CHAPTER 8 – BAD DEBTS AND PROVISION FOR DOUBTFUL DEBTS

REVIEW QUESTIONS
1. In a new business during the year ended 31 Dec 2020 the following debts are found
to be bad, and are written off on the dates shown:
31 May T. Fisi 84k
30 Sep G. Kamba 93k
30 Nov G. Samaki 72k
On 31 Dec 2020 the schedule of remaining accounts receivable totaling 4,735k is
examined and it is decided to make an allowance for doubtful debts of KES 94,700.

Required
Show:
a) The bad debts account, and the allowance for doubtful debts section
b) The charge to the income statement
c) The relevant extracts from the balance sheet as at 31 Dec 2020

2. A business had always made allowance for doubtful debts at the rate of 4% of
accounts receivable. On 1 Jan 2018 the amount for this, brought forward from the
previous year, was 130k.
During the year to 31 Dec 2018 the bad debts written off amounted to 638k.
On 31 Dec 2018 the accounts receivable balance was KES 3.7m and the usual
allowance for doubtful debts is to be made.

Required
Show:
a) The bad debts account for the year ended 31 Dec 2018
b) The allowance for doubtful debts account for the year
c) Extract from the income statement for the year
d) The relevant extract from the balance sheet as at 31 Dec 2018

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 CHAPTER 9 – DEPRECIATION
REVIEW QUESTIONS
1. D. Kengele purchased a laptop for 48k. It has an estimated life of 3 years and a
scrap value of 6k. He is not certain whether he should use the straight line or the
reducing balance basis for purpose of calculating depreciation on the computer.

Required
Calculate the depreciation (to the nearest KES) using both the straight line and
reducing balance methods, showing clearly the balance of cost minus accumulated
depreciation at the end of each year under each method. (Assume that 50% per
annum is to be used for the reducing balance method).

2. A machine costs KES 2,666k. It will be kept for 4 years and then sold for an
estimated figure of 640k.

Required
Show calculations of figures for depreciation (to nearest KES) for each year using:
(a) The straight line method
(b) The reducing balance method, for this method using a depreciation rate of 30%

3. Chupa Baridi has supplied you with the following information

\KES 1 Apr 2017 31 Mar 2018

Cash 840 700
Fixtures 7,600 7,600
Balance at bank 5,500 8,320
Inventory 17,800 19,000
Accounts receivable 8,360 4,640
Accounts payable 5,200 8,800

During the year to 31 Mar 2018, Chupa withdrew KES 11,400 from the business for
private purposes. In Nov 2017, Chupa inherited 18k which he paid into the business
bank account.
Chupa agrees that KES 600 should be provided for depreciation of fixtures and KES
200 for doubtful debts.

Required:
Prepare a balance sheet as at 31 Mar 2018 which clearly indicates the net profit or
loss for the year.

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 CHAPTER 10 – ACCRUALS AND PREPAYMENTS
REVIEW QUESTIONS
1. The financial year of S. Simiyu ended on 31 Dec 2016.

Required:
Show ledger accounts for the following items including balance transferred to the
necessary part of financial statements; also balances carried down to next year:
(i) Motor expenses paid in 2016 KES 1,400; owing at 31 Dec 2016 KES 200
(ii) Insurance: paid in 2016 KES 1,700; prepaid as at 31 Dec 2016 KES 130
(iii) Computer supplies: paid during 2016 KES 5,600; Prepaid as at 31 Dec 2015
KES 580; Prepaid as at 31 Dec 2016 KES 560
(iv) Simiyu sublets part of the premises. He receives KES 3,800 during the year
ended 31 Dec 2016. Magharibi, the tenant, owed Simiyu KES 380 on 31 Dec
2015 and KES 420 on 31 Dec 2016

2. On 1 Jan 2019 the following balances, among others, stood in books of B. Barasa:
(a) Lighting and heating (Dr) KES 192
(b) Insurance (Dr) KES 1,410

During year ended 31 Dec 2019 information related to the 2 accounts is as follows:
(i) Fire insurance, KES 1,164 covering the year ended 31 May 2020 was paid
(ii) General insurance KES 1,464 covering the year ended 31 Jul 2020 was paid
(iii) An insurance rebate of KES 82 was received on 30 Jun 2019
(iv) Electricity bills of KES 1,300 were paid
(v) An electricity bill of KES 162 for Dec 2019 was unpaid as on 31 Dec 2019
(vi) Oil bills of KES 810 were paid
(vii) Inventory of oil as on 31 Dec 2019 was KES 205

Required:
Write up the accounts for lighting and heating and for insurance for the year to 31
Dec 2019. Carry forward necessary balances to 2020.

3. 3 accounts in ledger of Charles Wekesa indicated following balances at 1 Jan 2020.

Insurance paid in advance KES 562
Wages outstanding KES 306
Rent receivable, received in advance KES 36

During 2020 Charles:

Paid for insurance KES 1,019, by bank standing order
Paid 15k wages, in cash
Received KES 2,600 rent, by cheque, from the tenant
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 As at 31 Dec 2020, insurance prepaid was KES 345. On the same day rent receivable
in arrears was KES 105 and wages accrued amounted to KES 419

Required:
(a) Prepare the insurance, wages and rent receivable accounts for the year ended
31 Dec 2020, showing year end transfers and the balances brought down
(b) Prepare the income statement extract showing clearly the amounts transferred
from each of the above accounts for the year ending 31 Dec 2020
(c) Explain the effects on the financial statements of accounting for (i) expenses
accrued and (ii) income received in advance at year end
(d) What are the purposes of accounting for (i) expenses accrued and (ii) income
received in advance at year end?

4. The trial balance for a small business at 31 Aug 2018 is as follows:

KES KES
Inventory 1 Sep 2017 8,200
Purchases and sales 26,000 40,900
Rent 4,400
Business rates 1,600
Sundry expenses 340
Motor vehicle at cost 9,000
Accounts receivable and accounts payable 1,160 2,100
Bank 1,500
Accumulated depreciation on motor vehicle at 1 Sep 2017 1,200
Capital at 1 Sep 2017 19,700
Drawings 11,700
63,900 63,900

As at Aug 2018 there was:

• Inventory valued at cost prices KES 9,100
• Accrued rent of KES 400
• Prepaid business rates of KES 300
• The motor vehicle is to be depreciated at 20 per cent of cost

Required:
(i) The adjustments to the ledger accounts for rent and business rates for the
year to 31 Aug 2018
(ii) An income statement for the year ending 31 Aug 2018, together with a
balance sheet as at that date

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 CHAPTER 11 – CASH FLOWS
REVIEW QUESTIONS
1. Amanda is preparing her statement of cash flows for the 12 months to 30 Sep 2020
and you determine the following facts in relation to that financial year:
KES
Net profit for the year 227
Depreciation expenses 58
Increase in inventory 29
Decrease in accounts receivable 45
Decrease in accounts payable 36

Required:
On the basis of the above information, what net cash will have been generated
from operating activities according to the statement of cash flows?

2. You establish the following details in connection with the non-current assets of P.
Sahani for the year ended 31 Dec 2020:
KES
1 Jan 2020, non-current assets at cost less accumulated depreciation 460
Proceeds from the sale of non-current assets during the year 59
Depreciation expense for the year 68
Profit on the disposal of non-current assets during the year 12
31 Dec 2020, non-current assets at cost less accumulated depreciation 417

Required:
What figure for acquisition of non-current assets will appear in investing activities
section of statement of cash flows for Sahani’s business for yr. ended 31 Dec 2020?

3. D. Mudany
Income Statement for the year ending 31 Dec 2020
KES KES
Gross profit 44,700
Add: Discounts received 410
Profit on sale of van 620 1,030
45,730
Less Expenses
Motor expenses 1,940
Wages 17,200
General expenses 830
Bad debts 520
Increase in allowance for doubtful debts 200
Depreciation: Van 1,800 22,490
23,240

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 Balance Sheet as at 31 Dec
2019 2020
KES KES KES KES
Non-current assets
Vans at cost 15,400 8,200
Less Depreciation to date (5,300) (3,100)
10,100 5,100
Current assets
Inventory 18,600 24,000
Accounts receivable less allowance 8,200 6,900
Bank 410 720
27,210 31,620
Total assets 37,310 36,720
Current liabilities
Accounts payable 5,900 7,200
Non-current liability
Loan from J. Fry 10,000 7,500
Total liabilities (15,900) (14,700)
Net assets 21,410 22,020
Capital
Opening balance b/d 17,210 21,410
Add Net Profit 21,200 23,240
38,410 44,650
Less Drawings (17,000) (22,630)
Total Capital 21,410 22,020

* Accounts receivable 2019 KES 8,800 – allowance KES 600

* Accounts receivable 2020 KES 7,700 – allowance KES 800
Note: A van sold for KES 3,820 during 2020. No new vans purchased during the year
Required:
Draft a statement of cash flows for D. Mudany for the year ending 31 Dec 2020,
using the IAS 7 layout.

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 CHAPTER 12 – RECEIPTS AND PAYMENTS/
INCOME AND EXPENDITURE ACCOUNTS
NOTES
It should be noted that
1. A receipts and payments account does not show the full financial position of an
organization, except for one where the only asset is cash and there are no liabilities.

2. An income and expenditure account is drawn up to show either the surplus of

income over expenditure or the excess of expenditure over income. These are the
same as ‘profit’ or ‘loss’ in a profit-oriented organization.

3. The accumulated fund is basically the same as a capital account.

4. Although the main object of the organization is non-profit oriented, certain

activities may be run at a profit (or may lose money) in order to help finance the
main objectives of the organization.

5. Subscriptions owing should be treated at the end of a period in the same way as
accounts receivable, unless told otherwise.

6. Donations are usually treated as income in the year in which they are received.

7. Entrance fees are usually treated as income in the year in which they are received.

8. The treatment of life membership fees is purely at the discretion of the

organization, but that they are usually amortised over an appropriate period.

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REVIEW QUESTIONS
1. Bowling Green Club
Cash Book Summary

KES KES
Balance at 1.1.2019 5,600 Purchase of equipment 1,200
Collections at matches 17,200 Rent for green 4,800
Profit on sale of refreshments 22,000 Printing and stationery 200
Secretary’s expenses 320
Repairs to equipment 280
Groundsman’s wages 16,000
Miscellaneous expenses 240
Balance at 31.12.2019 21,760
44,800 44,800
Further information:
(i) At 1.1.2019 equipment was valued at KES 6,000
(ii) Depreciate all equipment 10% for the year 2019
(iii) At 31.12.2019 rent paid in advance was KES 1,200
(iv) At 31.12.2019 there was KES 80 owing for printing

Required:
From the cash book above and additional information, construct an income and
expenditure account for year ending 31 Dec 2019 and balance sheet as at that date

2. On 1 Jan 2018 the Winda kwa raha Club had the following assets:
KES
Cash at Bank 200
Snack bar inventory 800
Club house buildings 12,500

During the year to 31 Dec 2018 the Club received and paid the following amounts:
Receipts KES Payments KES
Subscriptions 2018 3,500 Rent and rates 1,500
Subscriptions 2019 380 Extension to club house 8,000
Snack bar income 6,000 Snack bar purchases 3,750
Visitors’ fees 650 Secretarial expenses 240
Loan from bank 5,500 Interest on loan 260
Competition fees 820 Snack bar expenses 600
Games equipment 2,000
Notes: The snack bar inventory on 31 Dec 2018 was KES 900
The games equipment should be depreciated by 20%
Required:
(a) Prepare an income and expenditure account for the year ending 31 Dec 2018.
Show either in this account or separately, the snack bar profit or loss.
(b) Prepare a balance sheet as at 31 Dec 2018
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