FACULTY OF BUSINESS AND MANAGEMENT

TUTORIAL 1

1. The objective of financial statements is to provide information about the reporting entity’s
financial performance and financial position that is useful to a wide range of users for
assessing the stewardship of the entity’s management and for making economic
decisions (Statement of Principles for Financial Reporting).

Required:

State the five potential users of company published financial statements, briefly
explaining for each one their likely information needs from those statements.

ANSWER:

Owner- they are interested in the profits earned from their investments and the
financial stability and the growth of their business.

Managers- Management needs information as a guidance in planning, organizing

and controlling the organisation and analysing the operations of the business.

Employees- Employees are interested i the business ability to progress and expand.
They look for steady employment, earning capacity and other monetary benefits that
are to be gained from a financially stable business.

Creditors/Bankers- To know the ability of the business in repaying the amount owing
to them.

Government- The government is interested in the financial statements and reports of

a business for tax purpose.

2. Define Accounting and Book keeping and explain the differences between both.
ANSWER:
Accounting can be defined as systematic process of identifying, recording,
classifying, summarising, interpreting and communicating business transactions. For
book keeping is only a part of accounting. It refers to mechanical aspects of
accounting such as classifying, recording and summarising of transaction
systematically.

3. Which of the following are shown under the wrong headings?

Assets Liabilities

Stocks of goods for resale Cash in hand

Account payables Accounts receivables

Premises Mortgage

Bank overdraft

Machinery

ANSWER:

Assets Liabilities

Cash in hand Account payables

Machinery

Accounts receivables Mortgage

Stocks of goods for resale Bank overdraft

Premises

4. Answer the questions below:

a. Define the term non-current assets and give THREE (3) examples.

Non-current assets are assets acquired or bought not for resale but to be used in
the operations of the business with useful lives of more than one year.
 Example of non-current assets are furniture, land and building, and franchise .

b. Define the term current assets and give TWO (2) examples.

Current assets are that are either cash or those that can be converted into cash
within one year.
Example of current assets are cash at bank, and cash in hand.

c. Define the term current liabilities and give TWO (2) examples.

Amounts owed by the business that are to be paid within one year.
Example of current liabilities are account payable, bank overdraft and short-term
loan.

d. Define the term non-current liabilities and give TWO (2) examples.

Amounts owed by the business that are not repaid within one year.
Example of non-current liabilities are long-term loan, mortgage and premises.

5. Classify the following items into assets and liabilities:

a) Fixtures and fittings- assets

b) Loan from bank- liabilities
c) Trade payables- liabilities
d) Cash in till- assets
e) Motor vehicle- assets
f) Stocks of goods- assets
g) Bank overdraft- assets
h) Mortgage- liabilities
i) Account receivables- assets
j) Machineries- assets
k) Premises- liabilities
l) Cash at bank- assets
m) Land- assets