CHARTERED ACCOUNTANTS EXAMINATIONS

___________________

TECHNICIAN LEVEL
____________________

T1: FINANCIAL ACCOUNTING

_______________________
MONDAY 13 JUNE 2016
_______________________
TOTAL MARKS – 100: TIME ALLOWED: THREE (3) HOURS
________________________

INSTRUCTIONS TO CANDIDATES

1. You have fifteen (15) minutes reading time. Use it to study the examination paper
carefully so that you understand what to do in each question. You will be told when
to start writing.

2. This paper is divided into TWO sections:

Section A: Ten (10) multiple choice Compulsory questions.

Section B: FIVE (5) Optional questions. Attempt any FOUR (4) questions.

3. Enter your student number and your National Registration Card number on the front
of the answer booklet. Your name must NOT appear anywhere on your answer
booklet.

4. Do NOT write in pencil (except for graphs and diagrams).

5. Cell Phones are NOT allowed in the Examination Room.

6. The marks shown against the requirement(s) for each question should be taken
as an indication of the expected length and depth of the answer.

7. All workings must be done in the answer booklet.

8. Present legible and tidy work.

9. Graph paper (if required) is provided at the end of the answer booklet.
SECTION A

Attempt all the Ten (10) multiple choice questions in this section

QUESTION ONE

1.1 Which of the following is NOT a qualitative characteristic of financial statements?

A. Understandability
B. Timeliness
C. Relevance
D. Reliability (2 Marks)

1.2 A sole trader, Mwenze’s opening capital was K80,000. The net asset position at the
year-end increased by K23,000. During the year, the owner withdrew K24,000 for
her personal use.

Her profit or loss during the year was

A. K47,000 profit
B. K1,000 loss
C. K56,000 profit
D. K33,000 profit (2 Marks)

1.3 A company uses the imprest system to control its petty cash, keeping a float of
K500. Since the cash was last replenished, it had the following transactions:

K105.00 Reams of paper

K 80.00 Cleaning materials
K 50.00 Taxi fare
K120.00 Beverages
K 85.00 Refund to customer

How much should now be drawn from the bank?

A. K560.00
B. K 60.00
C. K500.00
D. K440.00 (2 Marks)

1.4 Mulopwe is a wholesaler who sells goods to long-standing customers on credit.

Chikuti has a credit balance of K6,500 brought down in the books of Mulopwe. This
means that

A. Mulopwe owes Chikuti K6,500

B. Chikuti owes Mulopwe K6,500
C. Mulopwe has paid Chikuti K6,500
D. Chikuti overpaid Mulopwe by K6,500 (2 Marks)

Page 2 of 18
1.5 The following figures relate to receivables control for the year ended 31st March
2014:

K
Opening balance 1st April 2013 35,000 debit
Credit sales 165,000
Receipts from customers 148,000
Cash discount allowed 7,500
Refunds to customers 10,800
Bad debt 14,600
Allowance for receivables - 31 March 2014 2,900

What was the net receivables figure in the Statement of Financial Position as at 31st
March 2014.

A. K19,100
B. K40,700
C. K37,800
D. K16,200 (2 Marks)

1.6 The suspense account shows a credit balance of K36,000. This could be due

A. Overcasting the sales day book by K27,000

B. Undercasting the purchases account by K27,000
C. Recording sales returns as K95,000 instead of K59,000
D. Entering K18,000 paid to Kapoto on the credit side of Kapoto’s account.

(2 Marks)

1.7 The following is an extract from the trial balance of Siyuka at 31 December 2013.

Debit Credit
K K
Sales 320,420
Returns 15,400 23,720
Discounts 6,800 4,900

The figure to be shown in the trading account for net sales is

A. K298,220
B. K296,700
C. K305,020
D. K300,120 (2 Marks)

1.8 The subscriptions income account had the following balances:

31.12.2012 31.12.2013
K K
Subscriptions in arrears 1,500 750
Subscriptions in advance 3,000 2,250

Page 3 of 18
 During the year ended 31 December 2013, total subscriptions received were
K75,000.

Calculate the amount to be taken to the Income and Expenditure account for the
year ended 31 December 2013.

A. K75,000
B. K72,000
C. K78,000
D. K78,750 (2 Marks)

1.9 Which one of the following is used to calculate the gearing ratio for a company

A. Prior charge capital divided by ordinary shares

B. Prior charge capital divided by equity and long-term liabilities
C. Prior charge capital divided by long-term liabilities
D. Prior charge capital by reserves (2 Marks)

1.10 The public sector includes all of the following EXCEPT:-

A. Central government
B. Local government
C. Not-for-profit organizations
D. Parastatal companies (2 Marks)

[TOTAL: 20 MARKS]

Page 4 of 18
SECTION B

Attempt any four (4) questions in this section

QUESTION TWO

Bwikalo and Machushi are in partnership sharing profits and losses in the ratio 5:3
respectively.

The following information has been taken from the partnership records for the financial year
ended 30 May 2014.

Partners capital account balances:

Bwikalo K230,000
Machushi K170,000

Partners current accounts, balances as at 1st June, 2013:

Bwikalo K54,000
Machushi K85,000

During the year ended 31 May 2014 the partners made the following withdrawals from the
partnership bank account:

Bwikalo K 8,000 on 1 September 2013

K11,000 on 02 January, 2014
K 6,500 on 30 April 2014
Machushi K12,000 on 30 October 2013
K9,000 on 1st December, 2013
K12,000 on 1st May, 2014

Interest is to be charged on withdrawals at the rate of 9% per annum. Interest is allowed

on capital accounts and credit balances on current accounts at the rate of 10% per annum.

Machushi is to be allowed a salary of K42,000 per annum.

The net profit of the partnership for the year ended 31 May 20X9 is K88,374.

Required:

(a) A computation of the amount of interest chargeable on each partner’s withdrawals

for the year ended 31 May 2014. (6 Marks)

(b) The partnership appropriation account for the year ended 31 May 2014.
(7½ Marks)

(c) The partners’ current accounts showing the balances carried down as at 31 May
2014. (6½ Marks)

[TOTAL: 20 MARKS]

Page 5 of 18
 QUESTION THREE

On 30th November 2013, the bank column of Katote’s Cash Book showed a debit balance of
K4,400. The Bank Statement on the same date showed a balance of K8,785 credit. You have
been recently recruited to help with bank reconciliation. You compare the Bank Statement
and Cash Book and establish the following:

(i) A standing order to Pang’ono Building Society for K600 had been paid by the bank.

(ii) A direct credit amounting to K720 had not been entered in the Cash Book.

(iii) The Bank Statement showed bank charges of K155 not recorded in the business’s
books.

(iv) Katote earned interest of K380 on her bank account. This has not been entered in
the account.

(v) Katote’s fixed deposit account had matured; K4,200 had been transferred into her
current account.

(vi) An error was discovered in the cash book where a cheque received from a customer,
B. Banja, was credited to the cash book.

(vii) The bank statement showed an entry for a dishonoured cheque of K210 returned
from Nyiti, a customer.

(viii) Two cheques issued in November 2013 had not been presented for payment,
payable to K.Kalati for K700 and another to B. Bwipe for K800.

(ix) Katote also received cheques amounting to K2,090 which were deposited by 30
November 2013, but were only credited to her bank account on 4 December, 2013.

Required:

(a) Update the Cash Book balance as at 30 November, 2013. (6 Marks)

(b) Draw up a bank reconciliation statement as at 30 November 2013, starting with the
Bank Statement balance. (5 Marks)

(c) Give THREE reasons why it is important to prepare a bank reconciliation. (3 Marks)

(d) Explain the difference between

(i) Standing order and direct credit

(ii) Fixed deposit account and current account

(iii) Outstanding deposits and unpresented cheques (6 Marks)

[TOTAL: 20 MARKS]

Page 6 of 18
QUESTION FOUR

(a) Explain the distinction between revenue expenditure and capital expenditure. Give
examples. (4 Marks)

(b) State whether each of the following items should be classified as ‘capital’ or ‘revenue’
expenditure.

(i) Purchase of additional high capacity hard disk drive for the computer server.
(ii) Computer maintenance costs.
(iii) Cost of new plant.
(iv) Customs duty charged on the plant when imported.
(v) Installation cost of new plant.
(vi) Cost of wages for plant operators.
(vii) Carriage costs of transporting the new plant from the suppliers’ factory to the
premises of the business purchasing the plant.
(viii) Replacement of broken shelves in administration offices.
(ix) Legal fees in respect of purchase of land.
(x) Ground rent paid annually for the piece of land. (5 Marks)

(c) Identify the THREE components that comprise the cost of property, plant and
equipment, according to IAS16. (3 Marks)

(d) The following information was provided relating to tangible assets for Walasa
Limited.
Cost Accumulated depreciation
1 January, 2013 1 January, 2013
K’000 K’000
Land and buildings 600 100
Machinery 200 128
Motor vehicles 150 75

You are also furnished with the following information.

The cost of land was K200,000.

Depreciation was provided as follows:

Buildings 5% straight line

Machinery 40% reducing balance
Motor vehicles 25% straight line.

Land and buildings were revalued on 1 January 2014, land K350,000 and buildings,
K500,000.

Page 7 of 18
 Required:

(i) Show the accounting treatment of the revaluation. (3 Marks)

(ii) Show how the non-current assets will be disclosed in the accounts as at 31
December, 2013. (5 Marks)

[TOTAL: 20 MARKS]

QUESTION FIVE

(a) Muchinshi Supermarket operates three sections, food, toiletries and electrical.

The Accounts Assistant has been tasked to prepare accounts for the year ended 30
September, 2013. The following information was provided:

Food Toiletries Electricals

K K K
Sales 80,800 70,400 32,300
Opening inventory 12,700 8,300 3,400
Purchases 35,200 29,100 7,900
Wages of sales assistants 8,500 7,900 3,600
Closing inventory 8,900 6,800 4,100
Fixtures and fittings – cost 30,000 20,000 15,000
No. of employees 6 4 2

The following expenses cannot be traced to any particular section:

K
Salary of Supervisor 18,600
Rates 3,250
Advertising 6,000
Electricity 5,200
Telephone 3,000
General office expenses 2,600
Insurance 3,600
Cleaning 2,200
Repairs and maintenance 5,800
Vehicle running costs 5,400

The proportion of the total floor area occupied by each section was:

Food 3/6
Toiletries 2/6
Electricals 1/6

Page 8 of 18
 Expenses are to be apportioned on the following bases:

Floor area – rates, cleaning, depreciation of building, water & electricity, repairs and
maintenance

Sales value – salary of supervisor, advertising

No. of employees – telephone, general office expenses

Cost of sales – insurance, motor vehicle depreciation and running costs

The cost of Buildings is K200,000 and Van is K45,000. The van is used mainly to
purchase goods for the supermarket. Depreciation is as follows:

Buildings 5% on cost
Fixtures and fittings 10% straight line
Motor vehicle 20% straight line

Electricity bill outstanding at the year-end was K1,800 and rates paid for six months
up to 31 December 2013 were K1,500.

Required:

Prepare Muchinshi’s Departmental Income Statement for the year ended 30

September, 2013, showing clearly, the contribution of each department. (18 Marks)

(a) Explain what a loss leader is. (2 Marks)

[TOTAL: 20 MARKS]

QUESTION SIX

The following information relates to Nuka Limited for the year ended 31 December, 2013.

Profit before tax for the year ended 31 December 2013 K19,500
Debentures issued by the company in 2010 with an interest of 12% p.a. K20,000
Interim dividend paid on ordinary shares in 2013 K 1,500
Cost of motor vehicle TV3 purchased in 2013 K45,000
Trade-in value of vehicle given in part-exchange against TV3 K 5,000
Ordinary shares of K100 each in Nuka Limited issued at par and fully paid K30,000
during 2013
Ordinary share dividend proposed in 2012 paid in 2013 K 2,500
Ordinary dividend proposed in 2013 K 2,000
Corporation tax paid K10,500
Cash and bank balance 1 January 2013 K 6,900
Cash and bank balance 31 December 2013 K12,200

During the year ended 31 December 2013,

(i) Receivables decreased by K3,800

(ii) Payables increased by K2,700
(iii) Inventory increased by K4,200

Page 9 of 18
(iv) Depreciation charged was K8,000.

Debenture interest is not in arrears.

Required:

(a) Prepare a Statement of Cash Flow for Nuka Limited for the year ended 31
December, 2013. (12 marks)

(b) Explain the term ‘cash equivalents’. (2 Marks)

(c) Name THREE headings which would be used when calculating Net Cash
Inflow from Operating Activities using the direct method. (3 Marks)

(d) Give THREE advantages of cash flow accounting. (3 Marks)

[TOTAL: 20 MARKS]

END OF PAPER

Page 10 of 18
 JUNE 2016: FINANCIAL ACCOUNTING (T1)

SOLUTIONS

SECTION A – MULTIPLE CHOICE

1.1 B
1.2 A
1.3 D
1.4 D
1.5 B
1.6 C
1.7 C
1.8 A
1.9 B
1.10 C

SECTION B

SOLUTION TWO

(a)
Bwikalo
K8,000 x 9% x 9/12 = K540.00
K11,000 x 9% x 5/12 = K412.50
K6,500 x 9% x 1/12 = K 48.75
K1,001.25

TOTAL DRAWINGS K25,500

Machushi
K12,000 X 9 % X 7/12 = K630.00
K9,000 X 9% X 6/12 = K405.00
K12,000 X 9% X 1/12 = K 90.00
K1,125.00

TOTAL DRAWINGS K33,000

Page 11 of 18
 (b)

BWIKALO AND MACHUSHI

PARTNERSHIP APPROPRIATION ACCOUNT FOR THE YEAR ENDED 31 MAY 2014

K K
Net Profit for the year 88,374.00
Add Interest on drawings:
Bwikalo 1,001.25
Machushi 1,125.00
2,126.25
90,500.25
Interest on Capital:
Bwikalo (230,000 x 10%) 23,000.00
Machushi (170,000 x 10%) 17,000.00
40,000.00
Salary: Machushi 42,000.00
82,000.00
Residual profit 8,500.25
Profit-sharing ratio:
Bwikalo5/8 x K8,500 5,312.66
Machushi3/8 x K8,500 3,187.59
8,500.25
Nil

(C)
PARTNERS’ CURRENT ACCOUNTS
Bwikalo Machushi Bwikalo Machushi
K K K K
31/5/2014 Int. on drawings 1,001.25 1,125.00 01/6/13 Bal b/d 54,000.00 85,000.00
31/5/2014 Drawings 25,500.00 33,000.00 31/5/14 Int. Cap. 23,000.00 17,000.00
31/5/14 Salary nil 42,000.00
31/5/14 Profit 5,312.66 3,187.59
31/5/2014 Bal c/d 55,811.41 113,062.59
82,312.66 147,187.59 82,312.66 147,187.59

Page 12 of 18
SOLUTION THREE

(a)
CASH BOOK
K K
Balance 4,400 Standing order 600
Direct credit 720 Bank charges 155
Fixed deposit transfer 4,200 Dishonoured cheque 210
Interest received 380
Correction of error – receipt CR. 640 Adjusted balance 9,375
10,340 10,340

(b)
BANK RECONCILIATION STATEMENT AS AT 30 NOVEMBER 2013
K K
Balance as per bank statement 8,785
ADD: Outstanding deposits 2,090
10,875
LESS: Unpresented cheques
K. Kalati 700
B. Bwipe 800
1,500
Balance as per adjusted cash book 9,375

(c) IMPORTANCE OF BANK RECONCILIATION

1. To correct any errors at an early stage.

2. To prevent or detect fraud.

3. To ensure the correct balance of cash at bank is reflected in the statement of

financial position.

(d) (i) Standing order

Customer gives written instruction to bank to pay fixed amount on fixed date to
named beneficiary

Direct credit

An individual fills in form to authorize the beneficiary’s bank to directly debit the
payer’s account.

Page 13 of 18
 (ii) Fixed deposit account

An account opened for a fixed term say, 90 days and earns interest for that
period. Cash can only be withdrawn once account matures.

Current account

Account used for regular deposits and withdrawals and earns no interest. It has
no minimum balance.

(iii) Outstanding deposits

Cheque received by a business and recorded in its cash book, usually towards
the month-end. However, it does not appear in the bank statement until the
following month.

Unpresented cheques

Cheque paid and credited in the cash book but not paid by bank until
subsequent period due to bank clearing procedures.

SOLUTION FOUR

(a) Distinguishing between revenue and capital expenditure

 Revenue expenditure: expenditure
- For the purpose of the trade (goods bought for resale and day-to-day operating
expenses).
- To maintain the existing earning capacity of the business.

These costs are charged as expenses to the income and expenditure account in the
period incurred.
 Capital expenditure:
- This is expenditure for the acquisition of non-current assets or to improve their
earning capacity.
- Results in the appearance of non-current assets in the statement of financial
position.
The cost of which is charged to income statement over the useful life (depreciation).

(b) Classifying expenditure

(i) Capital
(ii) Revenue
(iii) Capital
(iv) Capital
(v) Capital
(vi) Revenue
(vii) Capital
(viii) Revenue

Page 14 of 18
(ix) Capital
(x) Revenue

(c) State the THREE Components of cost

1. Purchase price, less any trade discount or rebate.
2. The initial estimate of the costs of dismantling and removing item and restoring
the site on which it is located.
3. Directly attributable costs of bringing asset to working condition for its intended
use e.g. installation costs, professional fees.

(d)

(i) ACCOUNTING TREATMENT OF REVALUATION

Journal entries
Dr Cr
K’000 K’000
Buildings cost (K500, 000 – K400, 000) 100,000
Accumulated Depreciation on buildings (100,000+20,000) 120,000
Land –cost (350,000 – 200,000) 150,000
Revaluation reserves (100,000 + 20,000 +150,000) 370,000

(ii) DISCLOSURE OF NON-CURRENT ASSETS

Statement of financial position (extract only)

Non- Current Assets Cost Accum Dep NBV

K’000 K’000 K’000

Land and Buildings 600 120 480

Machinery 200 156.8 43.2

Motor vehicles 150 112.5 37.5

560.7

Page 15 of 18
SOLUTION FIVE
a)
MUCHINSHI SUPERMARKET
DEPARTMENTAL INCOME STATEMENT FOR THE YEAR ENDED 30 SEPTEMBER 2013

Food Toiletries Electricals

K K K
Sales 80,800 70,400 32,300

Opening inventory 12,700 8,300 3,400

Purchases 35,200 29,100 7,900
47,900 37,400 11,300
Closing inventory (8,900) (6,800) (4,100)
Cost of goods sold: 39,000 30,600 7,200
Add: wages of sales assistants 8,500 7,900 3,600
Cost of sales 47,500 38,500 10,800

Contribution (sale – cost of sales) 33,300 31,900 21,500

Less shared expenses:
Depreciation: Fixtures (10% on cost) 3,000 2,000 1,500
Salary of Supervisor 8,190 7,136 3,274
Rates 1,250 833 417
Advertising 2,642 2,302 1,056
Electricity 3,500 2,333 1,167
Telephone 1,500 1,000 500
General office expenses 1,300 867 433
Insurance 1,766 1,432 402
Cleaning 1,100 733 367
Repairs and maint. 2,900 1,933 967
Vehicle running costs 2,650 2,148 602
Depreciation: buildings 5,000 3,333 1,667
Depreciation: Van 4,416 3,580 1,004
39,214 29,630 13,356
Net profi/(loss) (5,914) 2,270 8,144

Workings:
Shared expenses:
Basis Amount Food Toiletries Electric
(K)
Salary of Supervisor Sales 18,600 8,190 7,136 3,274
Rates floor area 2,500 1,250 833 417
Advertising Sales 6,000 2,642 2,302 1,056
Electricity F/area 7,000 3,500 2,333 1,167
Telephone Employees 3,000 1,500 1,000 500
General office expenses Employees 2,600 1,300 867 433
Insurance Cost of sales 3,600 1,766 1,432 402
Cleaning Floor area 2,200 1,100 733 367
Repairs and maintenance Floor area 5,800 2,900 1,933 967
Vehicle running costs Cost of sales 5,400 2,650 2,148 602
Depreciation: buildings Floor area 10,000 5,000 3,333 1,667
Depreciation: Van Cost of sales 9,000 4,416 3,580 1,004

Page 16 of 18
Depreciation expense for the year:
Buildings K200,000 x 5% = K10,000 p.a.
Van: K45,000 x 20% = K 9,000 p.a.

b) Loss leader:

Department may be making a loss, such as the Food section of Muchinshi

Supermarket; but this is a deliberate decision to keep prices low so as to attract
customers to buy other products in other profitable departments. This will enhance
the overall profitability of the whole organisation.

SOLUTION SIX

a) NUKA LIMITED
STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2013
K K
Net cash flow from operating activities
Profit before tax 19,500
Adjust for:
Depreciation charges 8,000
Interest paid 2,400
Increase in inventory (4,200)
Decrease in receivables 3,800
Increase in payables 2,700
Cash generated from operations 32,200
Interest paid (2,400)
Tax paid (10,500)
Dividend paid (2012) (2,500)
Interim dividend paid (2013) (1,500)
Net cash inflow from operating activities 15,300

Cash flows from investing activities

Payments to acquire property, plant and equip. (45,000 – 5,000) 40,000
Net cash outflow from investing activities (40,000)
Cash flows from financing activities
Issues of share capital 30,000
Net cash inflows from financing 30,000
Increase in cash and cash equivalents 5,300

Page 17 of 18
b) Cash equivalents are short-term, highly liquid investments that are readily convertible
to known amounts of cash and which are subject to an insignificant risk of changes
in value.

c) Headings (Direct Method) to compute cash inflow from operating activities

 Cash receipts from customers
 Cash paid to suppliers
 Cash paid to employees OR
 Interest/income taxes paid.

d) Advantages of cash flow accounting

 Determines how solvent or liquid a business is – as liquidity is a key factor to the

long-term success of the business.

 Cash flows are more easily understood.

 Shows how cash/funds injected into a business in a given year are used. Clear
information is given on movement of cash in a business.

 Cash flow is more comprehensive than ‘profit’ which is dependent on accounting

conventions and concepts.

 Cash flow forecasts are easier to prepare.

 Provides a better means of comparing the results of different companies than

traditional profit reporting.

 Satisfies the needs of different users (e.g. shareholders, creditors, employees,

auditors, management).

END OF SOLUTIONS

Page 18 of 18