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MUSENDO HIGH SCHOOL

FORM 5
ACCOUNTING 6001/3
PAPER 3 PROBLEM SOLVING

2 HOURS 30 MINUTES

Candidates answer on the question paper

Additional materials

Answering sheets

INSTRUCTIONS TO CANDIDATES

Write your name at the top of every answer sheet.

Answer all questions.

Write your answers on separate answer sheets.

INFORMATION FOR CANDIDATES

The number of marks is given in brackets [ ] at the end of each question or part question.

You may use a calculator.

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QUESTION 1

Richard commenced business on 1 May 2011. At the end of the first year of trading an extract
from his statement of financial position showed:

Non-current assets
Cost $ Accumulated Depreciation$ Net book value $
Freehold land and Buildings 100 000 2 000 98 000
Machinery 64 000 16 000 48 000
Motor vehicle 12 000 3 600 8 400

Richard has a policy to depreciate non-current assets as follows:

• Buildings at 2% per annum on cost.

• Machinery at 25% per annum on cost.
• Motor vehicles at 30% per annum using the reducing balance method.
• Depreciation is charged for each month of ownership.

On 1 August 2012 additional machinery, costing $18 000, was purchased.

On 1 January 2013 a new motor vehicle costing $24 000 was purchased. On the same date the
old motor vehicle was traded in. Richard received an allowance of $2 600 against the cost of the
new vehicle. The vehicle disposed had originally cost $12 000 and was purchased on
1 May 2011. All payments and receipts for purchases and disposals were in cash.

REQUIRED

(a) Prepare the following ledger accounts for the year ended 30 April 2013. Dates are not
required.

(i) Motor vehicles (at cost) [5]

(ii) Provision for depreciation of motor vehicles [5]
(iii) Disposal of motor vehicles [5]

(b) Calculate the depreciation charge for the year ended 30 April 2013 to be shown in the
income statement, clearly identifying the amount charged for each category of asset. [5]

Additional information
Richard is considering the admission of a partner and feels that he should be rewarded for his
efforts in starting and developing the business. His accountant has advised him that there is an
asset called goodwill.

REQUIRED
(c) Explain the meaning of the term goodwill and suggest two reasons how it may arise. [3]
(d) Explain how goodwill should be treated in the books of partnership. [2]
[Total: 25]
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QUESTION 2

Shumi Power runs a small retail shop selling costume stationery. He does not keep a full set
of acounting records, but he is able to give you the following information about the financial
position of the business at 1 May 2004 and 30 April 2005.

The business assets and liabilities were:

1 May 2004 30 April 2005
$ $
Fixtures and fittings (cost 10 000) 9 000 8 100
Van (E742 BMW) 7 000 -
Van (M217 IVECO) - 6 750
Inventory 6 000 7 000
Trade receivables 1 750 1 160
Trade payables 850 700
Insurance prepaid 340 400
Rent accrued due 250 200
Balance at bank 1 480 -
Bank overdraft - 9 170
Cash in hand 140 160

He also provided you with the following summary of the business bank account for the year
ended 30 April 2005.

$ $
Balance at 1 May 2004 1 480 Purchases 35 670
Receipts from debtors for sales 6 170 Rent and rates 4 170
Proceeds from sale of van Lighting and heating 2 140
(E742 BMW) 4 500 Advertising 850
Cash banked 41 120 Insurance 1 200
Balance 30 April 2005 9 170 Motor expenses 2 110
General expenses 3 180
Van (M217 IVECO) 9 000
Payment to creditors for purchases 4 120
62 440 62 440

All the takings from cash sales were banked after the following payments were made:
$
Purchases 1 360
Wages 15 240
Drawings 14 150
Shumi now knows that a part-time assistant who left his employment in October 2004 was
systematically stealing cash from the shop; he is uncertain of the exact amount. He was not
insured against this loss.
The shop normally earns a uniform gross profit margin of 50%.
Required.
a. A computation showing how much cash has been stolen from Shumi Power. [10]
b. A Statement of Comprehensive Income (Trading and profit and loss account) together
with a Statement of financial position for the year ended 30 April 2005. [21]
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QUESTION 3

Nissi Ltd purchases a partnership

Maka and Shumi were in partnership sharing profits and losses in the ratio 2:1. The
partnership’s Statement of Financial Position at 30 April 2006 is shown below.

Non current assets $ $

Freehold land 15 000
Freehold buildings 20 000
Equipment 18 000
53 000
Current assets
Inventory 11 000
Trade receivables 6 000
Bank 2 000
19 000
Less current liabilities
Trade payables 3 000 16 000
69 000

Capital accounts : Maka 60 000

Shumi 35 000
95 000
Less Drawings : Maka 18 000
Shumi 12 000 30 000
65 000
Loan from Maka at 10%
4 000
69 000
Additional information
i. Nissi Ltd offered to purchase the partnership. The offer was based on the following
revaluation of assets.
$
Freehold land 20 000
Freehold buildings 16 000
Equipment 15 000
Inventory 9 000
Trade receivables 5 000
The bank account was not taken over.

ii. The purchase consideration was $82 000 settled as follows:

1. Maka received sufficient 8% debentures in Nissi Ltd to ensure that hr continued to
receive the same amount of interest as he had been entitled to on his loan in the
partnership.
2. Nissi Ltd paid $12 000 into the partnership bank account.
3. The balance of the purchase consideration was settled by an issue of ordinary
shares of $1 each in Nissi Ltd at $1,30 per share.
iii. The Statement of Financial Position of Nissi. Ltd at 30 April 2006 before the purchase
of the partnership was as follows:
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Non current assets $ $

Freehold buildings 110 000
Office furniture 12 000
122 000
Current assets
Inventory 120 000
Trade receivables 112 000
Bank 24 000
256 000
Current liabilities
Trade payables 114 000 142 000
264 000
Share capital and reserves
Ordinary shares of $1 each 200 000
Profit and loss account 64 000
264 000

Required

The Statement of Financial Position of Nissi. Ltd as it will appear after the purchase of
the partnership. {20}
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QUESTION 4
Chido and Chenai, who have in partnership for many years, decided to retire and dissolve the
partnership on 30 September 2003. Profits and losses were shared in the ratio of the partners’
Capital account balances, which were fixed at Chido $80 000 and Chenai $40 000. The
partnership Statement of financial position at 30 September 2003 was as follows.

Fixed assets (net book value) $ $

Buildings 104 000
Fixtures and fittings 35 000
Motor vehicles 26 000
165 000
Current assets
Inventory 10 500
Trade receivables 17 230
Bank 950
28 680
Current liabilities
Trade payables 9 230 19 450
184 450

Capital accounts: Chido 80 000

Chenai 40 000 120 000

Current accounts: Chido 14 430

Chenai (2 580) 11 850
Loan from: Chido 52 600
184 450

The partnership ceased trading on 30 September 2003 and the assets were realized a follows:
$
Buildings 100 000
Fixtures and fittings 37 000
One motor vehicle 15 000
The remaining motor vehicle was taken by Chido at an agreed valuation of 9 500
Inventories 5 200

All debts were collected and banked except for bad debts totaling $900.
Discount allowed amounted to $200
Creditors were paid in full
Dissolution expenses of $1 200 were paid by cheque
Chido’s loan was repaid from the bank account.
Partners’ Current account balances were transferred top their Capital accounts.
Required
Prepare the following accounts for the month of October 2003.
a. Dissolution account {8}
b. Partners’Current accounts, in columnar form {4}
c. Partners’Capital accounts, in columnar form {4}
d. The partnership Bank account {8}