SCHOOL OF BUSINESS, ECONOMICS AND MANAGEMENT

AFIN102/ECF130/HRM160/BSP120/RE120/BF120/BBA110/BIP150/ED120-
FINANCIAL ACCOUNTING

SEMESTER 1 FINAL EXAMINATION

MONDAY 28TH MAY, 2012

09:00- 12:00 HOURS

Time allowed: 3 HOURS plus 10 minutes reading time

Instructions to Candidates:

1. Check that you have the correct examination paper in front of you.
2. There are FIVE (5) questions in this paper. Answer FOUR (4) questions.
Answer questions ONE (1) and TWO (2) in Section A which are
COMPULSORY and ANY TWO (2) from section B.
3. All questions must be answered in the answer booklet provided only.

4. Write down the number of questions that you have answered on the front
cover page of the examination answer booklet.

5. Begin each question on a new page.

6. Electronic calculators are permitted in this examination.

7. There shall be no any form of communication between students during the

examination. Any students caught doing this will be disqualified.

DO NOT TURN THIS PAGE UNTIL YOU ARE TOLD TO DO SO.

1
SECTION A COMPULSORY

QUESTION 1

The following trial balance is extracted from the books of Mwanjabanthu Ltd as on
December 31, 2011

Trial balance as on December 31, 2011

K’000 K’000
Capital 1,359,024
Building @ cost 1,305,000
Equipment @ cost 120,000
Motor vehicles @ cost 172,000
Provision for depreciation: building 100,000
Provision for depreciation: equipment 24,000
Provision for depreciation: motor vehicles 51,600
Stock 1.1. 2011 84,912
Sales 1,022,000
Purchases 439,100
Carriage in wards 6,200
Carriage outwards 6,912
Sales returns 22,000
Purchases returns 2,400
Salaries and wages 190,000
Director’s salary 101,000
Motor expenses 3,120
Business rates and insurances 8,690
General expenses 5,600
Interest paid 50,000
Debtors 186,100
Interest received 20,000
Creditors 120,000
Provision for bad and doubtful debts 10,000
Bank 8,000
Cash 390
2,709,024 2,709,024

The following adjustments are needed:

a) Stock at 31.12. 2011 was K91,413,000

b) Depreciate building K10,000,000; Motor vehicles K18,000,000; Equipment
K12,000,000
c) Accrued interest is K15,000,000
d) Motor expenses prepaid K690,000
e) The provision for bad and doubtful Debts should be increased to K12,000,000
2
REQUIRED

Prepare:

i. The trading, profit and loss account for the year ended December 31, 2011
and 10 marks
ii. The balance sheet as at that date. 10 marks
iii. Identify any five primary users of accounting information and their needs
5 marks

25 marks

QUESTION 2

Extracts from the financial statements of Scorpion Securities Ltd for the year ended
March 31, 2002 and 2003 are given below

INCOME STATEMENT FOR THE YEAR ENDED MARCH 31

2002 2003
‘000 ‘000 ‘000 ‘000
Sales revenue (note a) 3,100,000 3,800,000
Opening 360,000 540,000
inventory
Purchases 2,080,000 2,580,000
Closing (540,000) (720,000)
inventory
(1,900,000) (2,400,000)
Gross profit 1,200,000 1,400,000
Expenses (900,000) (1,100,000)
Net profit 300,000 300,000

Balance sheet as at 31 March

2002 2003
‘000 ‘000 ‘000 ‘000
Current assets:
Inventory 540,000 720,000
Trade 450,000 700,000
receivables
990,000 1,420,000
Current
liabilities
Trade payables 410,000 690,000
Bank overdraft 20,000 170,000
430,000 860,000
Note: Sales revenue includes cash sales of K300, 000 in 2002 and K100,000 in 2003
respectively.
3
REQUIRED:

i. Calculate the following for each of the two years (Assume a year of 360 days):
a) Current ratio 4 marks
b) Quick ratio or acid test 4 marks
c) Inventory turnover ratio (using closing inventory) 4 marks
d) Average period of credit allowed to customers 4 marks
e) Average period of credit taken from suppliers. 4 marks

ii. Why is ratio analysis important to users of financial information? 5 marks

Total 25 marks

SECTION B CHOOSE AND ANSWER ANY TWO QUESTIONS

QUESTION 3

a) Accounting concepts refer to the basic assumptions and rules and principles which
work as the basis of recording of business transactions and preparing accounts.
Required:
Explain the meaning and significance of the following accounting concepts:
i. Business entity
ii. Going concern
iii. Accrual concept
iv. Duality concept
v. Matching concept

5 marks

4
b) The following list of balances as at July 31, 2011 has been extracted from the
books of JM who commenced business on August 1, 2010 as a Designer and
Manufacturer of ladies outfit:

Details K’000
Drawing 60,000
Bank 85,000
Sundry creditors 112,000
Sundry debtors 165,000
Capital 1,220,000
Staff salaries (sales & distribution) 130,000
Administrative expenses 90,000
Administrative salaries 310,000
Rent and insurance 116,000
Motor vehicle running expenses 120,000
Machinery repairs and maintenance 16,000
Indirect factory wages 80,000
Light and power 50,000
Direct factory wages 390,000
Raw materials purchased 430,000
Sales 1,700,000
Loose tools at cost 90,000
Motor vehicle at cost 300,000
Plant and machinery 600,000

Additional information for the year ended July 31, 2011:

i. It is estimated that the plant and machinery will be used for 10 years and the
motor vehicles used for 4 years: in both it is estimated that the residual value will
be nil. The straight line method of providing for depreciation will be used.
ii. Light and power charges accrued due at July 31, 2011 amounted to K10, 000
and insurance prepaid at July 31, 2011 totalled K8, 000.
iii. Stocks were valued at cost at July 31, 2011 as follows:
i. Raw materials K70,000
ii. Finished goods K100,000
iv. The valuation of work in progress at July 31, 2011 was K123, 000.
v. Two-thirds of the light and power and rent and insurance costs are to be
allocated to the factory costs and one-third to general administration.
vi. Motor vehicle costs are to be allocated equally to factory costs and general
administration costs.
vii. Loose tools in hand on July 31, 2011 were valued at K50,000

5
REQUIRED

From the above information, calculate:

i. The prime cost 5 marks

ii. The cost of goods manufactured 5 marks

c) Diesel Apamwamba runs a computer supplies company. One of the items

stocked is the ‘Zap’ data disk.
The following were the stores ledger records:
2012
January Opening stock of 40 units at a cost of K30,000
February Bought 20 units at a cost of K36,000 each
March Sold 36 units for K60,000 each
April Bought 20 units at a cost of 37,500 each
May Sold 25 units for K60,000 each

REQUIRED

i. Using the FIFO and Average Cost methods, calculate the profit during the
period January to May 2012. 5 marks
ii. What are the advantages and disadvantages of FIFO method of stock
valuation?
5 marks
Total 25 marks

QUESTION 4

Bambo and Daughters Associates was formed on January 1, 2006 and the following
purchases and sales of machinery were made during the first three years of business:

Date Assets Transaction Cost

January 1, 2006 Machine A & B Bought K40,000,000 each
October 1, 2006 Machine C & D Bought K15,200,000 Each
June 30, 2008 Machine F Sold K12,640,000
July 1, 2008 Machine G Bought K20,000,000

Each machine was estimated to last 10 years and to have a residual value of 5% of its
original cost price. Depreciation was by equal installments and it is the company policy
to charge depreciation for every month an asset is used.

REQUIRED

a) Calculate:
i. The total depreciation on machinery for each of the following years 2006,
2007 and 2008 8 marks
6
 ii. Provision for depreciation for the same years as above 6 marks
iii. Disposal of machine F showing the profit or loss on disposal 5 marks

b) Bambo and Daughters Associates depreciate its vehicles by 30% p.a. using the
diminishing balance method. What difference would it have made to the annual
reported profits over the life of a vehicle if it had decided instead to depreciate
this asset by 20% straight line?
6 marks
Total 25 marks

QUESTION 5

An extract from the cash book of OM Retail outlet along with particulars of its banking
and a copy of the bank statement for the period are as follows:

Date Details Amount Date Cheq # Details Amount

2007 2007
16.5 Balance b/f 15,200 16.5 54 Purchases 2,400
17.5 Peter 3,971 17.5 55 Rent 1,500
18.5 Bank loan 10,000 17.5 56 Rocco 5,800
18.5 Cash sale 2,500 18.5 57 Vehicle a/c 22,500
20.5 Morris –Bacs 1,800 19.5 58 Advertising 450
20.5 Sales 245 19.5 59 Balck a/c 1,650
20.5 Cash a/c 3,650 20.5 Cash-ATM 500
20.5 Brown’s a/c 1,500
20.5 Charges 30
20.5 60 Advertising 240
20.5 Balance c/d 796
37,366 37,366

OM Retail outlet in account with ZANACO Plc

2007 Details Dr Cr Balance

17.5 Balance b/f K15,200
17.5 Loan 10,000 25,200
17.5 Deposit 1,121 26,321
18.5 BACS-Morris 1,800 28,121
18.5 Deposit 1,000 29,121
19.5 Cheq 54 2,400 26,721
20.5 Deposit – cheque 1,600 28,321
20.5 Cheq 57 22,500 5,821
20.5 ATM 500 5,321
20.5 Cheq 56 5,800 479 O/D
20.5 Bank charges 30 509 O/D
20.5 Switch 245 264 O/D
20.5 Deposit – cheque 1,250 986

7
 REQUIRED

i. Write the cash book update and state the new balance as on May 20, 2007 and
10 marks
ii. Draw up a bank reconciliation statement as on May 20, 2007 10 marks
iii. Briefly explain why it is necessary to prepare the bank reconciliation statement at
the end of each month. 5 marks
Total 25 marks

END OF EXAMINATION PAPER