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Goodwill is that advantage that an existing business may have over a newly established
business. The advantage is in the form of the ability to generate revenue and profits as
a result for example customer loyalty, location and marketing.
(i) On admission of a new partner, the new partner will start enjoying the
benefits of the existing partnership as a result of the goodwill created by
the previous partners. The newly admitted partner should therefore pay
for his share of the goodwill.
(ii) On retirement of one of the partners, the remaining partners will continue
enjoying the benefits that the retired partner helped create. Therefore it will
be important for the retiring partner to be paid his share of the goodwill.
Mutiso answered the question on November 20, 2018 at 05:15
- Ben Mogaka prepared the following draft balance sheet for BM Enterprises as at 31 December 2005(Solved)
Ben Mogaka prepared the following draft balance sheet for BM Enterprises as at 31 December 2005:
Additional information:
On further investigation, the suspense account was discovered to have resulted from the
following errors:
1. The sales of goods on credit to Alex Otis amounting to Sh.19,000 had been recorded in
the sales journal as sh.9,000.
2. A receipt of Sh.20,000 from sale of an item of equipment had been credited to sales
account. The equipment was shown in the books of account at costs of account of
Sh.90,000 and accumulated depreciation of Sh.72,000.
3. A credit note from a supplier, Simon Masound for Sh.15,000 had been omitted from the
books.
4. A bank overdraft for Sh.7,000 reflected in the cash book as at 31 December 2005 was
omitted In the trial balance.
5. A payment of Sh. 9,700 to Tom Wambugu, a creditor, was correctly entered in the cahs
book but posted to his personal account as Sh.7,900.
6. The debit side of rent expense account had been undercast by Sh.1,000.
7. A provision of Sh.2,000 for sundry expenses outstanding as at 31 December 2004 and
debited to sundry expenses at that dated had not been brought forward to the credit of
the account in the following period. No credit entry had been made in any other
account in respect to this account in respect to this item.
8. Discount received from the supplier of Sh.8,200 had been entered on the wrong side of
purchases ledger control account.
9. On 31 December, goods valued at Sh.9,600 (selling price) were returned by Jane Kerubo
(a debtor). No entry had been made in the books to reflect this transaction. These goods
were not included in the closing stock.
10. Discounts allowed were overcast by Sh.1,200.
Required:
(a) Journal entries to correct the above errors (Narration not required)
(b) Suspense account.
(c) Statement of corrected net profit for the year ended 31 December 2005
(d) Corrected balance sheet as 31 December 2005.
Date posted: November 20, 2018. Answers (1)
- Umoja Women's Welfare Society sells water tanks at subsidised prices to its members and the
general public. The members' contributions are used to meet the cost...(Solved)
Umoja Women's Welfare Society sells water tanks at subsidised prices to its members and the
general public. The members' contributions are used to meet the cost of manufacturing the
water tanks.
The trial balance extracted from the books of account of the society as at 30 April 2006 was as
follows:
2 Annual subscriptions in arrears as at 30 April 2006 amounted to Sh.2,000,000 while
subscriptions received in advance as at 30 April 2006 amounted to sh.1,500,000.
3 The membership fee is levied every ten years. The membership fees attributable to the
year ended 30 April 2006 amounted to sh.800,000
4 Accrued society's office expenses as at 30 April 2006 amounted Sh.400,000.
5 The motor vehicle usage should be apportioned to the factory and society's offices at
80% and 20% respectively. Depreciation should be provided on cost at 5% per annum
on machinery and 10% per annum on motor vehicles.
Required:
(a) Water tanks trading and profit and loss account for the year ended 30 April 2006
(b) Income and expenditure account for the year ended 30 April 2006
(c) Balance sheet as at 30 April 2006.
Date posted: November 19, 2018. Answers (1)
- Panter limited is a medium-sized company engaged in the business of selling sports accessories.
The business premises are rented for sh.8 million per annum. During the...(Solved)
Panter limited is a medium-sized company engaged in the business of selling sports accessories.
The business premises are rented for sh.8 million per annum. During the year ended 30
September 2005, the book keeper maintained incomplete records and some information was
lost. However, the balances availed as at 30 September 2004 were as follows:
An examination of panter's books of account for the year ended 30 September 2005 revealed the
following:
5 Panter Ltd. Applies a uniform gross profit margin of 40% on all sales except for goods
purchased from Kitale Sports Dealers, where a 15% gross profit margin is charged.
During the year ,the cost of goods purchased from Kitale Sports Dealers was sh.37
million.
6 The loan from Len carried interest at the rate of 12% per annum. Panter Limited had
paid sh.400,000 from the cash in hand as part of the interest payment.
7 The sale of old stock related to goods which had been included in the opening
inventory. These goods were sold at 20% below the normal selling price and all the
receipts were in cash.
8 During the year, all the motor vehicles were replaced with new ones. The new motor
vehicles cost sh. 29 milion and were traded in with old motor vehicle at their book
values.
Depreciation on motor vehicles and fixtures and fittings is to be provided on reducing
balance at the rate of 20 per cent per annum. Full year's charge is to be made in the year
of purchase and none in the year of disposal.
9 Panter limited owed sh.710,000 for wages and sh.1,130,000 for motor vehicle expenses.
10 Tax of Sh.10 million should be provided for.
Required:
(a) Income statements for the year ended 30 September 2005
(b) Balance sheet
Date posted: November 19, 2018. Answers (1)
- Give five purposes of control accounts(Solved)
Give five purposes of control accounts.
Date posted: November 19, 2018. Answers (1)
- While research and development costs of a project may meet the definition of an asset, the cost may not meet the criteria used in recognizing...(Solved)
While research and development costs of a project may meet the definition of an asset, the cost may not meet the criteria used in recognizing an asset.
Define the term “asset” and explain the criteria used in recognizing an asset.
Date posted: November 19, 2018. Answers (1)
- "Qualitative characteristics are the attributes that make information provided in financial statements useful to users."
Briefly explain the four main qualitative characteristics of financial statements with
reference...(Solved)
"Qualitative characteristics are the attributes that make information provided in financial statements useful to users."
Briefly explain the four main qualitative characteristics of financial statements with
reference to shareholders of a company.
Date posted: November 19, 2018. Answers (1)
- Using suitable examples, explain the meaning of the following terms:
(i) Accounting standards.
(ii) Accounting policies.
(iii) Accounting bases.(Solved)
Using suitable examples, explain the meaning of the following terms:
(i) Accounting standards.
(ii) Accounting policies.
(iii) Accounting bases.
Date posted: November 19, 2018. Answers (1)
- Photomap Ltd. is a leading manufacturer of digital video disks (DVDs). As part of its modernization programme, the company decided to replace its old machinery...(Solved)
Photomap Ltd. is a leading manufacturer of digital video disks (DVDs). As part of its modernization programme, the company decided to replace its old machinery with a state of the art machine imported from Denmark. The following expenses were incurred for the purpose in the year ended 30 September 2005:
Shs. "000"
Catalogue price less cash discount at 10% of the list price 30,000
Freight and insurance 7,000
Customs and excise duty 7,300
Value added tax 7,100
Installation costs 2,000
Pre-production testing 700
Training costs (machine attendant) 50
Insurance (annual) 700
Salary paid to machine attendant (annual) 100
Additional information:
1. The old machinery disposed of in the year ended 30 September 2005 for Shs. 1,500,000
had cost the company Shs. 2,000,000 on 1 October 2002. An air conditioner equipment
purchased for Shs. 545,000 at the same time with the disposed of machinery was
scrapped during the year since it was no longer required.
2. The furniture used by the company was acquired on 1 October 2003 at a cost of
Shs. 800,000.
3. The value added tax incurred by the company in respect of the machinery
was recovered from the tax authority against output value added tax.
4. Depreciation per annum is provided at the following rates:
Machinery -25% on reducing balance basis
Equipment - 20% on cost
Furniture - 15% on cost
Full year‟s depreciation is provided in the year of acquisition and none in
the year of disposal.
Required:
(i) Ascertain the cost of the new machinery.
(ii) Disposal accounts.
(iii) Provision for depreciation accounts.
(iv) A property, plant and equipment movement schedule for the year ended 30
September 2005.
Date posted: November 19, 2018. Answers (1)
- Briefly explain the concept "substance over form" with respect to: (i) Motor vehicles acquired on hire purchase. (ii) Leasehold land.(Solved)
Briefly explain the concept "substance over form" with respect to: (i) Motor vehicles acquired on hire purchase. (ii) Leasehold land.
Date posted: November 19, 2018. Answers (1)
- The following information was extracted from the financial statements of Sunrise Ltd. and Sunset Ltd. in respect of the year ended 30 September 2005:(Solved)
The following information was extracted from the financial statements of Sunrise Ltd. and Sunset Ltd. in respect of the year ended 30 September 2005:
Required:
For each company, compute the following ratios:
(a)(i) Acid test ratio
(ii) Inventory turnover
(iii) Average collection period
(iv) Return on capital employed
(v) Debt equity ratio
(b)(i)On the basis of the ratios computed in (b) above, comment on the overall
performance of Sunrise Ltd. and Sunset Ltd. and advise which of the two
companies would provide better investment.
(ii) Explain the possible shortcomings of relying on your analysis in (b) above.
Date posted: November 19, 2018. Answers (1)
- State four purposes of ratio analysis(Solved)
State four purposes of ratio analysis.
Date posted: November 19, 2018. Answers (1)
- 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)