“A” LEVEL ACCOUNTING

HOLIDAY VACATION

QUESTIONS BOOKLET

PAPERS

2 &3

Tinofamba nevanofamba

1
 QUESTION 1

Adbel received a legacy from his Father so he was able to fulfil a long standing desire to open
a spare parts shop. On 1 January 1992 he opened a business bank account with the full
amount of the legacy. However he paid little attention about keeping proper accounting
records.
Also on 1 January 1992 he rented premises at a rental of $750 per month payable quarterly in
advance. The first payment was made on 3 January 1992. At 31 December 1992 a summary
of Adbel’s bank transactions revealed the following:

Receipts $ Payments $
Legacy 50 000 Rent 6 750
Cash banked 269 000 Fixtures/equipment 21 670
Business rates 2 400
Electricity 4 670
Telephone 690
Purchases 265 770
Holiday in Vumba 3 400

All Adbel’s takings were banked after the following cash expenses were paid and personal
drawings taken. These were:
Wages $410 per week (50 weeks);
Sundry expenses $15 per week (50 weeks);
Cash purchases $2 980 for the year.
Adbel always retained a cash float of $250 in the till.
Additional information:
i. Due to an oversight the last quarter’s rent due on 1 October 1992 was not paid until
January 1993.
ii. Selling prices were fixed by marking up the goods by 40% on cost price.
iii. Business rates of $1000 had been paid on 5 October 1992 to cover the period 1
October 1992 until 31 March 1993.
iv. It was estimated that Adbel owed $1 800 for electricity and an accountant’s fee of
$220 at 31 December 1992.
v. It was decided to depreciate the fixtures and equipment by $6 670.
vi. Creditors for purchases were $6 250 at 31 December 1992.
vii. Trade debtors amounted to $38 000 at the year ended 31 December 1992 and a
provision for doubtful debts of 5% was to be established at that date.
viii. Closing stock was valued at cost at $15 000.
After preparing Adbel’s final accounts for the year ended 31 December 1992 the accountant
suggested he should consider converting his business into a private limited company.

Required
a) A Income statement for the year ended 31 December 1992 {14}
b) A statement showing the calculation of Adbel’s drawings {4}
c) A Statement of financial position as at 31 December 1992. {14}

2
 QUESTION 2
Hunter extracted a trial balance which failed to agree. He entered the difference in a suspense
account to enable him to draft his final accounts. The draft profit and loss account prepared
by Hunter showed a gross profit of $1 970 000 and a net profit of $1 380 000.

After completing the draft final accounts, Hunter consults you as accountant and you discover
the errors shown below:

i. A credit balance in the purchases ledger, $62 000, had been omitted from the list of
balances extracted from the ledger.

ii. Goods returned by Hunter to Power, a supplier, had been credited to Power’s account
and debited to returns outwards account. The goods had cost $120 000.

iii. A debt of $28 000 had been written off as bad in the sales ledger but no other entry had
been made.

iv. Repairs to Hunter’s business motor vehicle, $605 000, had been debited in error to the
motor vehicle account as $650 000.

v. The opening stock figure at 1 January 2003 had been entered in the trial balance as $434
000 instead of $344 000 as shown in the stock account.

vi. Purchases from Peter amounting to $810 000 had been received on 31 December 2003.
These had been included in closing stock at that date, but the invoice had not been
entered in the purchases journal.

vii. In November 2003, Hunter purchases a large quantity of stock of stationery at a bargain
price of $420 000. Three fifths of this stationery was in stock on 31 December 2003 but
no adjustment has been made to the accounts.

viii. A delivery van held as a fixed asset had been sold during the year for $144 000. The
proceeds of the sale had been credited to the sales account. The original cost of the van,
$360 000 and the accumulated depreciation to date, $240 000 were included in the
motor vehicles account. The company depreciates delivery vehicles at 25% per annum
on a straight line basis with proportionate depreciation in the year of purchase but none
in the year of sale.
Required
a) Prepare the journal entries necessary to correct each of the errors given above.
(narratives not required) {10}
b) Write up the suspense account {5}
c) Prepare computations for the year ended 31 December 2003 of the following:
i) Corrected gross profit {7}
ii) Corrected net profit {6}

3
 QUESTION 3

Adbel, Hunter and Chings have been in partnership for many years sharing profits in the ratio
3:2:1respectively. The partnership Statement of financial position at 28February 1994 was as
follows.

Non current assets $ $

Premises 56 000
Machinery 18 000
Motor vehicles 27 000
101 000
Current assets
Inventory 11 000
Trade receivables 18 500
29 500
130 500

Capital accounts: Adbel 50 000

Hunter 30 000
Chings 18 000 98 000

Current accounts: Adbel 3 100

Hunter 1 900
Chings (1 000) 4 000

Loan from: Hunter 5 000

Current liabilities
Trade payables 14 000
Bank overdraft 9 500 23 500
130 500

The partners have accepted an offer of $105 000 from Nissi Ltd to buy all the assets of the
business except for trade receivables and three of the vehicles which have been used by the
partners over the last year.

The agreed purchase consideration was settled by Nissi Ltd by the issue of 75 000 ordinary
shares of 50 cents each and the payment to the partnership of $60 000 cash. The shares were
divided equally between the partners. The final balances on the partners’ capital accounts
were settled in cash.

Each partner agreed to take over personally the vehicle which he had been using during the
year. Details of the vehicles were :

Book value Agreed take

of vehicle over prices
$ $
Adbel 5 000 6 000
Hunter 5 000 5 000
Chings 7 000 8 000

4
Cash collected from trade receivables amounted to $17 900 and the partners paid $12 500 to
trade payables in full settlement of the amounts due to them.
The costs of dissolution of the partnership amounted to $4 500 and were paid by the
partnership.

Required
a. A calculation of the profit or loss on the dissolution and sale of the partnership.
b. The capital accounts of the partners recording the dissolution and sale.
c. Calculate the agreed value of an ordinary share in Nissi Ltd and explain why it may
be different from the nominal value.
d. Explain why the partners may have accepted shares in Nissi Ltd rather than insisting
on a full cash payment.

5
 QUESTION 4
The summarised Statement of financial position as at 31 August 1996 of Topper Limited is as
follows:
$ $
Non Current Assets 110 000
Current Assets:
Inventory 126 000
Bank 84 000
210 000
Less Amounts falling due within one year:
Trade payables 25 000 185 000
295 000
Financed by
Issued share capital 160 000
(Ordinary Share of $1 each, fully paid)
Profit and Loss Account 135 000
295 000

During the year ended 31 August 1997 the following events took place :

1. All trade payables at 31 August 1996 were settled in full on 10 September 1996.
2. On 16 September 1996, the company made a one for four bonus issue of fully paid
Ordinary shares.
3. On 30 September 1997, the company acquired some of the net assets of Brush
Brothers, a partnership, which had ceased trading. The net assets concerned were as
follows :
As shown in Brush Brothers Fair Value for Topper
latest Statement of financial position Limited’s Accounts
$ $
Non Current Asset 140 000 120 000
Current Assets :
Inventory 39 000 44 000
179 000 164 000
The purchase price of $164 000 was settled as follows :
i. The issue of 60 000 Ordinary Shares of $1 each, fully paid, in Topper Limited.
ii. The issue of $50 000 6% Loan Stock 2010-2015, at par, in Topper Limited.
4. On 1 March 1997, Topper Limited made a rights issue of one for every five Ordinary
Shares of $1 each already held. The price of $1.40 was payable in full immediately
and the issue was fully subscribed.
5. On 1 August 1997, Topper Limited sold some surplus fixed assets for $30 000. The
written down value of these fixed assets was $34 000.
Assume the events listed above were the only transactions involving Topper Limited
during the year ended 31 August 1997.
REQUIRED
a) Prepare journal entries covering all the transactions listed above.
b) Prepare a Statement of financial position as at 31 August 1997 of Topper Limited

6
 QUESTION 5
Musendo Ltd is a wholesale business that prepares its final accounts on 30 June every year.
The company has suffered serious employee problems which caused annual stocktaking to be
delayed and then carried out on 21 July 1992. The stocktake was not performed with its usual
efficiency.
At the conclusion of the stocktake the closing inventory figure was $23 790. The outcome of
this figure produced the following results at 30 June 1992:
$
Gross profit 157 000
Net profit 31 560
Net current assets 24 540
The management felt it was important that the correct closing inventory figure should be
determined, so a firm of expert stocktakers was engaged.
After a thorough investigation of the inventory and related records the following records were
revealed.:

i. Some inventory was found to be obsolete and was scrapped. This inventory cost $700
when purchased in January 1985.

ii. On 10 June 1992 goods costing $450 have been sent to Manu Mugova on a sale or
return basis. The customer had bought some of these goods immediately at an invoice
price of $180. No goods on a sale or return basis have been included in the closing
inventory.

All goods have a mark up of 20%

iii. Unused advertising material worth $1 120 had been incorrectly included in the
inventory of goods valuation.

iv. Carriage inwards relating to unsold inventory amounting to $120 had been incorrectly
debited to carriage outwards.

v. After checking the individual inventory sheets it was found that two were undercast
by $100 and $40 respectively and one was overcast by $60.

vi. The trading transactions that took place between 30 June 1992 and 21 July 1992 were:

$
Sales 2 970
Sales returns 480
Purchases 4 200
Purchases returns 340

The figures were used in the inventory calculations at 21 July 1992 but otherwise
were correctly entered in the accounts as transactions relating to the year 1992/93.

Required
a. A computation of the correct inventory value at 30 June 1992.
b. Statements to show the correct Gross and Net Profits for the year ended 30 June 1992
and the correct Net Current Assets at that date.

7
 QUESTION 6
Nissi ltd runs a small retail business for the past four years. He has problems with profit
hence there is need to calculate closing stocks using different methods.

The following information relates to his stock for the year ending 31 December 2015:

Purchases (units) Sales (units)

April –June 1998 256 230
July-September 1998 246 222
October-December 1998 364 342
January-March 1999 244 226

On 1 April 1998 there were 160 units in stock.

Up to June 30 1998 each unit cost $20; however subsequently the supplier increased
his prices by 10% each quarter.
Nissi ltd sold her stock in packs of two.
The selling price is $76 per pack.
Required
a) Calculate the values of closing stock at 31 March using:
I. The first in first out(FIFO)method. (9)
II. The last in first out(LIFO)method. (9)
b) Prepare a statement showing the gross profit for the year ended 31 March
1999 using the above methods. (7)

QUESTION 7

Digits Ltd’s Statement of financial position at 30 April 2010 was as follows:

$000
Non-current assets 1 300
Net current assets 740
2 040

Ordinary shares of $1$ 1 200

10% preference shares of $1 300
Share premium account 200
Profit and Loss Account 340
2040
On 1 May 2010, before any further transactions had taken place, it was decided to redeem all
the preference shares at a premium of $0.30. The shares had been originally been issued at
$1.20 per share. In order to provide funds for the redemption, the company issued a further
100 000 ordinary shares at a premium of $0.25.

REQUIRED

Prepare Digits Ltd’s Statement of financial position as it will appear immediately after the
issue of additional ordinary shares and the redemption of the preference share capital.

8
 QUESTION 8

James Ltd provides the following information :

Statement of Financial Position as at 31 December 2015

$
Non current assets 1 600 000
Current assets 300 000
1 900 000
Equity
Ordinary shares of $0.50 each 800 000
10% $1 Redeemable preference shares 200 000
Share premium 250 000
Revaluation reserve 150 000
Retained earnings 400 000
1 800 000
Current liabilities 100 000
1 900 000

On 31 December 2015, James Ltd made a right issue of 400 000 ordinary shares at a
premium of 10 cents per share. Immediately after the rights issue , a bonus issue of one
ordinary share for every five (including rights issue shares) held was made. The company
maintains reserves in the most flexible form.

Required

Prepare the Statement of Financial position of James immediately after the above transactions
are completed.

9
 QUESTION 9

The Statement of Financial Position of Fictitious Ltd on 31 December 2012 appeared as

follows:

$
Non current assets 2 000 000
Current assets 600 000
2 600 000
Equity
Ordinary shares of $0.50 each 1 400 000
10% $1 Redeemable preference shares 200 000
Share premium 300 000
Retained earnings 500 000
2 400 000
Current liabilities 200 000
2 600 000

On 1 January 2013,it was decided to redeem all preference shares at $1.15 each. The shares
had originally been issued at $1.10 each. In order to provide funds for the redemption,
Fictitious Ltd issued a further 250 000 ordinary shares at 60 cents each.

Required

a. Prepare journal entries to record the above transactions. {8}

b. Prepare the Statement of Financial position of James immediately after the above
transactions are completed. {12}

10
 QUESTION 10

Ticks Ltd Abel Ltd

Share capital: ordinary shares of $1.00 $1 000 000
ordinary shares of $0.25 $600 000
5% preference shares of $10 $400 000
8% preference shares of $1 $300 000
10% debenture stock 2005/6 $300 000 $180 000

Additional information for the year ended 31 March 2003:

Ticks Ltd Abel Ltd

Operating profit $360 000 $252 000
Dividend cover 5 times 7 times
Transferred to General Reserve $100 000 $60 000

Required
a) prepare an extract of the Profit and Loss Account for the year ended 31 March 2003
for :
i. Ticks Ltd
ii. Abel Ltd {12}
At 31 March 2003 the market prices of the ordinary shares were as follows:
i. Ticks Ltd $1.60
ii. Abel Ltd $1.35

b) Calculate the following ratios for each company, showing all workings.
i. Interest cover
ii. Earnings per share
iii. Dividend paid per share
iv. Price earnings ratio
v. Dividend yield {10}
c) Compare and comment briefly on the rations for Ticks Ltd and Abel Ltd in (b) {10}

11
 QUESTION 11

i. What is the difference between

a.) Allocation of overheads and b.) apportionment of overheads
Giving an example of each.
ii) Explain what is meant by overhead absorption rate and mention any three
bases on which the rate may be calculated. (5)
iii) Diversify Ltd. has three production departments:
Machining dept
Assembly dept
Painting dept
There are also service departments : Dept A and Dept B
Dept. B services all the other four departments, whilst Dept. A services
only the production departments. The following are the overheads costs of
the departments for the past four weeks to 28 March 19-1:

Dept Machining Assembly Painting Dept A Dept B

$ $ $ $ $
Indirect labour 25 000 20 000 10 000 6 000 8 000
Other overheads 10 000 8 000 6 000 3 000 2 000
The service departments overheads are charged to the other departments as follows:
Machine Assembly Painting
Dept
Dept A 50% 25% 25% -
Dept B 40% 30% 20% 10%
The Machining dept. recovers overheads on the basis of machine hours whilst the
Assembly and Painting departments recover overheads on the basis of labour hours
worked. The following information is available for the production departments:
Machining dept: machine hours worked, 400per week.
Assembly dept : hourly rate of pay $5
Painting dept :hourly rate of pay $4

Required

The overhead recovery rates for each of the production departments. (14)

12
 QUESTION 12

Morgan Ltd has expanded its production capacity by acquiring a new factory. The factory has
three production departments: Moulding, Assembly and Paint Shop. There is also a service
department: Stores. The Accountant must apportion the overheads of the factory to the three
production departments.

Details of the departments and the budgeted overheads expenses for the six months to
31December 2007 together with data for Product Q are given below:

Departmental statistics for six months ending 31 December 2007

Moulding Assembly Paint Shop Stores
Area in square metres 6 000 8 000 5 000 1 000
Machinery at cost $80 000 $40 000 $20 000 -
No. of workers 30 40 20 10
No. of stores requisitions 700 500 300

Budgeted overheads for 6 months to 31 December 2007

$
Rent 90 000
Lighting and heating 23 000
Insurance of premises 7 000
Canteen costs 54 000

Machinery is depreciated at 30% per annum on cost.

All workers will work 35 hours per week and there will be 24 working weekends in the six
months to 31December 2007.
Product Q passes through all three departments in the course of manufacture and the time
taken in each department is:

Moulding 2 hours Assembly 1 hours Paint Shop 1 hours

Required
a. A table to show the apportionment of the factory overheads to the production
departments for six months to 31 January 2007. {14}
b. Calculate for each production department an hourly overhead rate, giving your answer
correct to three decimal places. {3}
c. Calculate the total overhead to be awarded to each unit of Product Q {4}

13
 QUESTION 13
Kilia manufactures garden ornaments.

Budgeted revenue and costs for 10 000 units of a garden ornament are as follows:

Revenue 300 000

Costs
Direct materials (10 000kilos) 60 000
Direct labour ( at $11 per hour) 132 000
Fixed overheads 70 000

The actual revenue and costs for 18 000 units were as follows:
$
Revenue 504 000

Costs
Direct materials (17 560kilos) 119 408
Direct labour (23 000 hours) 233 450
Fixed overheads 70 000

Required
a. Prepare a flexed budget to show the difference between the budgeted profit and the
actual profit for 18 000 units. {12}

b. Prepare a standard cost statement to reconcile the budgeted profit and the actual
profit. It should clearly show the following variances:

Sales volume variance

Sales price variance
Direct material usage variance
Direct material price variance
Direct material efficiency variance
Direct material rate variance
{16}

14
 QUESTION 14

Power Ltd makes one product. Budgeted information is as follows:

Per unit
Selling price $55
Direct materials 4 kilos at $5 per kilo
Direct labour 2 hours at $9 per hour

During April 10 000 units were produced and sold. The following variances arose from the
production and sales:
$
Sales price variance 20 000 (F)
Direct material price variance 8 400 (F)
Direct material usage variance 10 000 (A)
Direct material rate variance 2 050 (A)
Direct material efficiency variance 4 500 (A)

REQUIRED

a. State the formula used to calculate each of these five variances

b. Calculate, for April, the actual:

i. Selling price per unit

ii. Quantity of materials used in total
iii. Material price per kilo
iv. Number of labour hours worked in total
v. Labour rate paid per hour
c. Starting with the original total budgeted contribution, calculate the actual total
contribution for the month.

15
 QUESTION 15

Musendo Power Limited manufactures garden furniture. One of the lines it produces is a bird
table and the contribution made by the bird tables to the overall company results for the year
ended 30 June 2017 was as follow :
Contribution statement for the bird tables for the year to 30 June 2017.
$ $
Sales 162 000
Less: Variable costs
Raw materials 53 280
Direct labour 47 680 100 960
61 040

Additional information

1) No opening or closing stocks of bird tables.

2) Budget and standard costs for the year ended 30 June 2017.
i) Budgeted sales of bird tables: 15 000@ $10 each.
ii) Each bird table would require 4kg of materials at a cost of 80cents per kg
iii) Three bird tables should be made per hour of direct labour.
iv) The direct labour rate is $7.20 per hour.

3) The additional results for the year ended 30 June 2017 revealed the following:
i) 18 000 bird tables were sold.
ii) 74 000 kg of raw material was used.
iii) Direct labour amounted to 6 400 hours.
Required
a) i) Sales volume variance {2}
ii) Sales price variance {2}
iii) Total sales variance {2}
iv) Raw material usage variance {2}
v) Raw materials price variance {2}
vi) Total raw materials variance {2}
vii) Direct labour efficiency variance {2}
viii) Direct labour rate variance {2}
h) Total direct labour variance {2}

b) Prepare a statement that shows the budgeted contribution for the year ended 30 June
2017. {4}

16
 QUESTION 16
Doctor Clarence runs a business which retails high quality clothing. It is particularly busy
during the festive season.
The budgeted sales and purchases figures for September 2015 to January 2016 are as follows:

September October November December January

$ $ $ $ $
Sales 215 000 225 000 310 000 425 000 195 000
Purchases 175 000 190 000 245 000 135 000 135 000

Additional information:

1. 50% of sales are expected to be paid for cash and these customers will receive a 6%
discount.
50% of the remaining sales are expected to be paid in the following month and these
customers will receive a 3% discount.
The remainder will pay 2 months after the sale.
2. 30% of purchases are expected to be paid for in the month of purchase and will
receive a 4% discount.
40% of purchases are expected to be paid in the month after purchase will receive a
2% discount.
The remainder are paid for 2 months after purchase.
3. The inventories held on 1 November 2015 are budgeted at $180 000.
The inventories held on 31 January 2016 are budgeted at $129 000.
4. The general expenses are budgeted at $18 000 in November 2015 with an expected
10% rise in December and a 15% reduction { on the December total} in January
2013. All general expenses are expected to be paid in full in the month in which they
occur.
5. The depreciation on the non-current assets acquired before November 2015 will be
$1 750 per month.
6. On 1 November 2015 Doctor will acquire a new storage system at a cost of $24 000
and will pay 50% of the cost immediately. The remainder will be paid in equal
instalments over the following 12 months without any interest charges.
This new non-current asset will be depreciated at 10% per annum on a monthly basis.
7. Doctor will make drawings of $3 000 every month except for December 2015. In this
month he expects to draw 1,5% of the month’s expected sales.
8. The bank balance at 1 November 2015 is expected to be $34 850.

REQUIRED

a. A cash budget in columnar form, for the 3 months commencing with November 2015.
b. To show the Sales, Purchases, Trade receivables and Trade payables figures to be
included in the budgeted income statement and statement of financial position for this
3 month period ending in January 2016.

17
 QUESTION 17

The sales budget for Ruu Ltd for the six months to 30 November 2003 is as follows:

Month Units
June 600
July 800
August 1 000
September 900
October 980
November 1 020

Further information is as follows:

1. All units are sold for $60. Customers are allowed 1 month’s credit.
2. Monthly production of the units is equal to the following month’s sales plus 10% for
inventory.
3. Costs per unit are as follows:
Material 3 kilos
Cost of material $4.00 per kilo
Labour 2 hours
Labour rate of pay $8.00 per hour
Absorption rates
Variable overhead $14.00
Fixed overhead $3.50
4. Materials are purchased one month before they are needed for production and are paid
for two months after purchase.
5. Wages and variable overheads are paid in the following month.
6. The following information is to be taken into account:
i. Cash book balance at 30 June 2003 : $16 000;
ii. Inventory of finished goods at 31 July 2003 : $56 420.

Required
a. The following budgets for the month of August 2003 only.
i. Production budget (units)
ii. Purchases budget
iii. Sales budget
b. Calculate the cash book balance at 31 July 2003.
c. A cash budget for the month of August 2003 only.

18
 QUESTION 18

Power Limited manufactures a product each unit of which requires 2kg of material called
Wax. Production for the month of September 2016 to January 2017 is budgeted as follows:

2016 Number of units produced

September 1 000
October 3 000
November 4 000
December 2 000
2017 January 3 000

The inventory of Wax at 1 September 2016 was 2 000 kg. It is expected that this material
would become difficult to obtain in 2017 for that the price will increase. It has therefore been
decided that the stock of this material would increase by 1 000kg each month to the end of
2016. Wax cost $2 per kg at present but the price is expected to rise to $3 in November.

Required
Raw material purchase budget for Power Limited for the four month to 31 December 2016.

19
 QUESTION 19

Power High School hires a bus whenever it has to travel for sports. The School Development
Association is considering buying a school bus.

The cost of the new bus is $110 000 payable $50 000 now and the balance in twelve months
time. The bus is expected to run for five years, after which it will be sold for $10 000.

At the beginning of the first year, the costs of running the new bus per annum are currently:

$
Fuel 10 000
Repairs 5 000
Other costs 2 000

These costs are expected to increase by 10% for each of the next three years and thereafter by
5% each year.

The cost of hiring a bus is currently $800 per trip and the school has an average of 40 trips
per year. The cost is expected to increase by 20% each year for the next 2 years and by a
further 10% each year thereafter. The cost of capital is 10%. The following extract is from the
present value table for $1.

10%

Year 1 0.909
2 0.826
3 0.751
4 0.683
5 0.621

Required
a. The annual savings rounded off to the nearest dollar, to be made by running a new
bus. {6}
b. The Payback period {4}
c. The Net Present Value {12}
d. Advise the School Development Association (SDA) whether to buy or to continue
hiring. {3}

20
 QUESTION 20

The directors of Shumirai Ltd are considering expanding their company by investing in a
bigger investment that generate more profit. The directors have got two project proposal,
Project A and Project B. Project A costs $45 000 and Project B costs $50 000. However due
to shortage of funds, only one of the projects can be undertaken.

$ $
Project A Project B
Expected profit year 1 7 000 16 000
2 9 000 15 000
3 10 000 8 000
4 10 000 6 000
5 11 000 4 000

Estimated residual value at the end of 5 years 3 000 5 000

Additional information
1. The company’s cost of capital is 12%.
2. Profits as given above have been calculated after deducting straight line depreciation
calculated over 5 years.
3. The relevant discount tables are shown below:

12% 20%
End of year 1 0.893 0.833
2 0.797 0.694
3 0.712 0.579
4 0.636 0.482
5 0.567 0.402
Required
a) Calculate for each of the projects,
i) the payback period to the nearest month, {4}
ii) the net present value (NPV), {8}
iii) the internal rate of return {8}
b) Advise the directors which of the two projects it should undertake. Give reasons
for your choice. {5}

21
 QUESTION 21

The following is a summary of the balance sheet for G.White Ltd as at 31 May 1991.
$ $
Fixed assets at cost 65 000
Less depreciation to date 14 000
51 000
Curent assets
Stock 60 000
Trade debtors 35 000
Bank 14 300
109 300
Current liabilities
Trade creditors 30 000
79 300
130 300
Capital and reserves 130 300

The company is in the process of preparing budgets for the three months
ending 31 August 1991, and the following information is available.
i. Budgeted sales(which provide a gross profit of 25% on cost)are:
May $70 000
June $75 000
July $65 000
August $100 000
September $90 000
ii. It has been company policy since January 1991 to arrange purchases,
such that stock at the end of each month exactly covers sales for the
following month. Half of the purchases are paid in the month received
and the company have negotiated a 2 % discount for prompt
payment, the remainder are paid net the following month.
iii. Expenses(excluding depreciation) are $8 400 per month, payable in the
month they are incurred.
iv. The company will be purchasing additional fixed assets costing $17
000 on 1 June 1991 with 50% payable in July and the balance payable
in October 1991. Depreciation on all fixed assets is at the rate of 10%
per annum on cost(rates being charged from the date of purchase)
Required
a.)A cash budget for the three months ending 31 August 1991. (13 marks)
b.) A budgeted trading and profit and loss account for the three months ending 31 August
1991, together with a balance sheet as at that date. (12 marks)
c.) Outline the main differences between a cash budget and a budgeted trading Profit and
loss account. (6 marks)
(Total 31 marks)

22
 QUESTION 22

Nyamhunga Wrestling Club presented the following details for the year ended 31
December 2010.
$
(i) Receipts
Subscriptions 6 000
Bar sales 27 300
Entrance fees 1 200
Gate takings on tournaments 1 800
Sales of programmes 15

(ii) Payments:
Rates 1 200
Bar purchases 21 000
Barman’s wages 2 700
Hire of extra chairs 570
Other tournament expenses 300
Extension to clubhouse (1 April 2010) 12 000
Sundry clubhouse expenses 4 800
(iii) The clubhouse was bought on 1 January 2007 for $21 000. It is depreciated at
10% p.a. on cost.
(iv) Sundry assets and liabilities were:
1 Jan 2010 31 Dec 2010
$ $
Bar inventory 3 015 2 805
Trade payables
-bar purchases 2 760 2 925
-hire of chairs - 120
Prepaid rates 300 375
Clubhouse expenses due 105 135
Cash 945 7 200
Subscriptions in advance 270 360
Subscriptions in arrears 1 920 -

Required

a) Accumulated fund as at 1 January 2010. (5)

b) Bar trading account for the year ending 31 December 2010 (5)
c) Subscription account (5)
d) Income and expenditure account for the year ended 31 December 2010 (10)

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 QUESTION 23
Simba, a retailer whose financial year ends on 31 May, failed to check his stock until
8 June 2009. At that date his stock at cost was valued at $72 200. Simba’s mark up is
30% on cost.

During the first ten days of June, the following transactions took place;

(i) Purchases of goods for resale 21 200

(ii) Purchases returns 515
(iii) Sales 25 740
(iv) Sales returns ( at selling price) 273
(v) Goods taken for personal use, at cost 700

After taking stock, Simba discovered that the following items had
been included in the valuation at 8 June:

(vi) A parcel of stock which had been water –damaged. This had been on
sale for $390 but was now worthless.
(vii) Stock which cost $1 200 but was now out of fashion and would have to
be sold for $400 less than cost.
(viii) Goods costing $950 which Simba had acquired on a sale or return
basis. He had not decided whether or not to keep them.
(ix) Goods, sold during May for $1 560, which were awaiting collection by
a customer.

Required

(a) The value of inventory at cost, at 31 May 2009. (13)

(b) What is the basis for stock valuation (3)

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 QUESTION 24

Golden Ltd manufactures and sells radios. The unit selling price and production costs are as
follows:
$
Selling price 800

Direct materials 100

Direct labour 90

Variable overheads 50

Fixed overheads 160

The fixed production overheads assume a monthly production of 2 000units.

The following monthly costs are also incurred:

Fixed administrative overheads $80 000
Variable sales overheads 10% of sales value
Fixed sales overheads $120 000

During the month of December 2010 a total of 2 400 units were produced of which 1 800
were sold. There was no stock on hand at the beginning of December.

Required
Combined profit statements of Marginal costing and Absorption costing. (20)

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 QUESTION 25

The Quartet is a partnership which owns a manufacturing firm. The balance sheets of the firm
as at 31 December 2004 and 2005 are given below.

As at 31December 2004 2005

Assets $000 $000 $000 $000
Non-current asset
Premises at cost 1 000 1 300
Provision for depreciation (375) 625 (26) 1 274

Plant and equipmet at cost 600 1 400

Provision for depreciation (240) 360 (700) 700

Motor vehicles at cost 840 1440

Provision for depreciation (504) 336 (864) 576
1 321 2 550
Current assets
Stock 750 810
Debtors 649 540
Bank 400 1 799 380 1 730
3 120 4 280

Equity and liabilities

Partner’s capitals at 1 January2 330 2 600
Add revaluation - 675
Net profit 566 739
2 896 4 014
Less drawings 296 2 600 334 3 680

Trade creditors 520 600

3 120 4 280
Notes
i. The premises were revalued on 1 July 2005.
ii. During 2005, motor vehicles which had cost $180 000(net book value $36 000)
were sold for
$30 000.

Required
a. A cash flow statement for the year ended 31 December 2005. (12)
b. State and explain five benefits of preparing cash flow statements.(10)

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 QUESTION 26

Adam,Eve and Pinchmee are in partnership sharing profits and losses in the ratio 3:2:1.
At 31 December 19-1 their balance sheet was as follows:
$ $
Fixed assets 106 644
Current assets
Stock 71 116
Debtors 42 655
Bank 24 863
138 634
Less current liabilities
Trade creditors 35 278 103 356
210 000
Capital accounts
Adam 100 000
Eve 50 000
Pinchmee 25 000 175 000
Current accounts
Adam 24 000
Eve 10 000
Pinchmee 1 000 35 000
210 000

Adam decided to retire from the partnership on 1 January 19-2

Accordingly it was agreed between the partners that:
1. The balances on their current accounts would be transferred to their respective capital
accounts.
2. Goodwill would be valued at $24 000, but no goodwill would be recorded in the
firm’s ledgers.
3. Fixed assets would be revalued ar $100 000, stock at $60 000 and a debtor for $240
would be written as bad.
4. Of the amount due to Adam $100 000 would be transferred to a Loan account and the
balance settled in cash immediately. A bank overdraft facility would be available for
this purpose, if necessary. The loan would be repayable to Adam in for equal annual
instalments, the first being due on 31 December 19-2.

Eve and Pinchmee decided to form a limited company, Evenmee Ltd, to acquire the
partnership business on 2 January 19-2. The company had an authorised share capital of
100 000 ordinary shares of $1 each and acquired the partnership assets and liabilities,
including the loan from Adam, at their revised book values. Shares were issued to Eve
and Pinchmee at par value in the ratio 3:2. An appropriate cash payment was made by one
of these partners to the other to adjust their rights, and the partnership receiving the
payment immediately used the cash to subscribe for further shares in Evenmee Ltd. at par.
Required
a) The capital accounts of Adam, Eve and Pinchmee showing the entries in respect of
Adam’s retirement and the acquisition of the business by Evenmee Ltd. {18}
b) The opening balance sheet of Evenmee Ltd as at 2 January 19-2. {7}

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 QUESTION 27

The balance sheets of Magnum Ltd as at 31 December 19-8 and 19-7 are as follows:
31.12.19-7 31.12.19-8
$ $
45 000 Fixed assets(net book value) 60 000
Current assets:
25 000 Stock 27 000
10 000 Debtors 12 000
7 000 Bank -
87 000 99 000
Share capital:
22 000 Ordinary shares of 25cents each 27 000
24 000 Preference shares of $1each 7 000
- Capital Redemption Reserve 17 000
280 Share Premium Account 420
18 460 Retained Earnings 25 060
64 740 76 480
Current liabilities:
13 860 Creditors 8 500
5 600 Taxation 7 000
2 800 Proposed dividends 4 200
- Bank 2 820
87 000 99 000
Notes:

1) A summary of the company’s fixed assets account in the general ledger for the year
ended 31 December 19-8 is shown below.
$ $
1 Jan 19-8 Cost b/f 106 400 31 Dec 19-8 Disposal A/c 11 200
31 Dece 19-8 Additions 30 800 31 Dec 19-8 Cost c/f 126 000
137 200 137 200
The assets were sold for $2 520, which represented a loss of $4 480 compared with
their book value.
2) A bonus (scrip) issue of 1 000 shares was made during the year, the shares being paid
up from the balance standing to the credit of the Share Premium Account.
3) The preference shares were redeemed at par in November 19-8

Required

a) Profit and loss appropriation account for the year ended 31 December 19-8 {5}
b) Cash flow statement for the year ended 31 December 19-8 {15}
c) Differences between bonus issue and a rights issue {6}

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