- Assessing the company's financial performance.
- To evaluate financial stability of a company.
- To predict future performance and stability of a business entity.
- To compare performance of the firm with past performance and within the industry.
- To detect and investigate inconsistencies due to errors and fraud.
Mutiso answered the question on November 19, 2018 at 08:03
- Omondi and Maina trade as partners in a brick manufacturing firm sharing profits and losses in the ration of 3:2 after charging their annual salaries...(Solved)
Omondi and Maina trade as partners in a brick manufacturing firm sharing profits and losses in the ration of 3:2 after charging their annual salaries of Shs. 2,500,000 each.
The trial balance extracted from their records as at 31 October 2005 were as follows:
Additional Information:
1. On 1 March 2005, the partners agreed to admit Ombati into the partnership on the
following terms:
- Ombati to pay sh.3,400,000 as his capital contribution.
- Ombati to be entitled to a salary of Sh.2,000,00 per annum and a share of 10% of the
profits.
Omondi and Maina were to continue sharing profits in their old ratios, but guaranteed that
Ombati‟s share of profits after salaries would not fall below Sh.1,200,000 per year.
Goodwill was agreed at Sh.2,100,000 but was not to be retained in the books.
2. The life assurance policy was surrendered on 1 December 2004 for Sh.9,500,000 and the
proceeds paid directly to Omondi and Maina in their profit sharing ratio. The necessary
entries in the current accounts were not made to account for this transaction.
3. The details of the savings bank account were as follows:
4. The actual balance on the bank savings account as at 31 October 2005 amounted to
Sh.400,000. The difference was due to drawings by Omondi Sh.3,400,000. Maina
Sh.3,000,000, Ombati Sh.1,200,000 and tax amounting to Sh.4,800,000 paid on behalf of the
partners (Omondi Sh.2,400,000, Maina Sh.2,000,000 and Ombati Sh.400,000).
5. Inventory as at 31 October 2005 was valued at Sh.19,000,000.
Depreciation is to be provided on plant and machinery at 10% per annum and on motor
vehicles at 20% per annum.
6. Provision for doubtful debts should be maintained at 5% of the balance in the debtors
ledger.
Required:
a) Trading, profit and loss and appropriation accounts for the year ended 31 October 2005.
b) Partners' current accounts.
c) Partners' capital accounts.
Date posted: November 19, 2018. Answers (1)
- Araka Ltd., a company dealing in retail products, extracted from the following trial balance as at 30 September 2005(Solved)
Araka Ltd., a company dealing in retail products, extracted from the following trial balance as at 30 September 2005:
Additional information:
1. Provision for doubtful debts should be made at 2% of the debtors ledger balances after
writing of bad debts amounting to Shs. 1,370,000.
2. The suspense account was analysed as follows:
3. The motor vehicle sold during the year had been purchased on 1 February 2002 for
Sh.6,500,000.
4. Bank statement as at 30 September 2005 showed bank charges of Sh.533,000. This had not
been recorded in the cash book.
5. The debtors ledger control account did not agree with the list of balances in personal
accounts. You ascertain that some invoices for October 2005 had been posted in the
personal accounts as at September 2005. The list of balances was overstated by
Sh.4,300,000.
6. Estimated corporation tax for the year ended 30 September 2005 was Sh.131,700,000.
7. The value of inventory as at 30 September 2005 was amounted to Sh.62,047,000.
8. The directors proposed to pay ordinary dividend of 10%.
9. The following petty cash expenditure had not been recorded:
Shs. „000‟
Motor vehicle expenses 412
Sundry expenses 91
Casual workers wages 36
10. Depreciation is provided at the following
rates: Buildings- 2% per annum on cost
Plant and machinery – 20% per annum on reducing balance
basis. Motor vehicle – 25% per annum on cost
Full year‟s depreciation is provided in the year of purchase and none in the year of disposal.
Required:
a) Trading profit and loss account for the year ended 30 September 2005.
b) Balance sheet as at 30 September 2005
Date posted: November 19, 2018. Answers (1)
- Explain the accounting treatment that would be applicable in dealing with the following
transactions relating to the accounts of Mlachake Ltd. for the year ended 31...(Solved)
Explain the accounting treatment that would be applicable in dealing with the following
transactions relating to the accounts of Mlachake Ltd. for the year ended 31 December
2004:
(i) A debtor who owed the company Sh.200,000 was declared bankrupt on 1
February 2005. 25% of the debt had been recovered when the accounts
were approved by the directors on 15 March 2005.
(ii) Some items of inventory purchased for Sh.300,000 were damaged in the
warehouse during the year. These items were repaired at Sh.50,000 and sold
to a customer on 2 February 2005 at 75% of the normal selling price of
Sh.400,000
(iii) On 10 December 2004, the company secured an order worth Sh.1.2 million
from a foreign based company. The goods were shipped on 10 January
2005 and included in sales for December 2004.
Date posted: November 19, 2018. Answers (1)
- Citing suitable examples, briefly explain of the following terms:
(i) Accounting concepts
(ii) Accounting policies
(iii) Accounting standards(Solved)
Citing suitable examples, briefly explain of the following terms:
(i) Accounting concepts
(ii) Accounting policies
(iii) Accounting standards
Date posted: November 19, 2018. Answers (1)
- Identify with reasons, one party who may be interested in each of the following ratios:
(i) Current ratio
(ii) Net profit margin
(iii) Stock turnover(Solved)
Identify with reasons, one party who may be interested in each of the following ratios:
(i) Current ratio
(ii) Net profit margin
(iii) Stock turnover
Date posted: November 19, 2018. Answers (1)
- Explain the importance of ratio analysis to a business enterprise(Solved)
Explain the importance of ratio analysis to a business enterprise.
Date posted: November 19, 2018. Answers (1)
- The following balances were extracted from the books of Katee Ltd. for the month of April 2005(Solved)
The following balances were extracted from the books of Katee Ltd. for the month of April 2005:
(i) Sales ledger control account for the month ended 30 April 2005.
(ii) Purchases ledger control account for the month ended 30 April 2005.
Date posted: November 19, 2018. Answers (1)
- Explain the advantages of maintaining control accounts(Solved)
Explain the advantages of maintaining control accounts.
Date posted: November 19, 2018. Answers (1)
- Faida Commercial Bank Ltd. offered 200,000 ordinary shares for sale to the public at a par value
of Sh.25 each on 1 April 2004, payable as...(Solved)
Faida Commercial Bank Ltd. offered 200,000 ordinary shares for sale to the public at a par value
of Sh.25 each on 1 April 2004, payable as follows:
- On application, Sh.5 due on 15 April 2004
- On allotment, Sh.5 due on 30 April 2004
- On first call, Sh.7.50 due three months after allotment
- On second and final call, Sh.7.50 due three months after the first call.
Additional information:
1. The company received applications for 530,000 shares on the due dates. Applications for
30,000 shares were rejected and the application money refunded. The rest of the applicants
were allotted shares on a prorate basis.
2. One month after allotment, one shareholder of 2,000 shares remitted Sh.25,000 as calls in
advance. The rest of the calls were received on the due dates except for money due on
second and final call for Sh.8,000 shares which was paid three months late.
3. The surplus application monies were treated as calls in advance.
4. The company‟s articles of association provided for charging of interest on calls in arrears at
10% per annum.
Required:
Ledger accounts to record the above transactions.
Date posted: November 19, 2018. Answers (1)
- The following draft accounts have been prepared by the treasurer of Wasomaji Members Club(Solved)
The following draft accounts have been prepared by the treasurer of Wasomaji Members Club:
Additional information:
1. The treasurer had little accounting knowledge and some figures appearing in the draft
accounts were incorrect.
2. The club‟s policy on outstanding subscriptions was to write off amounts
outstanding for a period exceeding five years. As at 1 January 2004, subscriptions
outstanding from members were Sh.3,120,000
3. The club‟s premises were purchased on 1 October 2004 for Sh.4 million.
This amount was posted to the use of premises account in the draft accounts.
4. The treasury bond was purchased for Sh.9.3 million on 1 January 2000 by utilizing
donations earmarked for a member‟s welfare fund. Up to 31 December
2003, the income received from this investment had been distributed to members. The
income for the year ended 31 December 2004 was included under sundry income as
resolved at the annual general meeting held on 10 April 2004.
5. The club runs a bar for the benefit of members. This bar sells stock at a mark-up of
30%. The income from bar sales amounting to Sh.9,927,000 was included under sundry
income. There was no opening stock as at 1 January 2004 and the club owed suppliers
Sh.1,625,000 as at 1 January 2004. Bar closing stock as at 31 December 2004 was not
ascertained.
6. The balance of the fixed deposit account as at 1 January 2004 amounted to Sh.1,500,000
reflected in the balance sheet as at 31 December 2004. No account was taken of interest
amounting to Sh.100,000 which had been credited to the fixed deposit during the year.
7. As at 1 January 2004, cash in hand was Sh.100,000 and the bank current account was
overdrawn by Sh.893,000.
8. The reference books purchased during the year are to be capitalized as part of the
library. Library and furniture are to be revalued to Sh.5,000,000
9. Depreciation is to be provided based on the cost of the assets as follows:
Club premises - 2% per annum
Minibus - 20% per annum
Required:
(a) Income and expenditure account for the year ended 31 December 2004.
(b) Balance sheet as at 31 December 2004.
Date posted: November 19, 2018. Answers (1)
- Chacha and Mushi are in partnership sharing profits and losses equally. They manufacture shoes whose brand name is "DAWO". Their trial balance as at 31...(Solved)
Chacha and Mushi are in partnership sharing profits and losses equally. They manufacture shoes whose brand name is "DAWO". Their trial balance as at 31 December 2004 was as follows:
Additional information:
1. Stock at 31 December 2004 was valued as follows:
Sh. "000"
Raw materials 2,000
Work in progress 4,200
Finished goods 1,000
2. Insurance prepaid (31 December 2004)
Sh. "000"
Factory 200
Office 35
Rates owing (31 December 2004)
Sh."000"
Factory 500
Office 25
3. Depreciation is provided at the following rates:
Factory buildings – 2% per annum on cost
Delivery van – 25% per annum on cost
Plant and machinery – 20% per annum on cost
4. Provision for doubtful debts is to be maintained at 5% of the debtor‟s balance
at the end of the year.
5. Manufactured goods are transferred to the warehouse at cost plus 25% of factory profit
6. The partnership agreement has the following provisions:
(i) A commission of 10% to Mushi based on factory profit while Chacha is
entitled to a commission of 10% based on net profit from trading.
(ii) Partners are allowed interest on their fixed capitals at a rate of 10% per
annum.
(iii) Chacha had guaranteed Mushi a total income from the partnership of
not less than Sh.15,000,000 per annum.
Required:
(a) Manufacturing, trading and profit and loss and appropriation accounts for the year ended 31
December 2004.
(b) Balance sheet as at 31 December 2004.
Date posted: November 19, 2018. Answers (1)
- The summarized financial statements of Baraka Enterprises Ltd. are as follows(Solved)
The summarized financial statements of Baraka Enterprises Ltd. are as follows:
Required:
(i) For each year, calculate the following:
(a) Gross profit margin
(b) Inventory turnover
(c) Return on equity
(d) Return on assets
(e) Acid test ratio
(f) Current ratio
(g) Financial leverage
(ii)Comment on the liquidity position of the company giving possible reasons for the change.
Date posted: November 19, 2018. Answers (1)
- Explain the meaning of prudence concept showing how this is applied in stock valuation(Solved)
Explain the meaning of prudence concept showing how this is applied in stock valuation.
Date posted: November 19, 2018. Answers (1)
- The trial balance of Plastics Ltd as at 31 October 2004 is as follows(Solved)
The trial balance of Plastics Ltd as at 31 October 2004 is as follows:
Additional information:
1. A building whose net book value is currently Sh.5 million is to be revalued to Sh.9 million
2. A final ordinary dividend of Sh.2 million is proposed.
3. The balance on the corporation tax for the current year is estimated at Sh.3 million.
Required:
(i) Income statement for the year ended 31 October 2004.
(ii) Balance sheet as at 31 October 2004.
Date posted: November 19, 2018. Answers (1)
- Distinguish reserves from share capital(Solved)
Distinguish reserves from share capital.
Date posted: November 19, 2018. Answers (1)
- An extract from the balance sheet of Kimwa Construction Ltd as at 30 June 2003 showed the
following summary of property, plant and equipment(Solved)
An extract from the balance sheet of Kimwa Construction Ltd as at 30 June 2003 showed the following summary of property, plant and equipment:
The following transactions took place during the year ended 30 June 2004:
1. The company incurred the following costs in acquiring new equipment
2. Property, plant and equipment disposed of during the year were as follows:
In addition, a new truck was acquired by trading in an old truck at an agreed value of
Sh.10.5 million and making an additional cash payment of Sh.15 million. The old truck
had cost Sh.15 million in July 2000.
3. The directors recommended a reclassification of some items of equipment to furniture.
These items had cost Sh.15 million and had accumulated depreciation of Sh.3 million.
4. The company‟s policy is to charge depreciation on a straight line basis at the following
rates:
Equipment 20% per annum
Furniture 12 ½ % per annum
Motor vehicles 30 % per annum
5. A full year‟s depreciation was charged in the year of acquisition but none in the year of disposal.
Required:
(a) Explain two other methods of charging depreciation that Kimwa construction Ltd could
have used.
(b) A property, plant and equipment disposal account for the year ended 30 June 2004.
(c) A property, plant and equipment movement Schedule for the year ended 30 June 2004
Date posted: November 19, 2018. Answers (1)
- On 31 October 2004, the cashbook of Mwea Enterprises Ltd. Showed a debit balance of Sh.1,710,000. This did not agree with the balance shown in...(Solved)
On 31 October 2004, the cashbook of Mwea Enterprises Ltd. Showed a debit balance of Sh.1,710,000. This did not agree with the balance shown in the bank statement.
Upon investigation, the accountant discovered the following errors:
1. A cheque paid to Kindaruma for Sh.306,000 had been entered in the cashbook as
Sh.387,000
2. Cash paid into the bank by a customer for Sh.90,000 had been entered in the
cashbook as Sh.81,000
3. A transfer of Sh.1,110,000 to Central Savings Bank had not been posted to the cash
book.
4. A receipt of Sh.9,000 shown in the bank statement had not been posted in the
cashbook.
5. Cheques drawn amounting to Sh.36,000 had not been paid into the bank.
6. The cash book balance had been incorrectly brought down at 1 November 2003 as
a debit balance of Sh.1,080,000 instead of a debit balance of Sh.990,000
7. Bank charges of Sh.18,000 do not appear in the cash book.
8. A receipt of Sh.810,000 paid into the bank on 31 October 2004 appeared in the
bank statement on 1 November 2004.
9. A standing order of Sh.27,000 had not been recorded in the cash book.
10. A cheque for Sh.45,000 previously received and paid into the bank had been
returned by the customer‟s bank marked “account closed”.
11. The bank received a direct debit of Sh.90,000 from an anonymous customer.
12. Cheques banked had been totaled at Sh.135,000 instead of Sh.153,000.
13. A cheque drawn in favour of Nyaga for Sh.120,000 had been entered on the debit
side of the cashbook.
Required;
(i) Adjusted cash book as at 31 October 2004.
(ii) A bank reconciliation statement as at 31 October 2004.
Date posted: November 19, 2018. Answers (1)
- The bank statement and cashbook balances should agree, but sometimes these balances may not agree:
Required:
Discuss this statement and explain why it is important to prepare...(Solved)
The bank statement and cashbook balances should agree, but sometimes these balances may not agree:
Required:
Discuss this statement and explain why it is important to prepare a bank reconciliation statement.
Date posted: November 19, 2018. Answers (1)
- Okech and Wanjala are in a partnership business that sells hardware. They share profits and
losses equally after allowing for an annual salary of Sh.600,000 to...(Solved)
Okech and Wanjala are in a partnership business that sells hardware. They share profits and
losses equally after allowing for an annual salary of Sh.600,000 to Okech. Interest is allowed on
capital at 10% per annum. Their bookkeeper has produced the following list of balances as at 30
June 2004:
You ascertain that the bookkeeper is not sure whether the above balances are correct and on
further investigation you discover the following:
1. The sales ledger control account does not agree with the list of balances from the ledger
due to:
The sales return day book has been under cast by Sh.14,000 while a contra
entry with the creditors ledger for Sh.24,000 has been omitted from the control
account.
An invoice for Sh.240,000 was incorrectly entered in the sales day book as
Sh.24,000.
2. Wanjala had paid some business expenses amounting to Sh.60,000 from his personal
bank account while Okech had taken goods costing Sh.120,000 for his own use. No
entries have been made for these items.
3. A fully depreciated motor vehicle which cost Sh.600,000 was sold during the year for
Sh.120,000. The entry for the proceeds was only posted in the bank account.
4. The bookkeeper had understated the bank overdraft by Sh.240,000.
Required:
(a) A trial balance and a suspense account showing how the difference is accounted for.
(b) Trading, Profit and loss account for the year ended 30 June 2004.
(c) Balance sheet as at 30 June 2004.
Date posted: November 17, 2018. Answers (1)
- The book keeper of Bidii Ltd. prepared the following trial balance as at 31 December 2003:(Solved)
The book keeper of Bidii Ltd. prepared the following trial balance as at 31 December 2003:
Additional information:
1. In an effort to simplify the accounting process, the book keeper posted both discounts
received and discounts allowed to the discounts account. He has also posted both
returns inwards and returns outwards to the returns accounts, and both carriage inwards
and carriage outwards to the carriage account. Discounts received, returns outwards and
carriage outwards were as follows:
Sh.
Discounts received 1,000,000
Returns outwards 1,000,000
Carriage outwards 1,000,000
2. The following items are already included in general expenses:
- Rates for the 12 months to 31 March 2004, Sh.4,000,000
- Insurance for the 12 months to 31 December 2003 amounted to Sh.2,000,000.
Half of this amount relates to the managing director‟s private expenses.
3. Accountancy fees of Sh.1,000,000 should be provided for
4. A debtor for Sh.20,000,000 has been declared bankrupt. The provision for doubtful
debts is to be made at 5% of the debtors.
5. Dividends of Sh.10,000,000 have been proposed by the board of directors.
6. Stock as at 31 December 2003 is valued at Sh.180,000,000
7. Depreciation of Sh.20,000,000 is to be provided on the motor vehicles and
Sh.10,000,000 on the machinery. The buildings are to be revalued upwards by
Sh.30,000,000
Required:
(a) Trading and profit and loss and appropriation accounts for the year ended 31 December
2003.
(b) Balance sheet as at 31 December 2003
Date posted: November 17, 2018. Answers (1)