UNIT CODE: DAF1301 UNIT TITLE: FUNDAMENTALS OF ACCOUNTING II

1. a) A B and C are partners sharing profit and losses in the ratio of

2:2:1 respectively. For the year ended 31st December 2002 their
Capital accounts remained fixed at the following:
A 600,000
B 400,000
C 200,000
They have agreed to give each other 10% per annum interest on capital accounts. In
addition partnership salaries of sh 300,000 for B and sh 100,000 for C are to be charged.
The net profit of the partnership before taking any of the above into account was sh
2,520,000

Required:
Draw up the profit and loss appropriation account the partnership for the year ended 31
December 2012. (7 Marks)

b) Discuss the limitations of ratios as a proforma indicator of a

business entity. (7 Marks)

c) Outline the users of accounting information and their information

needs. (7 Marks)

d) With examples discuss

i) Direct cost. (4 Marks)
ii) Indirect cost. (4 Marks)
iii) Share premium. (1 Mark)

2. a) Distinguish reserves from share capital. (5 Marks)

b) The trial balance of plastics ltd as at 31 October 2004 is as follows

sh’000’ sh’000’
Ordinary shares capital of sh
50 each 10,000
10% preference share of sh 100 each 9,000
105 debentures 8,000
 Land and buildings (NBV) 25,000
Plant and machinery (NBV) 8,000
Motor vehicles (NBV) 2,000
Inventory 6,000
Accounts receivable and payable 20,000 19,000
Capital redemption reserve 6,000
Cash at bank 4,100
Share premium 4,000
Retained profits as at (November 2003) 3,000
Debentures interest 4,000
Preference dividends 450
Gross profit 25,000
Other operation income 4,000
Administration expenses 13,000
Distribution costs 6,000
Other operating expenses 1,550
Interim ordinary dividends paid 2,000
Corporation tax 500

Additional information
a) A building whose het book value is correctly sh 5 million is to be revalued to sh 9
million

b) A final ordinary dividends of sh 2 million as proposed.

c) The balance of the corporation tax for the current year is estimated at sh 3 million.

Required:
i) Income statement for the year ended 31 October 2004.
(8 Marks)
ii) Balance sheet as at 31 October 2004. (7 Marks)

3. The summarized financial statements of Baraka enterprises ltd are

As follows
Income statement for the yare ended 30 September
2003 2004
Sh ‘000’ sh’000’
Sales 20,000 28,000
Cost of sales (15,000) (21,000)
Gross profit 5,000 7,000
Administrative expenses 3,800 4,600
Debenture interest - (400)
Net profit 1,200 2,000

Balance sheet as at 30 September

Sh’000’ sh’000’
Non-current assets
Plant, properties and equipment
(NBV) 11,000 14,000
Current assets
Inventories 2,000 3,000
Trade and other receivables 2,500 2,800
Balance at bank - 500
4,500 6,300
Total assets 15,500 20,300
Equity and liabilities
Issued and fully paid
1,000,000 ordinary shares of sh 10 each 10,000 10,000
Revenue reserves 3,000 4,100

Noncurrent liabilities
8% debentures - 5,000
Current liabilities
Trade and other payable 1,500 1,200
Bank overdraft 1,000 -

Stock as at 1 October 2002 was shs 5,000,000

Required:
a) for each year calculate the following
a) Gross profit margin. (2 Marks)
b) Inventory turnover. (2 Marks)
c) Return on equity. (2 Marks)
d) Return on assets. (2 Marks)
e) Acid test ratio. (2 Marks)
f) Current ratio. (2 Marks)
g) Financial leverage. (3 Marks)

b) Comment on the liquid position of the company giving possible

reasons for the changes. (5 Marks)
4. The following balances were extracted from the tria balance of Takan ltd manufacturing
company as at 31 Dec 2013

Ksh ‘000’
1 January 2012: raw materials 8,000
Work in progress 3,500
Finished goods 3,500
31 December 2013 raw material 10,500
Work in progress 4,200
Finished goods 44,000
Wages 39,000
Factory salaries 25,000
Purchases of raw materials 87,000
Fuel and power 9,900
Direct expenses 1,400
Lubricants 3,000
Carriage inwards 2,000
Factory rent 7,200
Office rent 2,000
Depreciation on factory plant 4,200
Factory transport expenses 1,800
Insurance of factory building and plant 1,500
General factory expenses 3,300
Sales of finished goods 250,000
Advertising costs 2,000

Required;
Manufacturing trading and profit and loss account. (20 Marks)

5. The following balance remained in the books of Ahadi ltd as at 30 April 2003 after the
preparation of the trading account

Sh
Share capital authorized and issued
2,400,000 sh 20 ordinary share 48,000,000
800,000 85 sh 20 preference share16,000,000
Stock 30 April 2003 33,540,000
Account receivable and prepayments 10,880,000
Account payable and accruals 5,488,800
Balance at bank 3,118,400
10% debentures 6,400,000
 General reserves 11,200,000
Bad debts 136,000
Gross profit for the year 32,603,200
Salaries and wages 11,280,000
Rates and insurance 564,000
Postage and telephone 248,000
Water and electricity 486,400
Debenture interest 320,000
Directors fees 1,000,000
General expenses 1,243,000
Motor vehicles (cost sh 11,640,000) 2,726,000
Office fittings and equipment (cost sh 17,856,000)10,976,000
Land and building at cost 52,880,000
Profit and loss account - 1 may 2002 9,700,800

Additional information
a) A bill for sh 219,200 in respect of electricity for the period up to 30 April 2003 has not
been accrued
b) The amount of insurance includes a premium of sh 120,000 paid in January 2003 to
cover the company for six months, February to July 2003.

c) Office fittings and equipment are to be depreciated at 15% per annum

on cost and motor vehicles at 20% per annum on cost.

d) Provision is to be made for:

Directors fees sh 2,000,000
Audit fee sh 480,000
the outstanding debenture interest

e) The directors have recommended that:

 A sum of sh 4,800,000 be transferred to general reserves.
 The preference dividend be paid
 A 10% ordinary dividend be paid

Required:

a) Profit and loss and appropriate accounts for the year ended 30 April
2003. (12 Marks)

b) Balance sheet as at 30 April 2003. (8 Marks)