FINANCIAL ACCOUNTING PAPER 1

JUNE 2013 SUGGESTED ANSWERS

SECTION B
Answer 2 (a)
KEFAZO AND MARIO
statement of comprehensive income
for the year ended 31 march 2013
Shs.000 Shs.000 Shs.000
384,912

Sales
Cost of sales
Opening inventory
Purchases

54,120
295,248
349,368
(48,864)

Closing inventory
Gross Profit
Gain on disposal of Motor
vehicles
Expenses
Electricity
add: accrued electricity
Advertisement
add: advertisement
Sundry Expenses
add: sundry expenses
Salaries
Rent
add: accrued rent
Motor vehicle expenses
Depreciation:
Motor vehicle
Furniture
NET LOSS
Share of loss:
Kefazo
Mario

300,504
84,408
23,000
107,408

6,000
1,248
4,176
624
3,360
360
14,400
14,400

(10% x 126,000)
(10% x 36,000)

7,248
4,800
3,720
42,000
28,800
11,952
12,600
3,600

114,720
(7,312)
(3,656)
(3,656)
(7,312)

Workings:
W1

Bal b/f
Sales (384,912-58,680)

Trade Debtors A/C

Shs
61,200
326,232
387432
1

Shs
349,152
38,280
387,432

W2

Bank
Balance c/f

Trade Creditors A/C

Shs
307,008 Balance b/f
30,576 Purchases
337,584

Shs
42,336
295,248
337,584

W3

Balance b/f

Motor Vehicle A/C

Shs
192,000 Disposal
Depreciation
Bal c/d
192,000

Shs
66,000
12,600
113,400
192,000

W4

Motor Vehicle
SCI

Motor Vehicle Disposal A/C

Shs
66,000 Capital - Kefazo
23,000 Receivables - MV
89,000

Shs
25,000
64,000
89,000

Answer 2 (b)
KEFAZO AND MARIO
PARTNERS STATEMENT OF FINANCIAL POSITION AS AT 31 MARCH 2013
ASSETS
Shs 000 Shs 000
Non-Current Assets
NBV
Motor vehicle
(126,000 12,600)
113,400
Furniture
(36,000 3,600)
32,400
145,800
Current Assets:
Inventory
48,864
Trade debtors
38,280
Receivables on MV sold
64,000
Prepaid Rates
12,000
Bank
16,968 180,112
Total Assets
325,912
CAPITAL & LIABILITIES
Capitals:
Kefazo
127,328
Mario
151,376 278,704
Current Liabilities
Payables
30,576
Accrued Electricity
1,248
Accrued Advertisement
624
Accrued Sundry Expenses
360
Accrued Rent
14,400
47,208
Total Capital & Liabilities
325,912

Answer 2 (c)
PARTNERS CAPITAL ACCOUNTS
AS AT 31 MARCH 2013
Kefazo
Mario
Kefazo
Mario
Shs 000 Shs 000
Shs 000 Shs 000
Drawings
13,248
10,200 Bal b/f
145,232
165,232
Share of loss
3,656
3,656 Bank
24,000
Motor vehicle
25,000
Bal c/f
127,328 151,376
169,232 165,232
169,232 165,232
Workings
W5
Statement of Affairs
as at 31 March 2013
ASSETS
Motor vehicles
Furniture
Inventory
Trade debtors
Bank

Shs 000
192,000
36,000
54,120
61,200
9,480
352,800

Liabilities
Trade Creditors

42,336
310,464

Capital
Kefazo
Mario (310,464- 20,000)/2

165,232
145,232
310,464

SECTION C
Answer 3
(a)
WIZCOM INDUSTRIES LIMITED
Manufacturing account for the year ended 31 December 2011
Shs 000 Shs 000
Opening inventory of raw materials
150,000
Purchases of Raw materials
1,125,000
Carriage on raw Materials
18,750
Closing inventory of raw materials
(93,750)
Cost of raw materials used
1,200,000
Factory wages
1,816,875
Prime Cost
3,016,875
Factory overheads
Factory expenses
478,125
Warehousing expenses
129,375
Depreciation:
3

Plant and machinery

Factory cost
Opening inventory of work in progress
Closing inventory of work in progress
Cost of goods manufactured
Manufacturing profit
Transfer Value of goods manufactured

412,500

1,020,000
4,036,875
285,000
(262,500)
4,059,375
508,125
4,567,500

Answer 3 (b)
WIZCOM INDUSTRIES LIMITED
statement of comprehensive income
for the year ended 31 December 2011
Shs 000
Sales
Cost of Sales
Opening inventory
Finished Tiles
Special tiles
Purchases of special tiles
Goods manufactured at transfer value
Closing inventory-finished tiles
Closing inventory -special tiles
GROSS PROFIT
Discount Received
Total Income
Expenses
Salaries
Office expenses
Carriage outwards
Advertising
Discount allowed
Trading Profit
Manufacturing profit
NET PROFIT

356,250
127,500
176,250
4,567,500
(414,375)
(88,125

1,826,625
178,500
61,500
270,000
45,000

Shs 000
7,350,000

4,725,000
2,625,000
52,500
2,677,500

(2,381,625)
295,875
508,125
804,000

Answer 4 (a)

Bal b/f
Sales

Bal b/f
Sales (90% * 8,000)

NEW POLAR RETAILERS

RECEIVABLES A/C
Shs 000
800,000 Sales returns
8,000,000 Bank
Bad debts
Discount allowed
Bal c/d
8,800,000
1,448,000 Sales returns
7,200,000 Bank
Contra settlements
Discount allowed
Prov BDD-specific
Bad debts (120-8)
Bal c/d
8,648,000

Shs 000
80,000
7,200,000
40,000
32,000
1,448,000
8,800,000
144,000
7,600,000
240,000
40,000
8,000
112,000
504,000
8,648,000

Answer 4 (b)
Provision for Bad and Doubtful Debts A/C
2011
Shs
2011
Shs 000
000
Bal b/f 5%( 1,448,00087,600 Balance b/f
32,000
16,000)+16,000
SCI - Specific
16,000
SCI-General
39,600
87,600
87,600
2012
2012
Receivables-Specific
8,000 Balance b/f
87,600
W/O
SCI Specific recovered
8,000
SCI General (Decrease) 46,400
Balance c/f - General
25,200
87,600
87,600
Answer 4 (c)
2011

2012
Receivables

Bad and Doubtful Debts Expense A/C

Shs
2011
000
40,000 SCI
40,000
2012
112,000
112,000

Shs 000
40,000
40,000
112,000
112,000

Answer 5 (a)

Balance b/f
Interest

Balance c/d

Adjusted Cashbook
Shs 000
Shs 000
24,450 Bank charge
1,600
1,600 Furniture (64,500 50,000
14,500)
Dishonoured cheque
4,900
Motor vehicles
24,000
insurance (12,000 x 2)
59,450 Under casting error
5,000
85,500
85,500

5(b)
Bank reconciliation statement
Shs 000
Overdrawn balance as per adjusted
cashbook
Un-credited cheques
Dishonoured cheque
Un-presented cheques
Overdrawn balance as per bank
statement

Shs
000

(59,450)
(14,450)
(4,900)

(78,800)
5,000
(73,800)

(c)
Statement of corrected net profit
Shs 000
Profit per draft financial statements
Add interest expense overstated
Dishonoured cheque
Less:
Depreciation on furniture (64,500 14,500) x 10%
Bad debts
Bank charges
Depreciation on motor vehicles (12,000 x
25%)
Overstated sales
Corrected net profit

Shs
000
406,040
1,600
407,640

5,000
4,900
1,600
3,000
5,000

(19,500)
388,140

SECTION D
Answer 6
(a) Definition
(i)
Inventories
Inventories are assets;
held for sale in the ordinary course of a business,
in the process of production for such sale; or
in the form of materials or supplies to be consumed in the production
process or in the rendering of services.
(ii)
Net realizable value
Is the estimated selling price in the ordinary course of business less the
estimated costs of completion and the estimated costs necessary to
make the sale.
(iii) Fair value
Is the amount for which an asset could be exchanged or a liability
settled, between knowledgeable, willing parties in an arms length
transaction.
(b)

The financial statements shall disclose the:

Accounting policies adopted in measuring inventories, including the cost
formula used;
Total carrying amount of inventories, and the carrying amount in classifications
appropriate to the entity;
Carrying amount of inventories carried at fair value less costs to sell;
Amount of inventories recognized as an expense during the period;
Amount of any written-down of inventories recognized as an expense in the
period in accordance with paragraph 34;
Amount of any written-down of inventories recognized as a reduction in the
amount of inventories recognized as expense in the period in accordance with
paragraph 34;
Circumstances or events that led to the reversal of a written-down of
inventories in accordance with paragraph 34; and
Carrying amount of inventories pledged as security for liabilities.

Answer 7
(a) Accruals concept:
The accruals concept means that revenue and costs are earned and incurred not as
cash is received or paid out but they are recognized as being applicable to a particular
period. In view of this concept, all expenses or incomes relating to any particular
accounting period are taken into consideration while preparing the statement of
comprehensive income as illustrated below: We must bring into account:i. All expenses relating to that accounting period whether we have actually paid
them or not
ii. All items of income and gains whether we have actually received them or not.
7

(b)

(c)

For this purpose, some adjustments are needed at the end of the accounting period
relating to accrued expenses and accrued income.
Prudence concept
The prudence concept means that revenue and profits are only earned when
represented either by cash or by some other asset with a reasonably certain cash
value. In view of this concept, all expected losses are taken into consideration while
preparing the statement of comprehensive income. Appropriate provisions are created
for this purpose.
Prepayments and Income in Advance
(i) Prepayments are the expenses which have already been paid but relate to the
following accounting period.
(ii) Income in advance is the income which has already been received but relates to
the following accounting period.
Specific Allowance
This is allowance created in respect of specific receivables, which are known to
be facing serious financial problems or have a trade dispute with the entity. Such
balances may be identified by examining an aged receivable analysis, which
details the time elapsed since the creation of a receivable. Long outstanding
balances identified from such analyses could be considered for inclusion in the
allowance for doubtful debts.
The difference between the treatment of a bad debt and a specific allowance for
doubtful debt is that in the latter case, the receivable ledger of the specific debt
is not removed in case the debtor actually pays whereas in the case of bad
debts, the receivable ledger is reduced to nil. Also, specific allowance may not
be created for the entire amount of the doubtful receivable but only a portion of
it. For instance, if there is a 50% chance of recovering a doubtful debt in respect
of a certain receivable, a specific allowance of only 50% may be required. On the
contrary, bad debt is normally recognized in full.