- Kenya Caps Limited issued additional 100,000 ordinary shares and 50,000, 8% preference shares
on the following terms:(Solved)
Kenya Caps Limited issued additional 100,000 ordinary shares and 50,000, 8% preference shares
on the following terms:
The par values were Sh.10 and Sh.9 for the ordinary and preference shares respectively. By 1
August 1993, applications had been received for 200,000 ordinary shares and 40,000 preference
shares. The directors rejected the application for 80,000 ordinary shares and refunded the
monies on 15 August 1993, and the remainder allotted five shares for every six shares applied
for. Surplus application monies were carried forward to allotment.
All allotment took place on 20 August 1993 and the due amounts were received by 31 August
1993. The first and second calls were received by the due dates except for 3,000 ordinary shares
which the directors declared forfeited on 20 November 1993. All the forfeited shares were
reissued as fully paid to another shareholder on 30 November 1993 for Sh.9 per share.
Assume that the number of shares outstanding prior to this additional issue amounted
to: Ordinary -300,000 shares of Sh.10 par
-50,000 7% preference shares of Sh.7 par
All these shares had been issued at par.
Required:
a) Journal entries including cash necessary to record the share transactions.
b) Prepare the share capital section of the Balance Sheet as at 31 December 1993.
c) What is the importance of issuing bonus shares?
Date posted: November 21, 2018. Answers (1)
- Pesa and Akili were in partnership preparing their accounts to 31 March and sharing profits and
losses in the ratio of 3:2 respectively. Interest was allowed...(Solved)
Pesa and Akili were in partnership preparing their accounts to 31 March and sharing profits and
losses in the ratio of 3:2 respectively. Interest was allowed on fixed capital at 10% per annum.
Akili was entitled to a salary of Sh.3,000 per month. On 2 October 1995 the partners admitted
Tajiri a well known businessman into the partnership. On that day Tajiri introduced a Sum of
money which was equal to 50% of Pesa's fixed capital. The amount was credited to Tajiri's
capital account.
The new partnership agreement provided the following:
1) Interest on capital to be maintained at 10% per annum.
2) Tajiri is to receive a commission of 10% of the net profit before appropriations. This is due
to his business acumen.
3) Profits will be shared equally among the partners.
4) Akili is now entitled to a salary of Sh.3,500 per month.
The partners also agreed to guarantee Tajiri a minimum share of profit of Sh.62,000 per annum.
Any deficiency on that balance will be compensated by the other two partners in equal
proportions. For the purposes of admission of a partner, goodwill was valued at two years
purchase of average profits for the last three years. The profits for the years ended 31 March
1993, 1994 and 1995 were Sh.60,000, Sh.50,OOOand Sh.70,000 respectively. No goodwill
account is to be maintained in the books. Adjusting entries are to be made in the partners
current accounts. The net profit for the year ended 31 March 1996 was Sh.360,000. The profit
accrued evenly over the year.
The following are the partners balances on 1 April 1995:
Required:
a) Profit and Loss Appropriation Account for the year ended 31 March 1996.
b) Partners Current Accounts.
Date posted: November 21, 2018. Answers (1)
- John and Dan are partners who run a wholesale shop. They share profits and losses equally. The accountant has provided a draft balance sheet as...(Solved)
John and Dan are partners who run a wholesale shop. They share profits and losses equally. The accountant has provided a draft balance sheet as shown below:
From your examination of the books, you find that adjustments to the accounts are necessary in
respect of the following:
1) Sales included goods valued at Sh.700,000 which had been taken by Dan for his own
private use and debited to him in an account opened in the sales ledger. This is to be
treated as drawings.
2) The bills for electricity amounting to Sh.446,000 had not been paid.
3) A cheque for Sh.100,000 received from a debtor on 29 December 1998 had been put in the
drawer by the cashier and forgotten.
4) The amount for sundry debtors is shown net of a provision for doubtful debts of
Sh.600,000. The provision includes a bad debt of Sh.120,000. The revised provision for
doubtful debts was agreed at Sh.560,000.
5) A stock valued at Sh.3,300,000 was considered to have a net realizable value of
Sh.3,000,000. Some items of the stock for Sh.480,000 were not included in Sh.3,300,000.
6) Trade licenses for Sh.344,000 paid during the year had been charged to the profit and loss
account yet it will not expire until 31 March 1999.
7) Plant and machinery is considered to have a written down value of Sh.16,800,000.
8) During the year a building which cost Sh.5,800,000 was sold for Sh.5,600,000 and the
amount credited to freehold premises.
A cheque for Sh.406,000 received from a debtor and paid into the bank on 13 December 1998
had been returned on 31 December 1998 marked "refer to drawer". No entries were made in
the books of account.
Required:
a) A statement showing the correct adjustments and the adjusted profit for the year ended 31
December 1998.
b) A revised balance sheet as at 31 December 1998.
Date posted: November 21, 2018. Answers (1)
- A company's issued share capital may be increased by a bonus (capitalization) issue or by a rights issue
Required:
Define "bonus issue" and "rights issue" and explain...(Solved)
A company's issued share capital may be increased by a bonus (capitalization) issue or by a rights issue
Required:
Define "bonus issue" and "rights issue" and explain the fundamental difference between these two types of share issue.
Date posted: November 21, 2018. Answers (1)
- The term "reserves" is frequently found in company balance sheets
Required:
(i) Explain the meaning of „reserves? in this context;
(ii) Give two examples of reserves and explain...(Solved)
The term "reserves" is frequently found in company balance sheets
Required:
(i) Explain the meaning of „reserves‟ in this context;
(ii) Give two examples of reserves and explain how each of your examples comes into existence.
Date posted: November 21, 2018. Answers (1)
- List and briefly explain three ways in which the use of historical cost accounting may cause financial statements to be misleading.(Solved)
List and briefly explain three ways in which the use of historical cost accounting may cause financial statements to be misleading.
Date posted: November 21, 2018. Answers (1)
- Otter, a limited liability company, operates a computerised accounting system for its accounts
receivable and accounts payable ledgers. The control accounts for the month of September...(Solved)
Otter, a limited liability company, operates a computerised accounting system for its accounts
receivable and accounts payable ledgers. The control accounts for the month of September 1999
are in balance and incorporate the following totals:
Although the control accounts agree with the underlying ledgers, a number of errors have been
found, and there are also several adjustments to be made. These errors and adjustments are
detailed below:
(1) Four sales invoices totalling Shs 1,386 have been omitted from the records;
(2) A cash refund of Shs 350 paid to a customer, A Smith, was mistakenly treated as a
payment to a supplier with the same name;
(3) A contra settlement offsetting a balance of Shs 870 due to a supplier against the
accounts receivable ledger account for the same company is to be made;
(4) Bad debts totalling Shs1,360 are to be written off;
(5) During the month, settlement was reached with a supplier over a disputed account. As a
result, the supplier issued a credit note for Shs 2,000 on September 26. No entry has yet
been made for this;
(6) A purchases invoice for Shs 1,395 was keyed in as Shs 1,359;
(7) A payment of Shs 2,130 to a supplier, B Jones, was mistakenly entered to the account
of R Jones;
(8) A debit balance of Shs 420 existed in the accounts payable ledger at the end of August
1999. The supplier concerned cannot now be traced and it has been decided to write off
this balance.
Required:
Prepare the accounts receivable and accounts payable ledger control accounts as they should
appear after allowing, where necessary, for the errors and adjustments listed.
Date posted: November 20, 2018. Answers (1)
- Atok, a limited liability company, compiles its financial statements to 30 June manually. At 30 June 1999, the company's list of account balances was as...(Solved)
Atok, a limited liability company, compiles its financial statements to 30 June annually. At 30
June 1999, the company's list of account balances was as follows:
The following matters remain to be adjusted for in preparing the financial statements for
the year ended 30 June 1999:
(1) Inventory at 30 June 1999 amounted to Shs 1,560,000 at cost. A review of
inventory items revealed the need for some adjustments for two inventory lines:
(i) Items which had cost Shs 80,000 and which would normally sell for Shs 120,000
were found to have deteriorated. Remedial work costing Shs 20,000 would be needed
to enable the items to be sold for Shs 90,000.
(ii) Some items sent to customers on sale or return terms had been omitted from inventory
and included as sales in June 1999. The cost of these items was Shs 16,000 and they
were included in sales at Shs 24,000. In July 1999, the items were returned in good
condition by the customers.
(2) Depreciation is to be provided as follows:
Buildings: 2% per year on cost.
Plant and equipment: 20% per year on cost.
80% of the depreciation is to be charged in cost of sales, and
10% each in distribution costs and administrative expenses.
(3) The land is to be revalued to Shs 12,000,000. No change was required to the value
of the buildings.
(4) Accrued expenses and prepayments were:
(5) No dividends were paid during the year and no dividend is proposed for the year.
Required:
(a) Prepare the company's income statement for the year ended 30 June 1999 and balance
sheet as at that date for publication, complying as far as possible with the provisions of IAS1
Presentation of Financial Statements and other relevant International Accounting Standards.
(b) Prepare the statement of changes in equity as presented in IAS1. Notes to the financial
statements are not required.
Date posted: November 20, 2018. Answers (1)
- Agatha, a limited company made up its financial statements to 31 December 1997, when the
company changed its accounting date by making up its next financial...(Solved)
Agatha, a limited company made up its financial statements to 31 December 1997, when the
company changed its accounting date by making up its next financial statements for the fifteen
months to 31 March 1999.
The company‟s depreciation policy is to charge proportionate depreciation in the
periods of purchase and sale of its non-current assets, charging depreciation as from the first
day of the month in which assets are acquired, and up to the last day of the month before the
month of any disposal. Annual rates of depreciation taken are:
Plant and machinery 15 per cent straight line
Motor vehicles 25 per cent straight line
At 1 January 1998 the following balances existed in the company's accounting records.
Shs
Plant and machinery: cost 819,000
Accumulated depreciation 360,000
Motor vehicles : Cost 148,000
Accumulated depreciation 60,000
During the fifteen months ended 31 March 1999 the following transactions took place:
(1) 10 January 1998
An item of plant was purchased. The cost was made up as follows:
(2) 18 April 1998
A new motor vehicle was purchased for Shs 18,000. An existing vehicle which had cost
Shs 12,000 and which had a book value at 1 January 1998 of Shs 6,000, was given in
part exchange at an agreed value of Shs 5,000. The balance of Shs 13,000 was paid in
cash.
Required:
(a) Prepare the ledger accounts to show the balances at 1 January 1998 and to record the
non-current asset transactions as stated.
(b) Prepare the schedule of figures detailing the movements in non-current assets and
depreciation for the company‟s financial statements for publication for the
period ended 31 March 1999 required by IAS 16 Property Plant and equipment.
(Figures may be rounded to the nearest Shs 100 for part (b))
Date posted: November 20, 2018. Answers (1)
- Anne, Charlotte and Emily have been in partnership for some years, sharing profits in the ratio
50.30.20 and preparing their financial statements to 31 December each...(Solved)
Anne, Charlotte and Emily have been in partnership for some years, sharing profits in the ratio
50.30.20 and preparing their financial statements to 31 December each year.
On 30 June 1998 Anne retired and Charlotte and Emily decided to continue the partnership
sharing profits equally.
The partnership list of account balances at 31 December 1998, before making any adjustments
for Anne's retirement or for the asset revaluation was as follows.
Notes
(1) Profits are to be assumed to accrue equally in the periods before and after
Anne's retirement
(2) The balance due to Anne is to remain in the partnership from 1 July 1998 as a loan
carrying no interest until 1 January
(3) The value of the partnership goodwill at 30 June 1998 was agreed by all three partners at
Shs 200,000. Goodwill is not to appear in the balance sheet after the adjustments
necessary at 30 June 1998.
(4) It was decided, as part of the process of valuing Anne's share of the
partnership, to revalue the land at 30 June from Shs 120,000 to Shs 160,000. The
increased value is to be included in the balance sheet.
(5) The inventory at 31 December 1998 was Shs 90,000
(6) Accruals and prepayments at 31 December 1998 were:
Rent paid in advance to 31 March 1999 Shs 5,000
General administrative expenses:
Prepayments Shs 1,800
Accruals Shs 6,200
(7) The allowance for doubtful debts is to be increased to Shs 2,400
(8) Depreciation is to be provided as follows:
Buildings 2 % per annum straight line
Shop and office equipment 15 % per annum straight line
Required:
(a) Prepare the income statement and a statement showing the division of the profit for the
year ended 31 December 1998 and balance sheet as at that date;
(b) Show the partners' capital and current accounts for the year Anne‟s loan account
Date posted: November 20, 2018. Answers (1)
- The information below relates to KC Investments Ltd, a company that sells computer accessories for the year ended 31 October 2005 and 31 October 2006....(Solved)
The information below relates to KC Investments Ltd, a company that sells computer accessories for the year ended 31 October 2005 and 31 October 2006. The industry average has also been provided.
Required:
From the shareholders perspective, comment on the ratios for KC Investments Ltd in relation to the industry average ratios.
Date posted: November 20, 2018. Answers (1)
- Define the following ratios:
(i) Return on capital employed (ROCE)
(ii) Return on owners' equity (ROOE)
(iii) Leverage ratio
(iv) Inventory turnover
(v) Earnings per share (EPS)(Solved)
Define the following ratios:
(i) Return on capital employed (ROCE)
(ii) Return on owners' equity (ROOE)
(iii) Leverage ratio
(iv) Inventory turnover
(v) Earnings per share (EPS)
Date posted: November 20, 2018. Answers (1)
- After preparation of the trial balance or Bakari Brothers Enterprises as at 31 September 2005, the firm's accountant has been provided with the following additional...(Solved)
After preparation of the trial balance or Bakari Brothers Enterprises as at 31 September 2005, the firm's accountant has been provided with the following additional information for the purpose of preparation of the final accounts:
1 Due to an oversight, discount has been allowed to a credit customer on the gross `
invoiced amount of Sh.80,000 at the rate 10%. The firm should have used a rate if 6%.
2 Electricity accrued amounts to Sh.36,710 while insurance premiums of Sh. 22,450 have
been prepaid.
3 In October 2005, the employees of the firm received a general salary increase,
backdated to 1 July 2005. Amounts totaling Sh.126,550 in salary arrears are payable to
former employees who left shortly before the salary award was announced and who
have not yet been traced. It has been decided that the salary packets will be opened and
the cash banked until the ex-employees are traced.
4 Wages due to casuals amounting to Sh. 464,120 for services rendered in the last week of
December 2005 were paid in January 2006 together with the salaries for the month of
December 2005 which amounted to Sh.301,700.
5 During the year, the exterior of the warehouse was repaired and repainted at a cost of
Sh.500,000. This"
amount was erroneously debited to office premises account. It is policy of Bakari
Brothers Enterprises to provide for depreciation on the closing balances of non-current
assets and this has already been done. The annual rate of depreciation on office
premises is 2% calculated on the straight-line basis.
6 In December 2005 2005, Bakari Brothers Enterprises had bought goods on credit from
CB Ltd. for Sh. 452,100 and has also sold goods on credit to the same company for
Sh.163,040. These amounts were correctly posted to their respective accounts.
However, these accounts are to be offset as at 31 December 2005 and the remaining
balance settled by cheque in January 2006.
7 The provision for discounts allowed to debtors, which at present has a balance of
Sh.229,530 needs to be reduced to Sh. 157,400.
8 Debts totaling Sh.64,800 are irrecoverable and should be written off. However, amount
of Sh.21,440
written off as a bad debt in the previous year has now been recovered in full but the
cheque in settlement has not been banked or posted in the accounts.
Required:
Journal entries, including narrations, necessary to record the above transactions in the books of
Bakari Bothers Enterprises.
Date posted: November 20, 2018. Answers (1)
- Outline the extent to which a trial balance is an indicator of correct book-keeping by an entity(Solved)
Outline the extent to which a trial balance is an indicator of correct book-keeping by an entity.
Date posted: November 20, 2018. Answers (1)
- Grace and Beatrice were operating a retail business sharing profits and losses in the ratio of 2:1
respectively up to 31 March 2006 when they admitted...(Solved)
Grace and Beatrice were operating a retail business sharing profits and losses in the ratio of 2:1
respectively up to 31 March 2006 when they admitted Catherine to the partnership. The partners
allowed payment of interest on partners' fixed capital accounts but did not allow for interest on
partners' current accounts.
The following balances were extracted from the partnership's book of account as at 30 September 2006:
Additional information:
1. On 31 March 2006 when Catherine was admitted as a partner, the profit sharing ratio
changed to Grace 2/5, Beatrice 2/5 and Catherine 1/5. For the purpose of admission,
goodwill was valued at Sh. 12,000,000 and was written off the books immediately. On 1
April 2006, Catherine paid Sh.5,000,000 which comprised her fixed capital of
sh.1,500,000 and her current account contribution of sh.3,500,000."
2. The partners also agreed that any apportionment of gross profit was to be made on the
basis of sales. The apportionment of expenses, unless otherwise indicated, were to be
on time basis.
3. On 30 September 2006, stock was valued at Sh.5,100,000.
4. Provision was to be made for depreciation on motor vehicles and shop fittings at the
rate of 20% and 5% per annum respectively, based on cost.
5 Salaries included the following partners drawings during the year:
Grace - Sh.600,000
Beatrice - Sh.480,000
Catherine - "Sh.250,000"
6 At 30 September 2006, rates paid in advance amounted to sh.260,000 while electricity
accrued amounted to sh.60,000.
7 A difference in the books of sh.120,000 that had been written off to general expenses as
at 30 September 2006 was later found to have been due to the following errors:
- Sales returns of sh.180,000 had been debited to sales but was omitted from the
- customers account.
- The purchase journal had been undercast by sh.200,000.
8 Doubtful debts (for which full provision was required) as at 31 March 2006 amounted
to Sh.120,000 and sh.160,000 as at 30 September 2006.
9 Professional charges included sh.200,000 paid in respect to the acquisition of leasehold
premises. These fees are to be capitalized as part of the lease, the total cost of which was
to be depreciated in 25 equal annual installments. Other premises owned by Beatrice
were leased to the partnership at Sh. 600,000 per annum but no rent had been paid or
credited to her for the year to 30 September 2006.
Required:
(a) Income statement for the year ended 30 September
2006.
(b) Balance sheet as at 30 September 2006.
(c ) Partners' current accounts.
Date posted: November 20, 2018. Answers (1)
- Auto Transmitters Ltd. is a medium-size factory in Nairobi Industrial Area which manufactures
transmitters. The following trial balance was extracted from the books of the company...(Solved)
Auto Transmitters Ltd. is a medium-size factory in Nairobi Industrial Area which manufactures transmitters. The following trial balance was extracted from the books of the company as at 31
December 2005.
Additional information:
1 Depreciation is to be provided as follows:
- Plant and machinery at 15%on cost.
- Office equipment at 10%on cost.
- Motor vehicles at 25%on written down value.
- Building (erected during the year) at 2%on straight-line basis.
2 Prepaid rates as at 31 December 2005 were sh.31,400.
3 An insurance premium for public liability cover in the sum of sh.33,520 was paid for a
period of one year to 31 march 2006.The amount owing for electricity and rent as at 31
December 2005 was sh.12,140 and sh.23,210 respectively.
4 Rent, rates, electricity and insurance expenses are to be apportioned in the ratio, 5/6 to
the factory and 1/6 to office expenses.
5 A provision for bad and doubtful debts at 1% of the debtors is to be made.
6 The share capital (authorized and fully paid) as at 31 December 2005 was as follows:
- 800,000 ordinary shares of shares of sh.5. Each"
- 200,000 10%preference'shares of sh.10 each"
A provision for the final preference dividend and a dividend of sh.2.25 per ordinary
shares is to be made.
7 Office salaries include Sh. 642,370 paid to salesmen while director's salaries include
sh.200,000 paid to the production director.
8 Corporation tax of sh.1,000,000 is to be provided for.
9 1,500 transmitters were completed and transferred to the warehouse at a transfer price
of Sh. 10,000 per transmitter.
10 The value of stocks as at 31 December 2005 were as follows:
Sh.
Raw materials at cost 562,000
Work -in-progress at cost 471,900
Finished goods at transfer price 1,000,000(100 transmitters)
(Notes that owing to a change in accounting policy, the closing stock of finished goods
were valued at transfer price during the year ended 31 December 2005)
Required:
Manufacturing, trading and profit and loss account for the year ended 31 December 2005"
Date posted: November 20, 2018. Answers (1)
- Mr. Hassan Baraka retired from employment on 1 October 2005 and was paid terminal benefits
of Sh. 3,000,000. He utilized Sh. 2,500,000 in purchasing business premises...(Solved)
Mr. Hassan Baraka retired from employment on 1 October 2005 and was paid terminal benefits
of Sh. 3,000,000 He utilized Sh. 2,500,000 in purchasing business premises and deposited the
balance in a new business account at Faida Bank Ltd.
Mr. Baraka did not maintain proper books of account. However, he kept files of statements
from suppliers, cheque counter foils and unpaid invoices for purchases made. He also
maintained a note book in which he recorded sales to customers who had credit accounts and
settled their accounts by cheque. Cash collected from sales was banked at the end of each week
after payment of certain expenses. Mr. Baraka also maintained some petty cash for office use.
Mr. Baraka estimates to have paid the following business expenses from his personal bank
account.
Sh.'000'
Rent and rates for additional apace 100
Lighting expenses 50
Stationery and postage expenses 26
An analysis of the bank statements for the year ended 30 September 2006 was as follows:
Additional information:
1. Baraka estimates that during the year ended 30 September 2006, he utilized
cash collected from sales for the following purposes:
Sh.’000’
Wages payment 400
Sundry expenses payment 50
Drawings 600
2 Cheques received from credit customers amounting to Sh.30, 000 had not been
credited by the bank as at 30 September 2006.
3 Insurance paid for inventory during the year include Sh. 20,000 relating to premium for
the year ending 30 September 2007.
4 Petty cash balance as at 30 September 2006 was Sh. 15,000 which included a post dated
cheque of Sh. 5,000 drawn by Mr. Baraka's friend in exchange for cash advanced
from petty cash.
5 Credit customers owed Sh. 172,000 as at 30 September 2006.
6 As at 30 September 2006, the following were due on accounts payable:
Sh. „000‟
Suppliers 403
Wages 10
Sundry expenses 6
7 Depreciation is to provided on a straight-line basis at the following rates:
Business premises 2%
Fixtures and fittings 10%
8 The value of inventory as at 30 September 2006 was Sh. 360,000.
Required:
(a) Trading, profit and loss account for the year ended 30 September 2006.
(b) Balance sheet as at 30 September 2006.
Date posted: November 20, 2018. Answers (1)
- Dickson Kimula is an electronic equipment dealer. He has sought your advice on
certain matters relating to his financial statements for the year ended 30 April...(Solved)
Dickson Kimula is an electronic equipment dealer. He has sought your advice on
certain matters relating to his financial statements for the year ended 30 April 2006.
Citing the relevant accounting principle, advise Dickson Kimula how to deal with each
of the following:
(i) All his electrical equipment is sold with a one year warranty for repair and service,
which on average costs Sh.480 per item. The value of equipment returned annually
average 1% of the sales. The sales of the year ended 30 April 2006 were 200,000 units.
(ii) Closing stock as at 30 April 2006 was valued at Sh.500,000. However, some items of
stock whose initial cost was Sh. 200,000 can only realise Sh.150,000 after major repairs
costing Sh.40,000
(iii) Sales for the year include deposits from customers amounting to Sh.2,000,000. The
goods had not been delivered to the customers as at 30 April 2006
(iv) The firms' VAT returns for the month of April 2006 had not been filed with the
Revenue Authority. The penalty for late filing of VAT returns is Sh.10,000.
Date posted: November 20, 2018. Answers (1)
- State any two circumstances that may hinder a firm from improving on the usefulness of its financial statements(Solved)
State any two circumstances that may hinder a firm from improving on the usefulness of its financial statements.
Date posted: November 20, 2018. Answers (1)
- Briefly explain why the following parties may be interested in the financial statements of an organisation:
(i) Employees
(ii) Financial analysis
(iii) The Government.
(iv) The public.(Solved)
Briefly explain why the following parties may be interested in the financial statements of an organisation:
(i) Employees
(ii) Financial analysis
(iii) The Government.
(iv) The public.
Date posted: November 20, 2018. Answers (1)