EXAMINATION : FOUNDATION LEVEL

SUBJECT : FINANCIAL ACCOUNTING

CODE : A3

EXAMINATION DATE : WEDNESDAY, 2ND NOVEMBER, 2022

TIME ALLOWED : THREE HOURS (9:00 A.M. – 12:00 NOON)

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GENERAL INSTRUCTIONS

1. There are FOUR questions in this paper.

2. Answer ALL FOUR questions.

3. Marks are shown at the end of each question.

4. Show clearly all your workings in the respective answers where applicable.

5. This question paper comprises 8 printed pages.

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QUESTION 1
(a) For each of the questions below, choose the most correct answer among the four given
alternatives. Indicate your answer by writing the appropriate letter A, B, C or D in your
answer booklet:
(i) According to IAS 7: cash flow statement, the cash movements must be classified
under three important headings. You have been given the following order of
headings:
1. Investing, operating, financing
2. Operating, financing, investing
3. Investing, financing, investing
4. Operating, investing, financing

Which of the above order of headings is not correct according to the standard?
A. 1 and 2 only.
B. 2 and 3 only.
C. 1, 2, and 3 only.
D. 1, 2, 3, and 4.

(ii) AA Limited recorded its purchases figure for the year of TZS.50,000 million and
its closing inventory figure of TZS.15,000 million. The company usually includes
a margin of 20% to its selling price. What is the company’s gross profit for the
year?

A. TZS.8,750 million
B. TZS.7,000 million
C. TZS.13,000 million
D. TZS.10,000 million
(iii) The elements of prime cost are:
A. direct materials, direct labour, overheads
B. direct materials, direct labour, direct expenses
C. direct labour, direct expenses, overheads
D. production cost, direct materials, direct labour
(iv) You are presented with the extract Statement of Financial Position of Lyam Ltd
including comparative figures:

2021 2022
TZS. (Million) TZS. (Million)
Ordinary share capital 5,000 8,000
Share premium - 600
Bank Loan 2,500 2,000

What is the total cash flow from financing activities for the year 2022?
A. TZS.3,100,000 cash inflow
B. TZS.4,100,000 cash inflow
C. TZS.1,900,000 cash inflow
D. TZS.2,900,000 cash outflow

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 (v) On 1st January 2020, MEMA Company bought a property at a cost of
TZS.14,000,000. Its estimated useful life was 4 years as at that date. Depreciation
is charged at a rate of 20% using the reducing balance method. If the company
financial year ends on 31st December each year, what is the depreciation charge for
2021?
A. TZS.3,500,000
B. TZS.11,200,000
C. TZS.2,800,000
D. TZS.2,240,000
(vi) Once a business has been formed, it is assumed that it will continue to be in
existence for a foreseeable future. Where the assumption does not hold true then
assets in a Statement of Financial Position must be valued at their break-up value.

Which concept does this statement relates to?

A. Prudence
B. Accrual
C. Going concern
D. Consistency

(vii) Zanana Company had an opening balance in its receivables ledger of

TZS.20,000,000 as of 1st January 2021. During the year to December 2021,
Zanana received TZS.13,000,000 from its customers. Total discount allowed was
TZS.2,000,000. The closing balance of its receivables as at 31st December
2021 stood at TZS.25,000,000. How much is the sales for the year to 31st
December 2021?
A. TZS.20,000,000
B. TZS.5,000,000
C. TZS.10,000,000
D. TZS.30,000,000.
(viii) Who issues International Financial Reporting standards?
A. The IFRS Advisory Committee
B. The stock exchanges
C. The International Accounting Standards Board
D. The government
(ix) A sole trader took some goods from the business costing TZS.800,000 for his own
use. The normal selling price of the goods is TZS.1,600,000. Which of the
following journal entries would correctly record this transaction?
DR. (TZS.) CR. (TZS.)
A. Inventory account 800
Purchases account 800
B. Drawings account 800
Purchases account 800
C. Sales account 1,600
Drawings account 1,600
D. Drawings account 800
Sales account 800

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 (x) Ilala Lady, a ladies’ clothes shop, does not keep proper book of accounts. It has
provided to you the following information:
TZS.
Opening balance of the trade receivables 23 million
Credit sales 172 million
Cash received 175 million
Closing balance of the trade receivables 15 million

What is the amount for discount allowed in the year?

A. TZS.5 million
B. TZS.8 million
C. TZS.2 million
D. TZS.15 million
(20 marks)
(b) For each of the following statements, state whether the statement is true or false.
Indicate your answer by writing “TRUE” for the correct statement and “FALSE” for
the incorrect statement in your answer booklet.
(i) A problem with a Statement of Financial Position based on historical costs is
that in a period of inflation a company with old non-current assets will show a
much better return on investment than a similar firm with new non-current.
(ii) Transposition errors is where the wrong sequence of the individual characters
within a number was entered.
(iii) Depreciation reduces profits and reduces the value of assets but not the amount
of capital of the owner.
(iv) Some small size business entities do not follow the double entry system of
maintaining the accounting records because it is very costly system.
(v) Donation received for a special purpose should be credited to Income and
Expenditure Account.
(10 marks)

(c) Given the following statements, you are required to pair each statement from LIST A
with the items from LIST B appropriately. In pairing the statements with items, write
the roman number from LIST A against the corresponding letter from LIST B in your
answer booklet.

LIST A
(i) Purchase of a fixed asset is debited to an expenses account.
(ii) Method used under single entry system to establish the profit or loss.
(iii) A base of an Income and Expenditure Account.
(iv) A term in the bank statement referring to cash deposited by the company.
(v) Cash flow resulting from interest and dividend received and interest paid for a
financial entity.

LIST B
A. Errors of principle
B. Compensation errors
C. Errors of original entry
D. Double entry system
E. Statement of affairs method
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 F. Cash book
G. Accrual basis of accounting
H. Mixed basis of accounting
I. Cash basis of accounting
J. Credit
K. Debit
L. Liability
M. Operating activities
N. Financial activities
O. Investing activities
(10 marks)
(Total: 40 marks)

QUESTION 2

The following details have been extracted from Jaja and Yoyo who are in trading partnership
for the year ended 31st December 2021:
Details Amount TZS.
Property at cost 544,357,700
Equipment at cost 464,375,700
Provisional depreciation as at 31st December 2021:
• Property 80,000,000
• Equipment 357,500,000
Stock as at 1st January 2021 (10,000 units) 82,400,000
Purchases:
On 31st March 2021 (40,000 units @ TZS.2,300) 92,000,000
On 30th June 2021 (10,000 units @ TZS.4,500) 45,000,000
On 30th September 2021 (20,000 units @ TZS.1,800) 36,000,000
Sales:
On 15th April 2021 (40,000 units)
On 16th December 2021 (25,000 units)
Wages and salaries 15,720,000
Loan interest 7,200,000
Bad debts 3,060,000
Discount allowed 8,560,000
Accounts receivables 25,800,000
Accounts payables 486,180,000
Cash in hand 1,640,000
Drawings:
Jaja: 2,740,000
Yoyo: 1,178,600
Long term loan (12%) 60,000,000
Capital account as at 1st January 2021:
Jaja: 50,000,000
Yoyo: 20,000,000
Current account as at 1st January 2021:
Jaja: 1,960,000 (DR)
Yoyo: 2,834,000

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Additional information:

(i) Jaja and Yoyo maintained a markup of 20% on cost of all goods they sell.

(ii) The partnership issues its goods for sales based on First In First Out (FIFO).

(iii) Interest on capital is charged at 1% per annum.

(iv) Monthly salary paid to partners is as follows: Jaja TZS.150,000; Yoyo TZS.100,000.

(v) Profit is shared among the partners based on their capital contributions.

REQUIRED:

(a) Determine the value of sale made by the partnership for the year ended 31 st December
2021. (7 marks)
(b) Determine the value of closing stock as at 31st December 2021. (2 marks)

(c) Prepare a net profit appropriation account for the year ended 31st December 2021.
(7 marks)
(d) Establish the value of Jaja’s equity as at 31st December 2021. (4 marks)
(Total: 20 marks)

QUESTION 3

(a) The following is the Two Columnar Cashbook of DOYA Group as at 31st December
2021:

Details Cash Bank Details Cash Bank

“000” “000” “000” “000”
Balance b/d 10,000 200,000 Mbaga 700,000
SAMBUA 800,000 Salaries 5,000
Traders
Sales 40,000 130,000 WAO 300,000
Supplies
Balance 45,000 130,000
c/d
50,000 1,130,000 50,000 1,130,000

On 31st December 2021, DOYA Group received its bank statement that showed a credit
balance of TZS.468,900,000. Due to the difference between the two balances (cash
book balance and bank statement balance), a critical investigation was conducted during
the following month and the following had been discovered:
(i) The opening balance of the cash book was overstated from TZS.8,000,000 to
TZS.10,000,000.
(ii) Direct debit of TZS.158,500,000 to TATABO, a supplier, was not recorded in the
cash book.

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 (iii) A cheque drawn to Mbaga TZS.700,000,000 had not been presented to the bank
for payment.

(iv) TZS.1,600,000 relating to bank charges had not been entered in the cash book.

(v) A cheque received from SAMBUA traders TZS.800,000,000 had not been
credited to the bank until 15th January 2022.

(vi) Cash received from WAO suppliers TZS.300,000,000 was recorded on the credit
side of the cash book.

(vii) Dividends received during the month TZS.1,000,000 had been credited in the
bank statement only.

REQUIRED:

(i) Prepare an updated cash book as at 31st December 2021. (6 marks)

(ii) Using the updated cash book balance, reconcile the cash book balance and the
bank statement balance as at 31st December 2021. (4 marks)

(b) (i) Standing order is a bank direct debit but not all direct debits are standing orders.

REQUIRED:

Briefly explain the above statement. (2 marks)

(ii) Errors in the cash book might cause the trial balance to agree or fail to agree.

REQUIRED:

Explain any five (5) errors that might not affect the trial balance agreement.
(5 marks)

(iii) The following single entries were made by a trainee accountant of PAPAA during
the month of April 2022:

1. Total of return inward daybook had been recorded on the credit side of the
sales ledger control account.

2. Total of cash payments from debtors have been posted on the credit side of
the sales ledger control account.

3. Total of the credit sales have been posted to the debit side of the sales ledger
control account.

REQUIRED:

Explain to PAPAA where the other side of the double entry is to be made for
each of the above entries. (3 marks)
(Total: 20 marks)

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QUESTION 4

Below is a list of balances for Mr. Hamza as sole proprietor as at 30th June 2021:
TRIAL BALANCE
TZS. (000)
Advertising 6,280
Bank 2,800
Capital 100,000
Receivables 102,000
Drawings 64,000
Electricity 7,720
Fixtures and fittings at cost 25,000
Fixtures and fittings – Accumulated Depreciation 10,400
Tax liability (TRA) 1,360
Insurance 5,000
Machinery at cost 76,000
Machinery – Accumulated Depreciation 31,400
Allowance for irrecoverable receivables 2,500
Purchases 398,000
Sales 612,000
Stock at 1st July, 2020 46,800
Sundry expenses 4,960
Telephone 4,300
VAT 2,460
Wages 86,400
Paybacks 69,740

You have also been given the following information:

(i) Closing inventory is valued at TZS. 48,200,000.

(ii) Depreciation to be charged at 20% on cost for machinery and 25% reducing balance
for fixtures and fittings.
(iii) An irrecoverable receivable of TZS.2,600,000 is to be written off and the allowance
for irrecoverable receivable to be maintained at 3%.
(iv) Electricity costs of TZS.800,000 and wages of TZS.8,000,000 are to be accrued and
insurance includes a prepayment of TZS.1,400,000.

REQUIRED:

(a) Draft a Trial Balance from the list of balances. (14 marks)

(b) Prepare Journal entries to record year-end adjustments (i) to (iv) above.
(6 marks)
(Total: 20 marks)

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