Practice questions
QUESTION 1
Munashe started business on 1 January 2024 as a trader in desks. Her transactions during her
first month were as follows (in date order):
i. She paid $6,000 into a separate bank account for the business.
ii. The business bought desks for $1,600 cash.
iii. The business sold some of the desks for $1,200 cash.
iv. The business bought a van for $2,500 cash
v. The business bought more desks for $400, on credit from Tatenda.
vi. The business bought more desks for $800 from Tatenda, on credit
vii. The business bought desks for $600 on credit from Widzo
viii. The business sold some of the desks for $2,100 to Saru on credit.
ix. The business sold some desks for $350, on credit to Taurai
x. The business sold some desks on credit for $700 to Andrew
xi. Rent for the month was paid of $300
xii. Paid three quarters of the amount due to Tatenda
xiii. Received $1,000 from Saru in respect of the amount owing by her
xiv. Munashe paid another $4,000 of her own money into the business bank account.
xv. Desks were purchased on credit from Widzo for $1,000, and on credit from Mazvita
for $1,600
xvi. Desks were sold for $1,350 on credit to Tapiwa
xvii. Desks were sold to George for $2,100 on credit
xviii. The business paid wages of $400 to the shop assistant
xix. Munashe withdrew $700 cash from the business bank account, for herself.
Required
a) Write up the books of Prime Entry for the month
b) Write up the relevant accounts in the Receivables and Payables Ledgers
c) Post the totals from the Books of Prime Entry to the relevant accounts in the Nominal
Ledger
d) Prepare a Trial Balance at the end of the month.
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QUESTION TWO
The trial balance given below has been extracted from the books of Brian Ltd as at
31 December 2023:
Dr $ Cr $
Called-up capital:
1 760 000 ordinary shares of 25c each 440 000
200 000 10% Preference shares of $1 each, 75c called 150 000
Delivery vehicles, at cost 51 000
Provision for depreciation on delivery vehicles 21 000
Bank loan 60 000
Purchases & Sales 1 030 000 1 331 255
Returns 10 255 12 473
Carriage inwards 4 600
Fixtures and fittings at cost 43 100
Provision for depreciation on fixtures and fittings 19 040
Inventory at 31 December 2022 281 000
Freehold premises, at cost 390 000
13% Loan stock (2022) unsecured 200 000
Profit and loss account balance (31 December 2022) 62 550
Trade receivables & Trade payables 322 160 181 200
General reserve 50 000
Management expenses 62 600
Interest on loan stock 13 000
Insurances 3 000
Directors’ fees 33 300
Interest on bank loan 4 100
Cash at bank and in hand 53 203
Wages and salaries 101 100
2 464 968 2 464 968
The following matters have to be taken into consideration in preparing the financial
statements:
(i) Inventory at 31 December 2023 amounted to $278 122 (including $8 122 for raw
materials) and were valued at the lower of cost or net realizable value.
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(ii) A half year’s interest is due on the 13% loan stock.
(iii) Wages and salaries owing amount to $900 and insurance prepaid amounts to
$300.
(iv) Depreciation is to be provided as follows:
Fixtures and fittings: at the rate of 10% per annum on cost.
Delivery vehicles: at the rate of 20% per annum on cost. They include a new
delivery vehicle which was purchased at a cost of $8 000 on 1 July 2023.
(v) Authorized capital is as follows:
Ordinary shares of 25c each $500 000
Preference shares of $1 each $200 000
(vi) The following apportionments are made between administration expenses and
selling and distribution expenses:
Administration Selling & distribution
Wages and salaries 75% 25%
Directors’ fees 100% -
Insurance two-thirds one-third
Management 80% 20%
(vii) One year’s dividend is to be provided for on the nominal value of the preference
shares.
(viii) One quarter of the bank loan is repayable during the year ending 31 December
2023 and the remainder thereafter.
(ix) Taxation is 30% and, Aids Levy is 3% thereon.
Required:
Prepare the following for Brian Ltd for the year ended 31 December 2023:
a) Statement of Profit or Loss & Other Comprehensive Income [10 marks]
b) Statement of Changes in Equity [5 marks]
c) Statement of Financial Position [10 marks]
Question 3
Pablo Limited manufactures and sells a single product called Custa which is a surface
cleaning detergent for hygienic purposes. The following data relates to the product for a
certain period:
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Planned sales volume in units 450 000
Selling price per unit 4.00
Variable cost per unit 2.00
Total fixed cost 400 000
Required:
Compute the following:
a)The contribution margin per unit;
b)The contribution margin ratio;
c)The break-even volume in units and in dollars;
d)The margin of safety in units and as a ratio;
e)The sales volume (in units and in dollars) required to earn a profit of $80000.
f)Draw a break-even chart showing the break-even point and margin of safety, profit
an loss ,break even quantity and price
Question 4
a) What are the merits and limitations of using budgeting as a management decision making
tool
b) What are the merits and limitations of using break even as a management decision making
tool
Question 5
Differentiate between absorption and marginal costing. Highlight the merits and demerits of
each.
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Question 6
Faith Sole Enterprises’
Statement of Financial Positions as at 31
December:
2024 2025
USD $ USD $
Fixed asset
Land and premises (cost
USD $ 52,000) 44,000.00 40,000.00
Plant and machinery 0 0
(cost USD $ 19,000) 14,250.00 0
(cost USD $ 25,000) 0 19,600.00
58,250.00 59,600.00
Current Assets
Stocks 6,600.00 6,300
Trade debtors 17,800.00 12,600
Bank 0.00 7,100
24,400.00 26,000.00
Current Liabilities
Trade creditors 22,000.00 11,600.00
Bank overdraft 13,650.00 0
(35,650.00) (11,600.00)
(11,250.00) 14,400.00
47,000.00 74,000.00
Loan (repayable
December 2008) 0 (20,000.00)
47,000.00 54,000.00
Represented by
Capital account:
Balance at 1 January 42,000.00 47,000.00
Add Net profit for the
year 18,000.00 22,000.00
60,000.00 69,000.00
Less Drawings (13,000.00) (15,000.00)
47,000.00 54,000.00
a) Based on IAS 7 guidelines, draw up Faith Sole Enterprises’ Statement of Cash flows
for the year ending 31 December 2025 (15 Marks)
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Question 7
7a) Briefly discuss the benefits of a good pricing strategy.
(10)
b) The following information relates to the production of a chemical
USD $
Marginal Cost per litre 26.00
Selling Price per litre 50,00
Total of fixed costs 72,000.00
bi) Calculate the contribution per litre.
bii) Calculate the breakeven point for the litres.
(3)
biii) Calculate the breakeven point for sales.
4c) What are the limitations for using break-even point as a management tool for production?
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