in the base month. W –
quantity weighting factor.
= 1500*3+800*1+2500*4+12000*2+2500*6+800*5 =58,300 *100 =182.19%
1000*3+500*1+1000*4+7000*2+1500*6+300*5 32,000

e) The Laspeyre’s price index number

=∑PtQo x 100 =108,000x100 =179.34%

∑PoQo 60,500

Where, Pt- price for each element of each month in which we want the index, Po- price for each element in the base month r,
Qo- Quantity for each element in the base month

f) The Laspeyre’s Quantity index number

 =∑PoQt x 100 =63,500x100 = 104.96%
∑PoQo 60,500

Where, Po- price for each element in the base month. Qt – Quantity for each element of each month in which we want the
index, Qo- Quantity for each element in the base month

g) The Paasche’s price index number

=∑PtQt x 100 =118,500x100 =186.61%

∑PoQt 63,500

Where, Pt- price for each element of each month in which we want the index, Po- price for each element in the base month r.
Qt – Quantity for each element of each month r in which we want the index, Qo- Quantity for each element in the base month

h) The Paasche’s Quantity index number

=∑PtQt x 100 = 118,500x100 =109.22%

∑PtQo 108,500

Where, Pt- price for each element of each month r in which we want the index. Qt – Quantity for each element of each month
in which we want the index, Qo- Quantity for each element in the base month
INTERMEDIATE ACCOUNTING

QUESTION 1
1 a)
Long-Term Sources of Finance
Long-term financing means capital requirements for a period of more than 5 years to 10, 15, 20 years or maybe more depending on
other factors. Capital expenditures in fixed assets like plant and machinery, land and building, etc. of business are funded using long-
term sources of finance. Part of working capital which permanently stays with the business is also financed with long-term sources of
funds. Long-term financing sources can be in the form of any of them.
Issue of common stock: They fall under long-term sources of finance category because legally they are irredeemable in nature. For an
investor, these shares are a certificate of ownership in the company by virtue of which investors are entitled to share the net profits and
have a residual claim over the assets of the company in the event of liquidation. Investors have voting rights in the company and their
liability to the company limits to the amount of issue price of the equity stock.
Issue of Preference Shares: Preference shares are a long-term source of finance for a company. They are neither completely similar
to equity nor equivalent to debt. The law treats them as shares, but they have elements of both equity shares and debt. For this reason,
they are also called ‘hybrid financing instruments. Preference shares are one of the special types of share capital having fixed rate of
dividend and they carry preferential rights over ordinary equity shares in sharing of profits and also claims over assets of the firm. It is
ranked between equity and debt as far as priority of repayment of capital is concerned.
Debenture: Debentures are one of the common long-term sources of finance. They normally carry a fixed interest rate and a certain
date of maturity. One has to pay interest every year and the principal on the date of maturity.
Debt Financing or Issuing of Debenture results in interest expense for the borrower which is a tax-deductible expense.
Issue of a bond: Bond is a financial instrument whereby the issuer of the bond raises (borrows) capital or funds at a certain cost for
certain time period and pays back the principal amount on maturity of the bond. Interest paid on bonds is usually referred to as
coupon. In simple words, a bond is a loan taken at a certain rate of interest for a definite time period and repaid on maturity. A bond is
similar to the loan in many aspects however, it differs mainly with respect to its tradability. A bond is usually tradable and can change
many hands before it matures; while a loan usually is not traded or transferred freely.
Long term loan: The term loan is a long term secured debt extended by banks or financial institutions to the corporate sector for
carrying out their long-term projects maturing between 5 to 10 Years which is normally repaid in monthly or quarterly equal
installment. They are an external source of finance paid in installments governed by loan agreement and covenants. The term loan is a
type of funding which is most suitable for projects involving very heavy investment which is not possible by an individual or
promoters.
Venture Funding: Venture funding is a funding process in which the venture funding companies manage the funds of the investors
who want to invest in new businesses which have the potential for high growth in future. The venture capital funding firms provide the
funds to start ups in exchange for the equity stake. Such a startup is generally one that possesses the ability to generate high returns.
However, the risk for venture capitalists is high.
1b)
YONGE ENT' STATEMENT OF AFFAIRS AMOUNTS IN SHILLINGS

ASSETS "000" "000"

NON-CURRENT ASSETS
Motor Vehicle 90,000
Furniture and Fittings 110,000
Machinery 240,000
Motor Vehicles 110,000 550,000

CURRENT ASSETS
Cash balance 100,000
Bank balance 50,000

Trade receivables 30,000

Prepaid Insurance 40,000 220,000
 TOTAL ASSETS 770,000

LIABILITIES
NON-CURRENT LIABILITIES
Bank loans 130,000 130,000

CURRENT LIABILITIES
Creditors 70,000
Umeme bills due 24,000
Unpaid Salaries 20,000
Outstanding Rent 10,000 124,000

EQUITY & RESERVES

Opening Capital (balancing figure) 516,000
516,000
TOTAL EQUITY & LIABILITIES 770,000

1c)
Cash receipts may result from cash sales; collections on account from customers; the receipt of interest, rents, and dividends;
investments by owners; bank loans; and proceeds from the sale of noncurrent assets. The following internal control principles apply to
cash receipts transactions as shown below.
Establishment of responsibility - Only designated personnel (cashiers) are authorized to handle cash receipts.
Segregation of duties - Different individuals receive cash, record cash receipts, and hold the cash.
Documentation procedures - Use remittance advice (mail receipts), cash register tapes, and deposit slips.
Physical, mechanical, and electronic controls - Store cash in safes and bank vaults; limit access to storage areas; use cash registers.
Independent internal verification - Supervisor’s count cash receipts daily; treasurer compares total receipts to bank deposits daily.
Other controls - Bond personnel who handle cash; require vacations; deposit all cash in bank daily.

1d)
Benefits of Equity Capital
Less risk: MAF ltd has less risk with equity financing because the Company doesn't have any fixed monthly loan payments to make.
This can be particularly helpful with startup businesses that may not have positive cash flows during the early months.
Credit problems: If MAF ltd has credit problems, equity financing may be the only choice for funds to finance growth. Even if debt
financing is offered, the interest rate may be too high and the payments too steep to be acceptable.
Cash flow: Equity financing does not take funds out of the business. Debt loan repayments take funds out of the company's cash flow,
reducing the money needed to finance growth.
Long-term planning: Equity investors do not expect to receive an immediate return on their investment. They have a long-term view
and also face the possibility of losing their money if the business fails.
Limitations of Equity Capital
Cost: Equity investors expect to receive a return on their money. The business owner must be willing to share some of the company's
profit with his equity partners. The amount of money paid to the partners could be higher than the interest rates on debt financing.
Loss of Control: The owner has to give up some control of his company when he takes on additional investors. Equity partners want
to have a voice in making the decisions of the business, especially the big decisions.
Potential for Conflict: All the partners will not always agree when making decisions. These conflicts can erupt from different visions
for the company and disagreements on management styles. An owner must be willing to deal with these differences of opinions.
Benefits of Debt capital
Control: Taking out a loan is temporary. The relationship ends when the debt is repaid. The lender does not have any say in how the
owner runs his business.
Taxes: Loan interest is tax deductible, whereas dividends paid to shareholders are not.
Predictability: Principal and interest payments are stated in advance, so it is easier to work these into the company's cash flow. Loans
can be short, medium or long term.
Limitations of Debt capital
Qualification: The company and the owner must have acceptable credit ratings to qualify.
Fixed payments: Principal and interest payments must be made on specified dates without fail. Businesses that have unpredictable
cash flows might have difficulties making loan payments. Declines in sales can create serious problems in meeting loan payment
dates.
Cash flow: Taking on too much debt makes the business more likely to have problems meeting loan payments if cash flow declines.
Investors will also see the company as a higher risk and be reluctant to make additional equity investments.
Collateral: Lenders will typically demand that certain assets of the company be held as collateral, and the owner is often required to
guarantee the loan personally
QUESTION 2
2i)
Cash is King: Cash is a vital component of any profit-generating organization like MAF ltd. An organization’s assets generate
revenue, which in turn generates cash inflows. These cash inflows are used for several purposes: to pay creditors, compensate
employees, reward shareholders, provide asset replacement, and provide for growth.
Cash is unique because it’s the single asset that is readily convertible into any other type of asset. Therefore, it’s also the most widely
desired asset. However, cash is also the asset that is most susceptible to fraud and abuse. Therefore, management has to ensure that
adequate controls and safeguards are in place to eliminate any unauthorized transactions with cash.
Cash is a liquid, portable, and desirable asset. Therefore, a company must have adequate controls to prevent theft or other misuses of
cash. These control activities include segregation of duties, proper authorization, adequate documents and records, physical controls,
and independent checks on.
2ii)
Dr. Trade payable control accounts “000” Cr.

Payment-creditors 120,000 Balance b/f 70,000

Discount received 15,000 Credit purchases 340,000

Balance c/f 275,000

410,000 410,000

Dr. Trade receivable control accounts “000” Cr.

Balance b/f 30,000 Receipts-Trade receivables 180,000

Credit sales 670,000 Discount allowed 20,000
Balance c/f 500,000
700,000 700,000
2iii)
How to manage Cash surplus
Reinvest: Investment means a decision to grow a business. Regardless of whether it’s in new staff, training, new premises, equipment,
or market research, investment can lead to the expansion of the business and, hopefully, it will produce good Return on investments
(ROI) over time. As an accountant, I have the knowledge necessary to make sure my organization makes sound and timely
investments for the business such as investing in marketable securities such as government treasury bills that can give a return to the
company and also when the company needs money, they can sell such securities and get cash inflows.
Take on more work: Using the extra money to take on additional projects enables the company to reinvest directly into the daily
operations of the business. It can mean that they are able to get more work done, increase the cash flowing into the business, and keep
up the cycle of increasing profit. Additionally, during times of a cash surplus, it makes sense for the organization to begin upselling to
their current customers. Encouraging additional revenue from trusted and reliable customers can ensure that cash flow remains
positive for longer.
Payoff of existing debts: By paying off debts and loans, business owners can secure a future with fewer financial obligations and
more sustainable cash flow. The idea is to use any surplus cash in clearing off debt so that it doesn’t turn into a long-term obligation.
High-interest debt is one of the major obstacles to growing your wealth.
How to manage Cash deficits
Accelerate Your Receivables: By Asking new customers for a deposit or partial payment up-front, rather than billing the entire
amount due in a single invoice after services have been rendered or products have been delivered, Start sending invoices early
following the delivery of products or services, rather than sending out all invoices on a particular day of the month. The sooner the
company sends an invoice, the sooner the company will receive the payment.
Negotiate Your Payables: if the management can delay or reduce the amount of cash flowing out of the organization during a cash
flow crisis, it will help reduce the strain on the working capital. Management needs to be honest with their vendors to negotiate
payments or to inquire about delaying payments. Although some might be unwilling to budge, odds are vendors to whom you have
been loyal will be flexible and willing to work with you during a tight situation.
Consider Borrowing Options: Cash flow shortages occur when more money flows out of the company than into it. One way to solve
the problem is to find a way to bring money into the business. The company can do this with a business loan or a credit card advance.
Before it takes on business debt, however, be sure that it understands the interest rates and have considered all other options and are
not making a decision that will simply kick the problem down the road to be addressed at a later date. If your business has an intrinsic
problem causing your cash flow crisis, then taking on debt will only put a band-aid on the problem and make the problem worse in the
future.
2iv)

MAF LTS’S STATEMENT OF PROFIT OR LOSS FOR THE YEAR ENDED 30 JUNE 2021 AMOUNT IN SHS’000’

QUESTION 3
a) YONGE ENT’S STATEMENT OF PROFIT OR LOSS FOR THE YEAR ENDED 30 JUNE 2021 ANOUNTS IN
SHS’000’

"000" "000"

Sales 670,000

Cost of sales
Purchases 340,000
Transport on purchase 4,000

Inventory at close (4,000) (340,000)

Gross profit
 330,000
other incomes

Discount received 15,000

Total incomes 345,000

Operating expenses

Discount allowed 20,000

Repairs 2,000

Medical costs 18,000

Accountancy fees 25,000

Insurance expenses 40,000 (105,000)

Operating profits 240,000

Interest on loan (19,000)

Profits for year 221,000

b) Cash controls in Yonge Ent.

The principles of internal control apply to cash as follows:
Establishment of responsibility - Only designated personnel (treasurer) are authorized to sign checks and only designated personnel
(cashiers) are authorized to handle cash receipts
Segregation of duties - Different individuals approve and make payments; check signers do not record disbursements and different
individuals receive cash, record cash receipts, and hold the cash
Documentation procedures - Use prenumbered checks and account for them in sequence; each check must have approved invoice
and use remittance advice (mail receipts), cash register tapes, and deposit slips
Physical, mechanical, and electronic controls - Store blank checks in safes with limited access; print check amounts by machine
with indelible ink and store cash in safes and bank vaults; limit access to storage areas; use cash registers
Independent internal verification - Compare checks to invoices; reconcile bank statement monthly and supervisor’s count cash
receipts daily; treasurer compares total receipts to bank deposits daily
Other controls - Stamp invoices PAID and bond personnel who handle cash; require vacations; deposit all cash in bank daily
c)
Prepare an Opening Statement of Affairs. A statement of affairs is a document that shows the assets and liabilities of a business
within a certain accounting period (for example, year to date). Subtracting total liabilities from total assets determines  working
capital i.e., the business’ overall financial health.
Post All Transactions in a Double-Entry Journal System. First, enter an opening journal entry of your total assets, liabilities and
resulting working capital using information from your statement of affairs. Then, enter all your expenses and sales in your Cash Account.
You’ll also need to prepare the following accounts: total Debtors Account, Total Creditors Account, Bills Receivable Account and Bills
Payable Account.
Divide Your Expenses and Income Bank Accounts. Open two new bank accounts: one for expenses and one for income. This will
help keep your accounts straight. Each account will have corresponding credit and debit entries in your accounting system both in the
ledgers and journal.
Run a Trial Balance. Running a trial balance of your journal and ledger lets you check if your entries are right. A trial balance shows
the total of all credits and debits in your business’s accounts. The sum of the credits and debits for each account should match,
otherwise you need to go back and check your entries for errors.
Prepare an Income Statement. An income statement lets you compare your single-entry and double-entry balances. An income
statement is also known as a profit and loss report because it displays your net profit (or net losses). Check your net profit from your
single-entry system against the number reported in your income statement. If the numbers are different, compare your gross profit and
total expenses numbers with those in your single-entry system. Then dig deeper into your entries depending on what you find.
Prepare a Balance Sheet. Once your income statement is correct, you can make a final balance sheet. A balance sheet is used in
double entry bookkeeping it’s is the equivalent of a statement of affairs (used in single-entry bookkeeping). Both list assets and
liabilities but a balance sheet is derived from more complete records, so it offers a better picture of a company’s financial position.
d)
The accounting cycle is the holistic process of recording and processing all financial transactions of a company, from when the
transaction occurs, to its representation on the financial statements, to closing the accounts. One of the main duties of a bookkeeper is
to keep track of the full accounting cycle from start to finish. The cycle repeats itself every fiscal year as long as a company remains in
business. The accounting cycle incorporates all the accounts, journal entries, T accounts, debits, and credits, adjusting entries over a
full cycle. The steps are explained below.
Transactions; Transactions: Financial transactions start the process. If there were no financial transactions, there would be nothing to
keep track of. Transactions may include a debt payoff, any purchases or acquisition of assets, sales revenue, or any expenses incurred.
Journal Entries: With the transactions set in place, the next step is to record these entries in the company’s journal in chronological
order. In debiting one or more accounts and crediting one or more accounts, the debits and credits must always balance
Posting to the General Ledger (GL); Posting to the GL: The journal entries are then posted to the general ledger where a summary
of all transactions to individual accounts can be seen.
Trial Balance; Trial Balance: At the end of the accounting period (which may be quarterly, monthly, or yearly, depending on the
company), a total balance is calculated for the accounts.
Worksheet: When the debits and credits on the trial balance don’t match, the bookkeeper must look for errors and make corrective
adjustments that are tracked on a worksheet.
Adjusting Entries; At the end of the company’s accounting period, adjusting entries must be posted to accounts for accruals and
deferrals.
Financial Statements: The balance sheet, income statement, and cash flow statement can be prepared using the correct balances.
Closing: The revenue and expense accounts are closed and zeroed out for the next accounting cycle. This is because revenue and
expense accounts are income statement accounts, which show performance for a specific period. Balance sheet accounts are not closed
because they show the company’s financial position at a certain point in time.
QUESTION 4
a)
Partnership dissolution refers to the termination of a partnership as well as the cessation of its various business activities. Partnerships
can dissolve for various reasons and under many circumstances. When a partnership dissolves, the partners share equally when it
comes to profits and gains; however, they also share equally in the distribution of losses as well. Also, there are generally no tax
consequences from dissolving a partnership; however, the partners do need to account for all properties involved in the business and
whether or not they have appreciated in value over time. Below are the reasons for dissolution of a partnership business.
Disagreements between the partners; While people may start a partnership with the best intentions, it's common for different ideas
on where the business should go. If the partners don't get along, it may be time to part ways and dissolve the partnership.
Poor cash flow: This is one of the most common reasons for dissolving a partnership business: money simply isn't coming in to keep
up with the bills.
Insolvency of Partners: When all the partners of a firm are declared insolvent or all, but one partner are insolvent, then the firm is
compulsorily dissolved.
Completion of Work: A partnership concern may be formed to carry out a specified work. On the completion of that work the firm
will be automatically dissolved. If a firm is formed to construct a road, then the moment the road is completed the firm will be
dissolved.
Insanity of a Partner: If a partner goes insane, the partnership firm can be dissolved on the petition of other partners. The firm is not
automatically dissolved on the insanity of a partner. The court will act only on the petition of a partner who himself is not insane.
Breach of Agreement: When a partner willfully commits breach of agreement relating to business, it becomes a ground for getting
the firm dissolved. Under such a situation it becomes difficult to carry on the business smoothly.
Disputes among Partners: Partnership firm is based on mutual faith. If partners do not trust each other, then it will not be possible to
run the business. When the partners quarrel with each other, then the very basis of partnership is lost, and it will be better to dissolve
it.

b)
1ST MAY 2021 ADJUSTMENTS
Issued share capital= 1000x10,000=10,000,000 Dr. Bank A/C 10,000,000 Cr. Share capital a/c 10,000,000
10% Debenture = 1,000x20,000=20,000,000 Dr. Bank a/c 20,000 Cr. 10% Debenture a/c 20,000,000
MAF LTD STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2021 AMOUNTS IN SH’000’

ASSETS 000' 000'

NON-CURRENT ASSETS

Motor Vehicles 70,000

Furniture & Fittings 40,000 110,000

CURRENT ASSETS

Trade Receivables 60,000

Bank deposits 130,000 190,000

TOTAL ASSETS 300,000

EQUITY & RESERVES

 Ordinary share capital 190,000

190,000

LIABILITIES
NON-CURRENT
LIABILITIES

10% Debentures 80,000

Bank loans 20,000

100,000

CURRENT LIABILITIES

Creditors 10,000 10,000

TOTAL EQUITY &
LIABILITIES 300,000

c)
Joint venture is that form of joint arrangement in which there is a contractual association, other than a partnership, between two or
more parties to undertake a specific business project in which the venturers have several liability in respect of the costs and liabilities
of the project and share any resulting output. Whereas a Partnership is the relationship which subsists between persons carrying on a
business in common with a view to profit. An essential characteristic of a partnership is that each partner has a joint and several
obligations for the costs and liabilities of the partnership.
Joint ventures use equity methods. Under the equity method, each participant accounts for its investment interest as a one-line balance
sheet amount and its investment earnings as a one-line income statement amount, that is, the share in the net assets and net profit
associated with the joint arrangement. Accounting for an interest in a joint venture should be reflected in the venturer’s own entity
accounts. Accounting for an interest in a partnership should be reflected in the partner’s own entity accounts as an investment and is
reported by use of either the consolidation or equity methods in the consolidated financial statements (or their equivalent) of the
partner.
A venturer’s interest in a joint venture should be recognized by including in their respective classification categories in the financial
statements of the venturer entity the amount of: (a) the venturer’s share in each of the individual assets employed in the joint venture;
(b) liabilities incurred by the venturer in relation to the joint venture, including the venturer’s share of any liabilities for which the
venturer is severally liable; and (c) the venturer’s share of net expenses incurred by the venturers in relation to the joint venture.
A partner’s interest in a partnership should be recognized in the consolidated financial statements (or their equivalent) as follows: (a)
in the case of a controlling interest in the partnership by: (i) including in their respective classification categories the assets and
liabilities of the partnership; (ii) including as the minority interest in the balance sheet the proportionate minority interest of the other
partners; (iii) including in their respective categories the revenues and expenses of the partnership and showing the minority interest in
the resulting net profit or loss. In the case of the interest of a partner with a minority interest where that interest reflects significant
influence, by including in the balance sheet and profit and loss account, respectively, the partner’s share in the net assets and in the
profit or loss of the partnership.
d)
Consignment accounting is a type of business arrangement in which one person send goods to another person for sale on his behalf
and the person who sends goods is called consignor and another person who receives the goods is called consignee, where consignee
sells the goods on behalf of consignor on consideration of certain percentage on sale. Bellow are the features of consignment
accounting
Two Parties: Consignment accounting mainly involves two party’s consignor and consignee.
Transfer of Procession: Procession of goods transferred from consignor to consignee.
Agreement: There is a pre-agreement between the consignor and consignee for terms and conditions of the consignment.
No Transfer of Ownership: The ownership of goods remains in the hands of the consignor until the consignee sells it. The only
procession of goods is transferred to a consignee.
Re-Conciliation: At the end of the year or periodic intervals consignor sends Pro-forma invoice while consignee sends account sale
details, and both reconcile their accounts
Separate Accounting: There is independent accounting done of consignment account in the books of consignor and consignee. Both
prepare consignment account and record the journal entries of goods through consignment account only.
Whereas
Branch accounting is a bookkeeping system in which separate accounts are maintained for each branch or operating location of an
organization. Typically found in geographically dispersed corporations, multinationals, and chain operators, it allows for greater
transparency in the transactions, cash flows, and overall financial position and performance of each branch. Branch accounts can also
refer to records individually produced to show the performance of different locations, with the accounting records actually maintained
at the corporate headquarters. However, branch accounting usually refers to branches keeping their own books and later sending them
into the head office to be combined with those of other units.
Branch accounting can also be used for a company's operating divisions, which usually have more autonomy than branches, as long as
the division is not set up legally as a subsidiary company. A branch is not a separate legal entity, although it can (somewhat
confusingly) be referred to as an "independent branch" because it keeps its own accounting books.
e)
Admission of a new partner: there are two reasons for preparation of ' Revaluation Account " at time of admission of a partner are:
to record the effect of revaluation of assets and liabilities and to ensure that the profits or losses on revaluation of assets and liabilities
may be divident amongst the old partners.