QUESTION ONE

Muthusi is a businessman operating a retail business in a small town. Due to the size of his business, he is not
able to employ a qualified accountant on a permanent basis. Click here to get homework answers and answers
to your accounting questions at http://allhomeworktutors.com/
The following information was extracted from the books of the business as at 31 October 2002:
Freehold property (cost)
Motor vehicles (NBV)
Furniture and fixtures (NBV)
Stock
Trade debtors
Bank overdraft
Trade creditors
Accruals
10% loan
Provision for doubtful debts

Shs.
600,000
750,000
240,000
390,000
500,000
60,000
380,000
15,000
600,000
25,000

The following transactions took place during the financial year ended 31 October 2003:
1. Sales and purchases on credit amounted to Sh.2,080,000 and Sh.1,900,000 respectively.
2. The following transactions were carried out through the bank account:
Sales Cash
Purchases Cash
Payments to trade creditors
Purchase of furniture
Salaries and wages
Lighting
General expenses
Interest on loan
Drawings
Repayment of loan on 30 April 2003
Collections from trade debtors
Proceeds from sale of motor vehicle

Shs.
720,000
240,000
1,940,000
200,000
160,000
65,000
35,000
30,000
60,000
100,000
1,890,000
120,000

3. The business depreciates motor vehicles at 20% per annum on a reducing balance basis. A full years
depreciation is provided on a motor vehicle acquired in the course of the year and no depreciation is
provided on a motor vehicle disposed of in the course of the year.
The motor vehicle sold in the year had been purchased at Sh.250,000 and an accumulated
depreciation of Sh.122,000 had been provided on it at the time of disposal.
4. Furniture is depreciated at 10% per annum on cost and in proportion to the period used in the year. The
additional furniture was purchased on 1 May 20903 while the cost of furniture held on 31 October 2002
was Sh.400,000
5. Loan interest paid was for one-half year up to 30 April 2003
6. The business received discounts of Sh.40,000 and allowed discounts of Sh.70,000 during the year.
7. Bad debts of Sh.20,000 were written off. Provision for doubtful debts is to be maintained at 5% of the
debtors balance at the end of the year.
8. Accruals are in respect of lighting and on 31 October 2003, the amount accrued was Sh.19,000

9. Muthusis business obtains a normal gross profit rate of 25% on selling price.
Required:
(a) Trading and profit and loss account for the year ended 31 October 2003
(b) Balance sheet as at 31 October 2003.

(12 marks)
(8 marks)
(Total: 20 marks)

QUESTION TWO
The following are the summarized financial statements of Deweto limited:
Trading and profit and loss account for the year ended 31 October.
2002
Sh.000
Sales
93,500
Cost of sales
(55,120)
Gross profit
38,380
Expenses
(26,230)
Net profit before interest and tax
12,150
Loan interest
_(450)
Net profit before tax
11,700
Taxation
(3,510)
Net profit after tax
8,190
Dividend
(6,00)
Retained profit
2,190
Balance sheet as at 31 October
2002
Sh.000
Sh.000
Fixed assets:
Freehold premises
Plant and equipment
Motor vehicles
Current assets:
Stock
Debtors
Bank balance and cash in hand
Current liabilities:
Creditors
Taxation
Dividend
Ordinary share capital
Reserves
15% loan

10,500
7,200
_5,350
12,500
9,850
_5,950
8,350
3,510
3,000

2003
Sh.000
Sh.000

23,050

10,500
9,500
_7,300

27,300

28,300

11,800
8,900
5,864.5

26,564.5

(14,860)
36,490
30,000
_3,490
33,490
_3,000
36,490

Note:
1. 80% of the sales are no credit
2. The stock as at 31 October 2001 was valued at Sh.13,000,000

2003
Sh.000
11,350
(72,970)
38,380
(23,960)
14,420
__(375)
14,045
(5,413.5)
8,631.5
(6,000)
2,631.5

7,830
5,413.5
3,000 (16,243.5)
37,621
30,000
_5,121
35,121
_2,500
37,621

Required:
(a) Calculate two ratios for each classification identified below for the financial years ended 31 October 2002
and 2003:
(i) Profitability ratios
(4 marks)
(ii) Liquidity ratios
(4 marks)
(iii) Gearing ratios
(4 marks)
(iv) Activity ratios
(4 marks)
(b) Comment on Deweto Ltds profitability and liquidity positions.

(4 marks)
(Total: 20 marks)

QUESTION THREE
The following version of the receipts and payments account has been provided by the treasurer of Maendeleo
Social club for the year ended 31 October 2003:

Opening Balance
Accountancy Fees
Bar Purchases
Bar sales
Dances: Expenses
Ticket Sales
Foods: Purchases
Sales
Insurance
Electricity
Members Subscriptions
Office Expenses
Purchase of Furniture
Rates
Salaries and Wages: Bar Staff
Other Staff
Telephone
Travelling Expenses
Balance c/f

Additional Information:
1. Fixed Assets: At November 2002
Club Premises at Cost
Furniture and Fittings at Cost
Less Provision for depreciation

2. Accruals and Sundry Creditors

Receipts
Shs. 000
500

Payments
Shs. 000
200
24,000

55,000
900
1,600
4,500
8,000
500
1,500
35,000

_______
100,100,

22,000
4,000
2,000
10,000
14,000
3,000
13,000
500
100,100

Shs. 000

Shs. 000
18,000

35,000
14,000

At Nov 2002
Shs. 000

21,000
39,000

At 31 Oct 2003
Shs. 000

Accountancy Fees
Bar Purchases
Electricity
Members Subscriptions (Paid in Advance)
Telephone

200
1,500
400
1,000
600

250
2,000
300
800
700

3. Sundry Prepayments and Receivables

Insurance
300
200
Members Subscriptions (In Arrears)
6,000
7,000
4.
Maendeleo Social Club had a Bank Account, which had a balance of Shs. 2,500,000 on 1 Nov 2002.
This Bank account was not used during the year to 31 Oct 2003and the only entry made in this
account was for the interest of shs. 200,000 which was credited yo the bank on 31 Oct 2003.
5.
Depreciation on Furniture and fittings is at the rate of 10% per annum on cost. A full years
depreciation is provided for any furniture bought during the year.
6.
Bar stock was valued at shs. 7,000,000 0n 1 Nov 2002 and at Shs. 1,500,000 on 31 Oct 2003.
7.
No Apportionment of costs is made between bar activities and other club activities.
Required:
i.
Income and Expenditure Account for the year 31 Oct 2003.
ii.
Balance Sheet

(12 Marks)
(8 Marks)
(Total 20 Marks)

QUESTION FOUR
Meza Ltd has an authorized share capital of Sh.20,000,000 divided into 1,500,000 ordinary shares of Sh.10
each and 250,000 8% preference shares of Sh.20 each.
An extract of the balance sheet as at 30 June 2003 was as follows:
Fixed assets
Current assets
Stock
Debtors
Bank balance
Creditors

2,300
980
_530
3,810
_(550)

Sh.000
7,040 Equity
500,000 ordinary shares of
Sh.10 par value
250,000 8 % preference shares
of Sh.20 par value
Share premium
3,260
10,300

Sh.000
5,000
5,000
300
_____
10,300

On 1 July 2003, the company offered 500,000 ordinary shares for sale to the public at Sh.15 each payable as
follows:
On application Sh.7 including the premium
On allotment Sh.5
On first and final call, Sh.3
Applications were received on 15 July 2003 and allotment made on 31 July 2003. The allotment money was
received on 15 August 2003.
The first and final call was made on 15 September 2003 and the money received on 30 September 2003.
The company received applications for 650,000 shares. Applications for 25,000 shares were rejected and the
application money was refunded. The shares were then allocated to the remaining applicants on a pro rata

basis, the excess of the application money being carried forward in part satisfaction of the amounts due on
allotment.
An allotee of 3,000 shares failed to pay both the allotment and first and final call money and the shares were
forfeited on 13 October 2003.
The forfeited shares were then re-issued at Sh.12 each on 21 October 2003. Say do my homework here and
this will be provided with answers at http://allhomeworktutors.com/do-my-homework
Required:
(a) Ledger accounts to record the above transactions
(b) Balance sheet as at 21 October 2003

(14 marks)
(6 marks)
(Total: 20 marks)

QUESTION FIVE
(a)

Briefly explain the meaning of each of the following accounting concepts, giving in each case, an
example of the application of each:
(i) Materiality
(4 marks)
(ii) Substance over form
(4 marks)
(iii) Money measurement
(4 marks)

(b)

Briefly explain whether revenue may be recognized in the following circumstances in respect of sales
made by a business entity:
(i) Goods have acquired by the business entity which it confidently expects to resell
very quickly
(2 marks)
(ii) A customer places a firm order for goods

(2 marks)

(iii) Goods are delivered to the customers premises

(2 marks)

(iv) The customers cheque in payment for the goods has been cleared by the bank.
(2 marks)
(Total: 20 marks)