FINANCIAL ACCOUNTING

KASNEB 

CPA PART I SECTION 1  

CIFA PART I SECTION 1  

FINANCIAL ACCOUNTING  

PILOT PAPER   

September 2015.                                                                                                 Time Allowed: 3 hours.

Answer all questions.Marks allocate to each question are shown at the end of the question. Show all your workings.

QUESTION ONE

(a)         Enumerate four features of public sector accounting that distinguish it from private sector accounting.       (4 marks)

(b)         Abdi and Badi were partners in Abai Enterprises trading as general merchants and sharing profits and losses in the ratio
2:1 after charging interest on capital at 10% per annum.

On 30 November 2014 Coy was admitted as a partner and from that day, profits and losses were to be shared in the ratio 2:2:1 for Abdi. Badi and Coy respectively.

The following trial balance was extracted from the partnership books as at 31 August 2015:

	Sh. "000"	Sh. "000"
Land and building	22,500
Motor vehicles	24.600
Furniture and fittings	8,700
Accumulated depreciation: Motor vehicles		5,670
Furniture and fittings		1,455
Capital                                    Abdi		9,750
Badi		8,400
Cash introduced by Coy		13,500
J Purchases	64,800
Sales		120,000
Bank balance	3,690
Accounts receivable	9,660
Rent expense	1,260
Inventory	14,400
Salaries	22,440
Selling and distribution expenses	7,860
Partners current accounts:  Abdi		7,460
Badi	2,000
Trade payables		15,675
	181,910	181,910
Additional information:

E.               Other than receipt of cash from Coy, no entries have been made to record the admission. On 30 November 2014,

land and buildings were revalued at Sh. 30 million while goodwill which was to be written off was estimated at Sh.9 million.

2.               After the admission of Coy, partners agreed that interest on capital would subsequently be paid at 20% per annum.

3.               Salaries include the following partners drawings:

Abdi                             Sh.3,870,000

Badi                             Sh.3,060,000

Coy                              Sh.1,030,000

4         Depreciation on motor vehicles is to be provided at 20% p.a o'n a reducing balance basis while depreciation on

furniture and fittings is to be provided at 20% p.a on cost.

5.              Sales for the period after admission of Coy were 50% more than sales for the period before admission in the year

to 31 August 2015. Selling and distribution expenses varied with sales while other expenses accrued evenly over the year.

6.            Allowance for doubtful debts was Sh.350,000 on 30 November 2014 and Sh.500,000 on 31 August 2015.

7.            Inventory on 31 August 2015 was valued-at Sh.15 million.

Requred:

i. Income statement for the year ended 31 August 2015.          (10 marks)

ii. Statement of financial position as at 31 August 2015. (6 marks)
QUESTION TWO

(a)       Explain two liquidity ratios.                                                                                                  (4 marks)

(b)       The following trial balance was extracted from the books of Vixen Ltd. as at 31 May 2015:

	Sh."000"	Sh."000"
Ordinary share capital - Sh.10 each		22,500
Share premium		1,200
10% debentures		1,500
General reserve		1,500
Revenue reserves		2,430
10% preference shares		12,000
Goodwill -	3,750
Inventory	4,185
Purchases and sales	33,270	56,955
Discounts	510	753
Salaries	4,275
Rates and insurance	2,553
Office expenses	2,208
Directors remuneration	750
Interim dividends paid: Preference	480
Ordinary	2,250
Financial assets at fair value	12,000
Trade receivables and payables	3,600	3,015
Allowance for doubtful debts		420
Bank	1,917
Buildings	25,500
Furniture and fittings	2,250
Motor vehicles	12,000
Provision for depreciation: Furniture and fittings		450
Motor vehicles		4,650
Debenture interest	75
Investment income		4,200
	111,573	111,573

1.            The cost and net realisable value of inventory as at 31 May 2015 was Sh.4,200,000 and Sh.3,950.000 respectively.

2.            Invoices received amounting to Sh.500,000 had erroneously been treated as invoices issued.

3.            Depreciation is to be provided as follows:

Asset                                                               Rate per annum

Furniture and fittings          -10% reducing balance basis

Motor vehicles                       20% straight line basis

4      Allowance for doubtful debts to be adjusted to Sh.300,000.

5       Irrecoverable debts amounting to Sh.50,000 to be writtenpff.

6.            Insurance amounting to Sh.600,000 had been paid to cater for a period of one year ending 31 August 2015.

7.            Provisions for accrued debenture interest and preference dividends are to be made.

8.            Corporate tax for the year is estimated at Sh.1,750,000.

9.            A final dividend of 10% was declared.

_Required:                                               ,

(i)              Income statement for the yeai^. ended 31 May 2015:

(ii)             Statement of financial position as at 3f May 2015.-QUESTION THREE

(a)         Explain the two fundamental qualitative characteristics of good financial information.                                   (4 marks)

(b)         Enumerate four errors that are not detected by a trial balance.                                                                                (4 marks)

(e)        The following balances of non-current assets were extracted from the financial records of Kazantan Ltd. as at 1 June

2014:

Cost                          Accumulated

Depreciation

  Sh.                               Sh.

Land                                                           6,243.000

Buildings                                                                                        6,580,500                                          657.000

Furniture and fixtures                                 2,025.000                                          675,000

Plant and equipment                                15,120,000                                 10.039,000

Motor vehicles                                             7,930,000                                     3,307,500

The following information relates to the year ended 31 May 2015:

1.               An item of plant was disposed off during the year ended 31 May 2015 for Sh.1,070,000. The item had cost Sh.3,140,000 and had accumulated depreciation of Sh.2,200.000.

2.               Land and buildings were professionally revalued on 1 June 2014 at Sh.7 million and Sh.6.5 million respectively.

J.                                                 A delivery van purchased in March 2013 for Sh.2 million was stolen during the year. The insurer accepted to

compensate the company by paying 70% of the original cost.

4.                              During the period furniture and fixtures acquired amounted to Sh.3 million while a vehicle that had cost Sh. 1.2

million and on which depreciation of Sh.400,000 had been charged was traded in for a new vehicle costing Sh.3 million and the company was required to pay Sh.2.4 million in cash settlement of the trade in balance.

S_.                        The depreciation policy of Kazantan Ltd. was as follows:

Asset                                         Basis of depreciation               Rate per annum

Land                                                                                                       -

Buildings                                                       Straight line                                 2.5%

Furniture and fixtures           Straight line                                  10%

Plant and equipment            Reducing balance                    12.5%

Motor vehicles                       Reducing balance                       20%

A full years depreciation is provided in the year of acquisition and none in the year of disposal.

Required:

Property, plant and equipment movement schedule for the year ended 31 May 2015.                                      (12 marks)

(Total: 20 marks)

QUESTION FOUR

(a)            Explain three differences between an income and expenditure account and a receipts and payment account in accounting

for a not-for-profit organisation.                                                                                                                                       (6 marks)

(b)            Joy Nitan owns a manufacturing plant under the name Jotan Manufacturers. The following trial balance was extracted from the books of Jotan Manufacturers as at 30 June 2015:

Capital 10% bank loan	Sh."million"                       Sh."million" 1,250 1,100
Land	1,475
Factory building	1,450
Factory plant	200
Office expenses	18
Electricity	20
Factory fuel	25
Factory salaries	18
Delivery vans	150
Inventory: Raw materials	125
Work in progress	75
Finished goods	300

Sh,"million" Sales		Sh."million" 3,554
Sales returns	50
Purchases of raw materials	1,500
Insurance	9
Water	40
General salaries	200
Allowance for irrecoverable debts		30
Trade receivables and payables	600	820
Bank	400
Cash	60
Computers	200
Provision for depreciation:          Factory building		200
Factory plant		40
Delivery van		60
Computers		50
Irrecoverable debts	10
Loan interest	110
Discount received		36
Investments	120
Investment income
	7,155	71155
Additional information:

1.               Inventory as at 30 June 2015 was valued as follows: Sh."million"

Raw materials                           200

Work in progress                     100

Finished goods                         250

2.               Allowance thr irrecoverable debts is to be adjusted to Sh.25 million

3.               Prepaid insurance amounted to Sh.3 million as at 30 June 2015.

4.               Accrued general salaries amounted to Sh.16 million.

5.               Expenses to be apportioned between factory office and selling expenses as follows:

Electricity		Factory Expenses Sh."rnillion" 80%	Administration expenses Sh."million" 20%	Selling expenses Sh."rnillion"
General salaries		20%	60%	20%
Insurance		20%	60%	20%
Water		80%	20%
Depreciation:	Factory buildings	100%
	Factory plant	100%
	Delivery van			100%
	Computers	50%	50%
6.         Depreciation is to be provided on cost as follows: Asset                             Rate per annum Factory buildings                      2% Factory plant                           10% Delivery. van                           20% Computers                              20% Required: Manufacturing account and income statement for the year ended 30 June 2015.					(14 marks) (Total: 20 marks)

QUESTION FIVE'

(a)        Explain two categories of financial assets.                   (4 marks)

(b)       Ally Ltd. has provided the following financial information for the month ended 31 August 2015:
Sh."million"

Receivables debit balance_as at I August 2015                                           1,200

Payables credit balance as at). AuguSt 2015                                                  800

	Sh."million"
Credit purchases	2,840
Allowance for irrecoverable debts (30 June 2009)	60
Credit sales	3,630
Returns inwards	100
Discounts received	9
Returns outwards	40
Interest charged to credit customers on overdue accounts	20
Discounts allowed	6
Receipt from credit customers	2,904
Payment to creditors	2,207
Irrecoverable debts written oft"	12
Customers cheques dishonoured	50
Payables ledger credits transferred to receivables	240
Additional information:

1.               An amount of Sh.200,000 previously written off was received in the month of August 2015.

2.               Claims by Ally Ltd. for price reduction in the month of August due to defective goods was approved by suppliers amounting to Sh.150,000.

3.               An invoice issued of Sh.480,000 was omitted from the relevant day book.

Required:

Sales ledger control account.       (8 marks)

ledger control account.                    (8 marks)