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- With reference to International Accounting Standards explain the following:
(a) Fundamental accounting concepts
(b) Accounting bases
(c) Accounting policies(Solved)
With reference to International Accounting Standards explain the following:
(a) Fundamental accounting concepts
(b) Accounting bases
(c) Accounting policies
Date posted: November 25, 2018. Answers (1)
- James Mbuvi started a taxi business in Nairobi in March 1990 under the firm name Mbuvi
Taxis. The firm had two vehicles KA and KB which...(Solved)
James Mbuvi started a taxi business in Nairobi in March 1990 under the firm name Mbuvi
Taxis. The firm had two vehicles KA and KB which had been purchased for Sh.560,000 and
Sh.720,000 respectively earlier in the year.
In February 1992 vehicle KB was involved in an accident and was written off. The insurance
company paid the firm Sh.160,000 for the vehicle. In the same year the firm purchased two
vehicles, KC and KD for Sh.800,000 each.
In November 1993' vehicle KC was sold for Sh.716,000. In January 1994 vehicle KE was
purchased for Sh.840,000. In March 1994 another vehicle KF was purchased for Sh.960.000.
The firm's policy is to depreciate vehicles at the rate of 25 per cent on cost on vehicles on hand
at the end of the year irrespective of the date of purchase. Depreciation is not provided for
vehicles disposed of during the year. The firm's year ends on 31 December.
Required:
(a) Calculate the amount of depreciation charged in the profit and loss account for each of the five
years.
(b) Prepare the motor vehicle account (at cost).
(c) Calculate the profit or loss on disposal of each of the vehicles disposed of by the company.
Date posted: November 25, 2018. Answers (1)
- According to the cash hook of Gaitani Ltd. the company has a credit balance at the hank of
Sh.190.000 on 30 June 1994, but this is...(Solved)
According to the cash hook of Gaitani Ltd. the company has a credit balance at the hank of
Sh.190.000 on 30 June 1994, but this is NOT borne out by the Bank Statement of the same
date. An investigation into the difference yields the following information.
1 A standing order for a charitable subscription of Sh.20, 000 had been paid by the
hank on 29 June but no entry had been made in the cash hook.
2. A cheque paid for advertising on 10 little for Sh.89,500 had been entered into
the cash hook as Sh.98,500.
3 Cheques for S11.5 18,500 sent to creditors on 30 June were not paid by the hank
until 8 July.
4. Cheques received front customers amounting to sh.840.000 were paid into the bank on
30 June but were not credited by the hank until 5 July.
5. On 20 Julie a cheque for h.57, 000 was received from a customer in settlement of
an invoice for Sh.60.000. An entry of Sh.60.000 had been made in the cash hook.
Required:
(a) Prepare a statement reconciling the cash hook balance with the hank statement.
(b) Explain how a company may have reduced its hank balance during an accounting period
but still have earned a profit fur that same period.
Date posted: November 25, 2018. Answers (1)
- The Chief Accountant of KK Ltd. has extracted the following trial balance as at 31 October 1998:(Solved)
The Chief Accountant of KK Ltd. has extracted the following trial balance as at 31 October 1998:
Notes:
1. Credit sales amounting to Sh. 165,000 were made on 31 October 1998 but no entries were
made in the books.
2. Returns outwards amounting to Sh. 128,000 were dispatched on 31 October 1998 but no
entries were made in the books.
3. Closing stock was valued at Sh.4, 398,000.
4. Accrued salaries and telephone bills amounted to Sh. 134,000 and Sh.55, 000 respectively.
5. Rent for the month of October 1998 amounting to Sh.35, 000 had not been received
from the tenant.
6. Provision for depreciation on furniture and fittings and the motor vehicles are 10% and
20% on cost respectively.
7. Provision for bad and doubtful debts of 5 % on trade debtors should be made.
8. Corporation tax should be provided at 35 % of the net profit before tax.
9. The directors propose a dividend of 15% on issued share capital and a transfer of
Sh.2, 500,000 to the general reserve.
10. The debenture interest has not yet been paid.
Required:
(a) Trading, profit and loss account for the year ended 31 October 1998.
(b) Balance sheet as at 31 October.
Date posted: November 25, 2018. Answers (1)
- List and explain five characteristics of a partnership(Solved)
List and explain five characteristics of a partnership.
Date posted: November 24, 2018. Answers (1)
- Accounting Ratios have been used by a number of companies as indicators of their financial performance in the present and even in the future. Discuss...(Solved)
Accounting Ratios have been used by a number of companies as indicators of their financial performance in the present and even in the future. Discuss the five limitations associated with their use for this purpose.
Date posted: November 24, 2018. Answers (1)
- Kathryn Rochford keeps her petty cashbook on the imprest system, the imprest being Sh.25. For the month of April 20X9 her petty cash transactions were...(Solved)
(a) Kathryn Rochford keeps her petty cashbook on the imprest system, the imprest being Sh.25. For the month of April 20X9 her petty cash transactions were as follows:
(i) Enter the above transactions in the petty cashbook and balance the petty
cashbook at 30 April, bringing down the balance on 1 May.
(ii) On 1 May Kathryn Rochford received an amount of cash from the cashier
to restore the imprest. Enter this transaction in the petty cashbook.
(b) Open the ledger accounts to complete the double entry for the following:
(i) The petty cash analysis columns headed Postage and Stationery and Travelling Expenses;
(iii) The transactions dated 9 and 23 April 20X9.
Date posted: November 24, 2018. Answers (1)
- Why do some businesses keep a petty cashbook as well as a cashbook?(Solved)
Why do some businesses keep a petty cashbook as well as a cashbook?
Date posted: November 24, 2018. Answers (1)
- The directors of Hawk, a limited liability company, wish to compare the company's most recent financial statements with those of the previous year. The company's...(Solved)
The directors of Hawk, a limited liability company, wish to compare the company's most recent financial statements with those of the previous year. The company's financial statements are given below:
Required:
(a) Calculate, for each of the two years, eight accounting ratios which should assist the directors
in their comparison, using closing figures for balance sheet items needed.
(b) Suggest possible reasons for the changes in the ratios between the two years.
Date posted: November 24, 2018. Answers (1)
- Orion and Pegasus are two sole traders who decide to amalgamate their businesses into
a partnership as from 1 January 2001.
Their balance sheets at 31 December...(Solved)
Orion and Pegasus are two sole traders who decide to amalgamate their businesses into
a partnership as from 1 January 2001.
Their balance sheets at 31 December 2000 are as follows:
(1) Goodwill, which does not appear in the records of either business, is valued at:
Sh.‟000
Orion 200
Pegasus 180
Goodwill is not to appear in the opening balance sheet of the partnership.
(2) Profit-sharing ratios in the partnership are agreed as :
Orion 60%
Pegasus 40%
(3) Land included in Orion.s non-current assets at Sh.100,000 to be revalued to Sh.130,000.
(4) Orion and Pegasus did not transfer their motor cars to the new business but retained
them personally. The motor cars are currently included in their non-current assets at
their book value as follows:
Sh.‟000
Orion 18
Pegasus 16
(5) Orion's loan from Nimrod was repaid by Orion on 31 December 2000.
(6) The remaining balance of Orion's cash, and the overdraft of Pegasus,
were combined into a single bank account for the partnership.
(7) All other assets and liabilities of the businesses were brought into the partnership at
their stated book value.
Required:
(a) Show the capital accounts of the two traders to record the closure of their businesses.
(b) Prepare the opening balance sheet of the new partnership of Orion and Pegasus as at 1
January 2001.
(c) Explain why asset revaluations and a goodwill adjustment may be needed when a partner
retires or dies, a new partner is admitted or there is a change in profit-sharing ratios.
Date posted: November 24, 2018. Answers (1)
- Cygnus is a sole trader selling antiques from a rented shop. He has not kept proper
accounting records for the year ended 31 January 2001, in...(Solved)
Cygnus is a sole trader selling antiques from a rented shop. He has not kept proper
accounting records for the year ended 31 January 2001, in spite of his accountant‟s advice
after the preparation of his accounts for the year ended 31 January 2000.
His assets and liabilities at 31 January 2000 and 31 January 2001 were as follows:
Before banking the shop takings, Cygnus took various amounts as drawings.
Notes
(1) Cygnus fixes his selling prices by doubling the cost of all items purchased.
(2) During the year, Cygnus sold for Sh.300 equipment that had cost Sh.800, and had a
written down value at 1 February 2000 of Sh.200. He purchased further equipment on
1 August 2000 for Sh.1,800.
(3) Depreciation is charged at 10% per year on the straight-line basis, with no
depreciation in the year of sale and proportionate depreciation in the year of purchase.
(4) Rent is payable quarterly in advance on 1 January, 1 April, 1 July and 1 October
each year. On 1 July 2000, the annual rent was increased from Sh.6,000 to Sh.9,000.
(5) The loan from Draco carries interest at 10% per year payable annually on 31
December. On 31 December 2000, Cygnus repaid Sh.12,000 of the loan. The balance is
repayable on 31 December 2004.
(6) The accrued expenses at 31 January 2000 consist of the Sh.200 interest accrued
on Draco.s loan (see Note 4) and sundry expenses of Sh.2,100. At 31 January
2001, accruals for sundry expenses amounted to Sh.3,300.
Required:
(a) Prepare for Cygnus an income statement for the year ended 31 January 2001 and a
balance sheet as at that date.
Date posted: November 24, 2018. Answers (1)
- Briefly explain the following accounting Concepts. (i) Going concern (ii) Accruals (iii) Consistency (iv) Prudence or conservatism (v) Materiality(Solved)
i) Going concern
ii) Accruals
iii) Consistency
iv) Prudence or conservatism
v) Materiality
vi) Substance over form
vii) Business entity concept
viii) Money measurement
ix) Historical cost
x) Objectivity
xi) Realization
xii) Duality
Date posted: November 24, 2018. Answers (1)
- What are accounting concepts, Bases, Policies?(Solved)
What are accounting concepts, Bases, Policies?
Date posted: November 24, 2018. Answers (1)
- Mr. James Bulayi formed Malimia Traders, a sole proprietorship five years ago. His initial capital
injection was Sh.1,000,000 cash. For a number of years, Bulayi's wife...(Solved)
Mr. James Bulayi formed Malimia Traders, a sole proprietorship five years ago. His initial capital
injection was Sh.1,000,000 cash. For a number of years, Bulayi's wife maintained the accounting
records, but early in 1993 she became seriously ill. Mr. Bulayi consulted a CPA firm whose
manager told him "you keep a record of your cash receipts and payments and a list of your
assets and liabilities, at the beginning and end of the year, and I will prepare financial statements
for you at the end of the year".
On 31 October 1993, Mr. Bulayi presented the following data to the Manager of the CPA firm.
Additional information:
i) Although the primary source of revenue is from trading Malimia Traders also earns income
from rent and interest. Malimia Trader conducts business from the ground floor of its twofloor
storey building. The first floor is rented to a shoe-retailer for a monthly rent. The
retailer pays 6 months rent in advance on 1 March and 1 September every year. Malimia
Traders increased rent from Sh.15,000 per month to Sh.20,000 per month with effect from
1 September 1993. Malimia Traders charges interest on overdue customers accounts, which
customers usually pay together with the principal amount due. Interest owing by customers
on 31 October 1993 was Sh.5,000.
ii) The following balances of assets and liabilities were extracted on 31 October 1992
iii) Sh.14,000 of debts had been written off during the accounting period, of which Sh.8,500
was from sales of the previous accounting year, Bulayi estimated that Sh.14,200 of the 31
October 1993 debtors balances may be uncollectable and a provision is required.
iv) Returns inwards and returns outward all applicable to current year's sales and purchases are
Sh.60,000 and Sh.50,000 respectively.
v) Cash discount taken by credit customers in the year are Sh.41,300 discounts on purchases
are Sh.64,000.
Depreciation is to be provided on reducing balance on fixed assets held at year end at the
rate of 5% per annum on building and 25% per annum on equipment. There were no
disposals of plant assets during the year.
Interest owing on the bank loan at 31 October 1993 is Sh.17,500. The amount paid for
insurance includes a premium of Sh 8,000 paid to cover the firm against fire for the Co. six
months to 31 January 1994.
Stock in hand on 31 October 1993 was valued at Sh985,000.
On 31 October 1993 the amounts owing to suppliers was Sh.523,000 and the amount
owing by customers was Sh,663,2000 (excluding interest on overdue accounts). All
purchases of stock are on credit.
Ground rent and land rates for the year amounted to Sh.50,000 The bills received in
respect of the two are not yet paid.
Required:
Malimia Traders' Trading, Profit and loss Account for the year ended 31 October 1993 and a
Balance Sheet as at that date.
Date posted: November 24, 2018. Answers (1)
- The treasurer of Watembezi Sports Club has presented the following information for the year ended 31 October 1998(Solved)
The treasurer of Watembezi Sports Club has presented the following information for the year ended 31 October 1998
Notes:
1) The Harambee donations were for the extension of the club. The funds shall remain in this
account until the works, are completed when' the balance will be transferred to the
accumulated fund.
2) The depreciation on fixed assets is at 10% and 15% on cost on furniture and fittings; and
equipment respectively.
3) Equipment which had cost Sh.25,000 was sold on credit for Sh.14,000 to a member who
owed the club the money at the end of the year. The provision for depreciation on this
equipment was Sh.7,000. Another equipment sold for cash had an accumulated provision
for depreciation of Sh.19,000.
4) Audit fees of Sh.50,000 should be provided.
5) Subscription in arrears are written-off after 12 months.
Required:
a) Income and expenditure account for the year ended 31 October 1998
b) Balance as at 31 October 1998
Date posted: November 24, 2018. Answers (1)
- Reviewing the draft accounts of Uzee Ltd for the year ended 31 st December 2001 as prepared by the Chief Accountant, the Managing Director suggests...(Solved)
Reviewing the draft accounts of Uzee Ltd for the year ended 31 st December 2001 as prepared by the Chief Accountant, the Managing Director suggests that the written down value of plant is too low. To support his argument he produces the following schedule of plant on hand at 31 December 2001:
After discussing the matter the following policy is agreed:
1) Each item of plant to be depreciated on a straight line basis to its estimated scrap value over
its estimated life.
2) A full year's depreciation to be charged in the year of
purchase. On investigation you ascertain that:
There is no plant register.
Plant which includes the lorry is shown in the accounts at cost less proceeds of sales.
3) For some years depreciation was charged at 15% on the reducing balance and then from 31st
December 1994 at 10% of cost less proceeds of sales on a straight line basis.
4) The Plant account for the year ended 31st December 2001 was:
You are required to show, after implementing the new policy:
a) The Plant Account as it should appear in the books of the company for the year ended 31st
December 2001
b) The entries which should appear in the Balance Sheet as on 31st December 2001 and
c) A note explaining the effect on the profits on the change of depreciation policy.
Date posted: November 24, 2018. Answers (1)
- Juhudi Ltd. has two accounts "A" and "B" with different banks. On 31 March 1995 the cash
book showed a balance of Sh.200,000 in Account" A"...(Solved)
Juhudi Ltd. has two accounts "A" and "B" with different banks. On 31 March 1995 the cash
book showed a balance of Sh.200,000 in Account" A" and an overdraft of Sh. 90,000 in
account "B". However the bank statements obtained on the same day showed different
balances for the two accounts.
Further investigation reveals the following information: -
1. A deposit of Sh.60,000 made into account" A" on 1 March 1995 has been entered in
the cash book in account "B".
2. A withdrawal of Sh.20,000 from account" A" on 3 March 1995 has been debited in
the cash book in account "B".
3. Cheques of Sh.25,000 and Sh.30,000 deposited in account" A" on 9 March 1995 were
entered in the cash book in account"B". The second cheque has been dishonored by
the bankers. The entry for this dishonored cheque has been entered in the cash book
in account "B".
4. Cheques for Sh.40.000 and Sh.500.000 drawn on accounts" A" and "B" respectively
on 30 March 1995 were not paid by the banks until 5 April 1995.
5. Incidental charges of Sh.400 and Sh.1.000charged in the accounts" A" and "B"
respectively have not been entered in the cash book.
6. The bank has credited an interest of Sh.2.000 for account" A" and has debited bank
charges of Sh.1,500 to account "B". These transactions have not been entered in the
cash book.
7. Deposits of Sh.200,000 and Sh.140,000 made into the accounts" A" and "B"
respectively have not yet been credited by the bank.
8. Dividends amounting to Sh.8,000 had been paid direct to the bank in account "B".
9. A cheque for Sh.3.500 drawn on account" A" on 30 March 1995 in payment of an
electricity bill had been entered in the cash book as Sh.5,300.
Required:
i) The necessary adjustments in both cash books in order to correct the errors.
ii) Bank reconciliation statements for both cash books.
Date posted: November 24, 2018. Answers (1)
- Define the term bank reconciliation statement and indicate its three main functions(Solved)
Define the term bank reconciliation statement and indicate its three main functions.
Date posted: November 24, 2018. Answers (1)
- Explain four ways in which the use of historical cost accounting may cause users of financial statements to be misled when prices are rising.(Solved)
Explain four ways in which the use of historical cost accounting may cause users of financial statements to be misled when prices are rising.
Date posted: November 24, 2018. Answers (1)
- Comparability is a characteristic which adds to the usefulness of financial statements.
Required:
(a) Explain what is meant by the term „comparability? in financial statements,
referring to two...(Solved)
Comparability is a characteristic which adds to the usefulness of financial statements.
Required:
(a) Explain what is meant by the term „comparability‟ in financial statements,
referring to two types of comparison that users of financial statements may make.
(b) Explain two ways in which the IAS (International Accounting Standards) aids the
comparability of financial information.
Date posted: November 24, 2018. Answers (1)