THE COPPERBELT UNIVERSITY

SCHOOL OF BUSINESS

BS/BF/BEC/HRM 120 FINANCIAL ACCOUNTING

SESSIONAL EXAMINATION
9TH OCTOBER 2020

INSTRUCTIONS:
1. Time Allowed: 3 hours
2. There are two sections in this question paper.
3. Section A is compulsory and ALL the questions in this section must be
attempted. The section has fifty (50) multiple choice questions and one full
written question. Only the letter of your chosen answer to the multiple
choice questions must be written in the answer booklet.
4. Section B has two (2) questions. Answer one (1) of the two questions.
5. All workings must be clearly shown where necessary.

DO NOT TURN OVER UNTIL YOU ARE TOLD TO DO SO

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 SECTION A
COMPULSORY
QUESTION ONE
MULTIPLE CHOICE QUESTIONS 50 Marks
Please indicate only the letter of the correct answer in the answer booklet.
1. William Tembo sells his motor vehicle to Makasa Nyondo for K150, 000. However, after Makasa
purchases the motor vehicle, he has to spend K10, 000 to fix a problem in the engine which William was
aware of but did not mentioned. If Makasa had known about this, he would not have purchased the
vehicle. Which accounting concept does this scenario describe?
A. Money measurement concept
B. Realisation concept
C. Materiality concept
D. Accruals concept

2. During an annual audit of the financial statements of Timely Functions Ltd, John Gee noticed that all
the assets and liabilities were shown at their current disposal values. This was not so at the end of the
previous financial year although it was noted that the company was having liquidity problems. Is Timely
Functions expected to be in existence in the next 12 months?
A. Yes, but it is expected to be liquidated after those 12 months
B. No, unless the assets and liabilities are shown at present value
C. No because the business is not considered to be a going concern
D. Yes, because a business can decide how it shows its assets and liabilities in its accounts

3. Chatenga Ltd made sales of K210, 000 in 2019. Its cost of sales and operating expenses were K70, 000
and K60, 000 respectively. The gross profit is recorded as K150, 000 and Profit for the year as K80, 000.
According to the matching concept, is the calculation of gross profit and profit for the year correct?
A. Yes both calculations are correct
B. The calculation of gross profit is correct but that of profit for the year is wrong
C. The calculation of gross profit is wrong but that of profit for the year is correct.
D. No, both calculations are wrong.

4. Chola Manda is a sole trader and prepares her accounts to 31st March each year. During the year to 31st
March 2020 she included cash received in May 2020 for sales made in February and also included fuel

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expenses that she decided to pay while she had cash on hand in March but which related to fuel for April
2020. Does the accruals concept allow this treatment?
A. Yes because they are income and expenses respectively
B. No because the income was only received in May and the fuel was paid for in advance
C. No to the income because it was received after the year end but yes to the expense because it was
paid for in March
D. No to the expense because it related to April but yes to the income because it related to February.

5. According to the dual aspect concept:

A. There are two sides to accounting, the receiver who is debited and the giver who is credited
B. There are two aspects to accounting, the assets and the claims against those assets
C. There are two aspects to accounting, debits and credits
D. There are two sides to accounting, the incomes and expenses

6. Mulela Ltd is owed K25, 000 by its debtors. 20% of these have been outstanding for the past two years
and it is unlikely that the money will be collected. In addition it has a machine that is valued at K90, 000
in its books but due to new technology, it cannot be used in the business and can only be sold for K40,
000. At the end of the most recent financial year, the company showed the debtors and machine at K25,
000 and K90, 000 respectively. What accounting concept has been deviated from?
A. Realisation concept
B. Consistency concept
C. Prudence concept
D. Money measurement concept

7. It is said that in order for information to be useful to its users, it must be free from material error and
bias. What qualitative characteristic is this?
A. Relevant
B. Reliability
C. Understandable
D. Complete

8. Mark Shane would like to invest in a company with good financial performance and approaches Ali
Isaacs for advice on whether Kapalongo Plc is one such company. After a few days Ali gives Mark the

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future investment plans of the business and tells him that the company recently employed a new CEO
whose vision is to take it to 5 different countries in the region. Is this information relevant to Mark?
A. Yes because a company that has future investment plans will be inexistence for the foreseeable
future
B. Yes because a CEO with such a vision is bound to take the company to greater heights and give it
a large market share
C. No because the CEO is not a guarantee of future performance
D. No because the information given will not affect Mark’s decision

9. Why is it necessary for information to be comparable?

A. It is not necessary as long as the users of the information can understand it.
B. It is not necessary if the users of financial information have basic training in accounting
C. Because it affects the decisions of the users and this makes it relevant
D. Because it helps the users track the performance of the company over time

10. Information is complete when it:

A. Includes all the material aspects of the financial performance and position of a company
B. Includes all the transactions of a company
C. Is free from any errors and bias
D. It is prepared in a timely manner

11. Which users of financial statements require it to negotiate for better conditions of service?
A. Employees
B. Unions
C. Customers
D. Government

12. Which users of financial statements require it to for job opportunities and job security?
A. Employees
B. Unions
C. Management
D. Clients

13. It is necessary to show the outstanding liabilities of an organization for the benefit of:

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A. Government
B. Competitors
C. Employees
D. Creditors

14. Someone was quoted as saying “The financial statements will help me to see whether or not I have
met the objectives set by the shareholders for the past year”. What group of users does this person fall
under?
A. Employees
B. Debtors
C. Management
D. Lenders

15. Why do competitors need information about other companies in their industry?
A. To ensure that they are not doing the same thing that their competitors are doing
B. To copy the good strategies of the other companies
C. To report other companies for failure to follow regulations
D. To ensure that the other companies are not selling to their customers

16. Which group of users require financial information so as to take corrective action where they have
gone wrong?
A. Employees
B. Management
C. Debtors
D. Tax authorities

17. A company has a choice of either LIFO, FIFO or AVCO in inventory valuation. However, the use of
LIFO is not encouraged because:
A. The goods may become rotten or obsolete
B. The high profit that results from the use of LIFO is against the prudence concept
C. The method encourages companies to report low profits and avoid paying high taxes
D. The method is no longer recognised by companies as a correct method of valuing inventory

The information in following table will be used to answer questions 18-20.

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Chimwasu Ltd sells pure olive oil to wholesale shops in the Kitwe Business District. During the month of
January 2020, the following inventory was received and issued:

Date Receipts Cost Date Issues Price

3 January 150 units K220 5 January 300 units K250

10 January 200 units K230 25 January 230 units K250

On 31st December 2019, there were 200 units valued at K200 per unit in stock.

18. What was the value of closing stock on 3rd January 2020?
A. K73, 000
B. K40, 000
C. K33, 000
D. K56, 000

19. What was the value of closing stock on 5th January 2020?
A. K10, 000.02
B. K10, 428.57
C. K9, 231.45
D. K11, 251.52

20. The gross profit for the month of January is closest to:
A. K18, 015
B. K16, 514.28
C. K16, 485.72
D. K19, 017

21. The following information has been taken from Duncan’s financial statements for the year-
ended 31 December 2017:

Duncan has inventory turnover of six times

The year-end receivables collection period is 42 days Cost of
sales for the year was K1,690,000
Credit purchases for the year were K2,150,000 Duncan’s cash
cycle at 31 December 2017 was 68days
All calculations should be made to the nearest full day, and the trading year has 365 days.
What is Duncan’s trade payables collection period as at 31 December 2017?
A. 35 days
B. 17 days
C. 138 days
D. 26 days

22. The following extracts of the financial statements of Mafishi have been obtained:

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 Revenue K980,000
Cost of sales (K530,000)
Operating expenses (K210,000)

Equity K600,000
Loan, repayable 2022 K300,000
Deferred tax K44,000
Payables K46,000
What is the return on capital employed of Mafishi?
A. 24.2%
B. 25.4%
C. 26.7%
D. 50%

23. Which ONE of the following is not a limitation of applying ratio analysis to published financial
statements?
A. Accounting policy choices can limit comparability between different companies
B Financial statements may contain errors
C Information within published financial statements is historic and out of date
D Different ways of calculating certain ratios exist

24. Which ONE of the following explanations is unlikely to lead to an increase in receivables
collection period?
A A new contract with a large customer has been won following a competitive tender
B A large one-off credit sale has been completed just before the year end
C Difficult economic conditions have led to some customers struggling to pay on time
D A website has been opened in the year for trade direct to the public
25. Mafishi Co has calculated that its current year Price Earnings (P/E) ratio is 12.6.
The sector average P/E ratio is 10.5
Which ONE of the following would be an explanation of the difference between Mafishi’s
P/E ratio and the sector average?
A. Mafishi is seen as a less risky investment than the sector average, and there is
higher confidence about the future prospects of Mafishi.
B. Mafishi is seen as a more risky investment than the sector average, however there is
higher confidence about the future prospects of Mafishi.
C. Mafishi is seen as a less risky investment than the sector average, however there is
low confidence about the future prospects of Mafishi.
D. Mafishi is seen as a more risky investment than the sector average, and there is low
confidence about the future prospects of Mafishi.

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26. Which ONE of the following is not a valid reason for a decrease in gross profit margin?
A A major customer renewed their contract during the year following a competitive
tender process
B New plant and equipment used in the manufacturing process has been purchased in
the year, which has increased the depreciation expense
C Delivery costs to customers have risen following an increase in the rates charged by
couriers
D A national recession has led to sales prices being cut in response

27. Which of the following ratios is likely to be most relevant for a charity organization?

A. Operating profit margin

B. Current ratio

C. Earning s per share

D. Return on capital employed

28. Manufacturing costs incurred during the year are

A. Shown by the expense accounts, such as Wages Expense and Utilities Expense, that are listed in
the Operating Expenses section of the statement of profit or loss
B. Are comprised of raw materials, direct labor, and manufacturing overhead and are reported in the
Operating Expenses section of the statement of profit or loss
C. Included in the computation of cost of goods manufactured.
D. Reported in the Cost of Goods Sold section of the statement of profit or loss.

29. The cost of goods manufactured is computed by:

A. Adding raw materials used and direct labor to manufacturing overhead.
B. Deducting the ending work in process inventory from the sum of the total manufacturing cost
and the beginning work in process inventory
C. Deducting the ending finished goods inventory from the beginning finished goods inventory
D. Adding operating expenses to direct labor costs

30. Indirect labor for a manufacturing business includes the wages of:
A. Factory repair and maintenance employees
B. Employees who assemble the product.
C. Employees who sell the product
D. Office employees.

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31. Gross profit for a manufacturing business is computed by
A. Deducting cost of goods sold from net sales.
B. Deducting cost of goods manufactured from net sales.
C. Deducting the ending finished goods inventory from the total goods available for sale.
D. Deducting operating expenses from the costs of goods sold

32. The statement of financial position of a manufacturing business shows

A. The finished goods inventory and the cost of goods manufactured
B. The cost of goods manufactured rather than inventory figures.
C. A single inventory figure—the amount of the finished goods inventory.
D. The raw materials inventory, the work in process inventory, and the finished goods inventory.

33. Nails used in manufacturing a chair is an example of:

A. Direct material
B. Factory overhead
C. Indirect material
D. Administrative material

34. Depreciation of factory tools is

A. Indirect labour
B. Indirect material
C. Factory overhead
D. Administrative costs

35. The total cost of indirect material, indirect labour and other manufacturing expenses are called:
A. Factory overhead
B. Manufacturing cost
C. Indirect cost
D. Direct costs

36. In the year to 31 December 2018 H had cash receipts in respect of rental income of K49,200. The
amounts of rent received in advance and due in arrears were as follows:
31 Dec 2018 31 Dec 2017
K K
Rent received in advance 2,400 2,600
Rent due in arrears 1,800 1,400

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 What figure for rental income should be recorded in the statement of profit or loss for the year
ended 31 December 2018?
A K48,600
B K49,000
C K49,400
D K49,800

37. Rent paid on 1 October 2012 for the year to 30 September 2013 was K12,000, and rent paid on 1
October 2013 for the year to 30 September 2014 was K16,000.
What figure for rent expense should be shown in the statement of profit or loss for the year ended
31 December 2013?
A K12,000
B K16,000
C K13,000
D K15,000

38. A business sublet part of its offices and in the year ended 30 November 2013 the rent receivable
was:
Until 30 June 2013 K8,400 per year
From 1 July 2013 K12,000 per year
Rent was paid quarterly in advance on 1 January, April, July, and October each year.
What amounts should appear in the financial statements for the year ended 30 November 2013?
Statement of profit or loss Statement of
rent receivable Financial Position
A K9,900 K2,000 in sundry payables
B K9,900 K1,000 in sundry payables
C K10,200 K1,000 in sundry payables
D K9,900 K2,000 in sundry receivables

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39 A business compiling its accounts for the year to 31 January each year pays rent quarterly in
advance on 1 January, 1 April, 1 July and 1 October each year.
After remaining unchanged for some years, the rent was increased from K24,000 per year to
K30,000 per year as from 1 July 2013.
Which of the following figures is the rent expense which should appear in the statement of profit or
loss for the year ended 31 January 2014?
A K27,500
B K29,500
C K28,000
D K29,000

40. A trial balance has been extracted and a suspense account opened. One error relates to the mis-
posting of an amount of K200, being discounts received from suppliers. This was recorded on the
wrong side of the discounts account.
What will be the correcting journal entry?
A Debit Discounts account K200, Credit Suspense account K200
B Debit Suspense account K200, Credit Discounts account K200
C Debit Discounts account K400, Credit Suspense account K400
D Debit Suspense account K400, Credit Discounts account K400

41 Collin has extracted the following balances from the ledger accounts for his business:
K
Plant and machinery 95,000
Property 135,000
Inventory 6,400
Payables 3,600
Receivables 2,850
Bank overdraft 970
Loan 45,000
Capital 100,000
Drawings 32,000
Sales 362,000
Purchases 156,000
Purchase returns 2,200
Carriage outwards ?
Discounts received 3,500
Sundry expenses 82,500
He has forgotten to extract the balance from the carriage outwards account. What is the value of the
missing balance?
A K4,020
B K7,520
C K5,580
D K3,120

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42 Liz Co recorded a banks payment of K880 for repairs to its business van. The correct entry was
made to the bank account but no other entries were made.
What would be the journal to correct this error?
A Dr Van account Cr Repairs account
B Dr Repairs account Cr Bank account
C Dr Repairs account Cr Suspense account
D Dr Repairs account Cr Van account

43 Dizzie recorded an amount of K3,175 for rent and rates paid. Both the rent and rates account and
the bank account were debited.
What would be the journal to correct this error?
A Dr Suspense K3,175 Cr Bank K3,175
B Dr Suspense K6,350 Cr Bank K6,350
C Dr Bank K3,175 Cr Rent and rates K3,175
D Dr Rent and rates K6,350 Cr Bank K6,350

44 Weeden’s trial balance at 31 October 2019 does not agree, with the credit side totalling K1,610 less
than the debit side. During November, the following errors were discovered:
The debit side of the purchases account for October had been overcast by K150.
Rent payable of K240 had been debited to the rent receivable account.
The allowance for receivables, which increased by K240, had been recorded in the allowance for
receivables account as a decrease.
Following the correction of these errors, what will be the balance remaining on the suspense
account?
A K260
B K740
C K980
D K320
45. A business compiled the following information for the year ended 31 October 2012:
K
Opening inventory 386,200
Purchases 989,000
Closing inventory 422,700
The gross profit as a percentage of sales is always 40%
Based on these figures, what was the sales revenue for the year?
A K1,333,500
B K1,587,500
C K2,381,250
D The sales revenue figure cannot be calculated from this information

46 Based on the following information, what was the value of purchases for the accounting period?

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 K
Opening payables 142,600
Cash paid to suppliers 542,300
Discounts received 13,200
Goods returned 27,500
Closing payables 137,800
A K302,600
B K506,400
C K523,200
D K578,200

47 The following information is relevant to Wimbledon:

K
Opening inventory 13,500
Closing inventory 18,160
Purchases 299,000
Expenses 114,400
Carriage in 3,500
Carriage out 7,700
Depreciation 40,000
What was the cost of sales for the accounting period?
A K297,840
B K294,340
C K298,540
D K302,040

48 You are given the following information about Percy as at 31 March 2012:
The value of assets and liabilities were
Non-current assets at carrying value K14,000
Bank K2,500
Trade payables K10,300
Opening capital (at 1 April 2011) K3,700
Drawings for the year K1,500
There were no other assets or liabilities.
Calculate the profit for the year ended 31 March 2012.
K
A. 3,500
B. 5,000
C. 4,000
D. 10,000

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49 The following information is available about the transactions of Rascal, a sole trader who does not
keep proper accounting records:
K
Opening inventory 75,000
Closing inventory 86,000
Purchases 840,000
Gross profit margin 30%
Based on this information, what is Rascal’s sales revenue for the year?
A K580,300
B K255,300
C K1,106,300
D K248,700

50 You are given the following incomplete and incorrect extract from the statement of profit or loss of
a business that males sales at a mark-up of 25% on cost:
K K
Sales 185,250
Less: Cost of goods sold
Opening inventory 15,785
Purchases 147,058
Closing inventory X
–––––––
(X)
–––––––
Gross profit X
Having discovered that the sales figure should have been K195,230 and that carriage inwards of
K1,500 and sales returns of K1,230 have been omitted, what should be the value of closing
inventory?
A K38,800
B K6,143
C K46,305
D K9,143

QUESTION TWO
Shimpundu is a sole trader and prepares his financial statements to 31st December each year. His trial
balance for the year to 31st December 2019 is given below:
K K
Proprietor’s Capital 50, 000
Retained profit (01/01/2019) 15, 000
Purchases and Sales 6, 000 40, 000
Inventory 01/01/2019 10, 000
Trade receivables and payables 20, 000 3, 000

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Cash at Bank and on hand 7, 000
Equipment at cost 15, 000
Accumulated depreciation (01/01/2019) 2, 000
Motor vehicle at cost 40, 000
Accumulated depreciation (01/01/2019) 5, 000
Furniture and fittings at cost 10, 000
Accumulated depreciation (01/01/2019) 3, 000
Medical expenses 500
Insurance 600
Cleaning expenses 750
Carriage inwards 500
Carriage outwards 1, 500
Returns inwards and outwards 2, 000 1, 700
Wages 6, 000
Bank loan 7, 350
Interest 500
Rent 6, 000
Bad debts 1, 500
Provision for doubtful debts _______ 800____
127, 850 127, 850
Additional information:
1. Closing inventory on 31st December was valued at K6, 500
2. All assets are depreciated at 30% on reducing balance method.
3. Included in the rent figure is K1, 000 paid for two months to 31st January 2020.
4. An electricity bill for K300 for the month of December 2019 was not received until 10th January 2020.
5. The provision for doubtful debts is to be increased to K1, 000.
6. A bad debt of K500 previously written off was recovered during the year.
Required:
Prepare the Statement of Profit or Loss and the Statement of Financial Position for Shimpundu for the
year to 31st December 2019. 25 Marks

SECTION B
QUESTION THREE
From the information given below relating to PWW Limited you are required to:
(a) Make such additional entries in the cash at bank account of PWW Limited as you consider
necessary to show the correct balance at 31st October 2019.
5 marks
(b) Prepare a statement reconciling the correct balance in the cash at bank account as shown in (a)
above with balance at 31st October 2019 that is shown on the bank statement from Z Bank
Limited. 20 marks

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 Total Marks: 25

Cash at bank account in the ledger of PWW Limited

October K October K
1 Balance b/f 274 1 Wages 3146
8 Q Manufacturing 3443 1 Petty Cash 55
8 R Cement 1146 8 Wages 3106
11 S Limited 638 8 Petty Cash 39
11 T & sons 512 15 Wages 3029
11 U & Co 4174 15 Petty Cash 78
15 V Limited 1426 22 A & Sons 929
15 W Electrical 887 22 B Limited 134
22 X and Associates 1202 22 C & Company 77
26 Y Limited 2875 22 D&E 263
26 Z Limited 982 22 F Limited 1782
29 ABC Limited 1003 22 G Associates 230
29 DEE Corporation 722 22 Wages 3217
29 GHI Limited 2461 22 Petty Cash 91
31 Balance c/f 14 25 H & Partner 26
26 J Sons & Co. Ltd 868
26 K & Co 107
26 L, M & N 666
28 O Limited 112
29 Wages 3191
29 Petty Cash 52
29 P & Sons 561
21759 21759

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 Z Bank Limited
Statement of Account with PWW Limited
October Payment Receipts Balance
1 1135
1 937407 55
1 937406 3146
1 937372 421 (2487)
2 937384 73
2 937379 155 (2715)
6 937391 212 (2927)
8 Sundry credit 4589
8 937408 3106
8 937409 39 (1483)
11 Sundry credit 5324 (3841)
15 Sundry credit 2313
15 937411 78
15 937410 3029 3047
22 Sundry credit 1202
22 937418 3217
22 937419 91 941
25 937416 1782
25 937413 134 (975)
26 937412 929
26 Sundry credit 3857
26 937417 230 1723
27 937415 263
27 937414 77 1383
29 Sundry credit 4186
29 937426 52
29 937425 3191
29 937420 26
29 Dividends on investments 2728
29 937423 666 4362
31 Charges 936 3426

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QUESTION FOUR
The summarised statement of profit or loss for the year to 30 April 2020 and the statement of financial
position as at that date, with comparative figures for 2019, for Mafishi plc are shown below:

Statement of profit or loss (summarised) for the year to 30 April:

2020 2019
K’000 K’000
Gross profit 3,046 2,364
less: Operating costs 2,578 2,044
Profit before interest & taxation 468 320
less: Interest payable 65 54
Profit before taxation 403 266
less: Taxation 97 62
Profit for the year 306 204

Statements of financial position as at 30 April:

2020 2019
K’000 K’000
Non-current assets:
Plant and equipment at cost 5,679 4,777
less: depreciation to date 2,416 3,263 2,018 2,759

Current assets:
Inventory 387 321
Trade receivables 754 607
Bank 53 1,194 - 928

4,457 3,687

Equity:
Ordinary share capital (50n) 750 650
Share premium account 1,250 1,050
Retained earnings 702 2,702 441 2,141

Non-current liabilities:
6% Debentures 1,200 1,000

Current liabilities:
Trade payables 438 387
Current tax payable 102 66
Bank overdraft - 84
Accrued interest owing 15 555 9 546

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 4,457 3,687

The following information is also available:

1. New shares were issued and fully paid in October 2019.

2. Equipment that had cost the company K240, 000 was sold in February 2020 for a loss of K12,
000. The net book value of the equipment when sold was K96, 000.

3. A dividend of 3n per share was paid in April 2020.

Required:
Prepare a statement of cash flows for Mafishi Plc for the year to 30 April 2020 using the indirect method
25 marks

END OF EXAMINATION PAPER

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