Suggested Solutions June 2007
Suggested Solutions June 2007
Suggested Solutions June 2007
2007 EXAMINATIONS
PAPER TC 1: ACCOUNTING/1
SUGGESTED SOLUTIONS
1
Dr Cr
K K
Cash 15,490
Capital 180,000
Land & Building 130,000
Insurance 36,000
Accounts receivable 17,890
Accounts payable 23,814
Office equipment 5,400
Advertising exp 630
Sales commission 10,640
Telephone expenses 144
Salary expenses 7,100
Drawings 1,800 ______
214,454 214,454
K K
Revenue:
Sales commissions earned 10,640
Expenses:
Advertising exp 630
Salaries 7,100
Telephone expenses 144
Insurance expense (36000 ÷ (20 x 12)) x 2 300
45
Depreciation expense
(8,219)
Total expenses
2,421
Net Income
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WORKINGS
(c) They represent the total for the detailed individual accounts and they make
reconciliation of all the accounts easier and quicker.
(d)
(i) Error of original entry Invoice amount K5350 recorded wrongly as
K535 but double entry observed correctly
throughout
(iv) Error of omission An entry totally omitted from the books such
as K13,500 credit sale to Kim not debited to
Kim nor credited to sales account
(v) Complete reversal of entries Debit entry credited and credit entry debited
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(vi) Compensating errors Cast error of equal amount on both the debit
and corresponding entry
Cash Book
K’000 K’000
2006 2006
May 1 Balance b/d 320 May 10 Cashflow 110
16 Ferries Ltd 160 20 Thamangirani 90
24 Jet Ltd 140 28 Couriers Trading 180
31 Coach Trans 470 30 Worldlinkers 200
31 Speedliners 90 31 Balance c/d 600
1,180 1,180
1 June Balance 600
This means that Paulendo has K600,000 of cash resources in the company
2006 K’000
May 1 Balance b/d 320
12 Less 110 210
16 Add 160 370
23 Less 90 280
24 Add 140 420
28 Less 180 240
31 Add 90 330
The balance of K330,000 implies that the bank is keeping this amount for its
customer, Paulendo. This amount is like a liability to the bank and is payable to
the customer on demand.
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(d) (i) The cheque will be dishonoured by the bank/referred to the drawer.
(ii) Zobanduka
K 2006 K
2006 Balance b/d 55,500 Bank 55,000
Balance c/d 500
Bank
K
2006 Paulendo 55,000
Zobanduka
K 2006 K
2006 Balance b/d 55,500 Bank 55,000
Balance c/d 500
Balance c/d 500
Bank : cheque
dishonoured 55,000
Bank account
K
2006 Zobanduka 55,000 2006 Zobanduka
Cheque dishonoured 55,000
(c) The telephone expenses for the year ended 28 February 2006 are:
K
1 March – 31 March 2005 (no telephone) 0
1 April – 30 June 2005 2,350
1 July – 30 September 2005 2,720
1 October – 31 December 2005 3,340
1 January – 28 February 2006 (two months = 2/3 x K3,600) 2,400
10,810
On the 28th February 2006, there is no telephone bill received, however it would
be wrong to ignore the telephone expenses accrued for January and February
2006. Therefore an accrued charge of K2,400 (2/3 x 3600) should be made. The
residual accrued charge will also appear in the balance sheet of the business as at
28 February 2006 as an accrual under current liability.
(d) The accruals concept, also known as matching concept, is used to recognize the
fact that expenditure which is used to generate revenue for a particular period
should be charged in the relevant period. Profit (or loss) is then computed by
matching the revenue (generated) and expenditure (incurred) for the period. Cash
receipts and payments during the period are not relevant for this purpose.
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K K
Stock of raw materials 1.9.2005 8,565
Add purchases 39,054
47,619
Less stock of raw materials 31.8.2006 9,050
Cost of raw materials consumed 38,569
Manufacturing wages (45470 + 305) 45,775
Prime cost 84,344
Factory overhead expenses:
Factory lighting and heating 2,859
General expenses: factory 5,640
Rent of factory 4,800
Depreciation: machinery 2,000 15,299
Production cost of goods completed c/d 99,643
Sales 136,500
Less cost of goods sold:
Stock of finished goods 1.9.2005 29,480
Add production cost of goods completed b/d 99,643
129,123
Less stock of finished goods 31.8.2006 31,200 97,923
Gross profit 38,577
Less expenses:
Office salaries 6,285
General expenses : office 3,816
Office rent (2200 – 108) 2,092
Office heating and lighting 1,110
Sales reps’ commission 7,860
Delivery van expenses 2,500
Depreciation : office equipment 1,500
Premises 1,000 26,163
Net profit 12,414 __
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(b) Mphulupulu
Balance sheet as at 31 August 2006
Cost Depreciation NBV
K K K
Fixed assets
Premises 50,000 11,000 39,000
Machinery 50,000 19,500 30,500
Office equipment 15,000 5,500 9,500
115,000 36,000 79,000
Current Assets
Stocks : Finished goods
Raw materials 31,200
Debtors 9,050
Prepaid expenses 28,370
Bank 108
13,337
Less current liabilities 82,065
Creditors
Expense owing 19,450
Net current assets 305 19,755
Capital 62,310
Balance 1.9.2005 141,310
Add net profit
137,456
Less Drawings 12,414
149,870
8,560
141,310
6. (a) (i) No asset. M Ltd has no control over the hospital and it is hard to believe
that there is a future economic benefit as the company has to pay for its
employees like any other patients.
(iii) No liability to P Ltd. The salary is paid as a result of the finance director’s
work over the next five years. There is no past event as the payment of
K300,000 per year results from his services provided to the company.
(iv) This is an intangible asset to Q Ltd. There is a past event, control and
future economic benefits.
(v) For R Ltd inherent goodwill is not an asset, because there are problems of
measurement and control. However, for purchased goodwill, there is an
asset since there has been a past transaction to create goodwill, the
company will receive future economic benefits from having goodwill.
- The original documents for the data would be receipts and a petty
cash voucher.
- The transaction would be entered in the petty cash book.
7. (a) Acid test or quick ration: A ratio comparing current assets less stock with current
liabilities. It is a type of liquidity ratio. Examples are:
For current assets Total current liabilities Stock Acid test ratio
Is one type of errors that do not affect the trial balance agreement. This is where
characters within a number are entered in the wrong sequence. For example:
(c) Day books/books of original entry also known as books of prime entry or
journals. Books in which credit sales, purchases and returns inwards and
outwards of goods are first recorded. The details are then posted from the day
books to the ledger accounts. Examples are:
Are a type of (impersonal) accounts and are the ones in which possessions are
recorded. Other types of accounts being nominal accounts and personal accounts.
Examples:
(v) Buildings
(vi) Machinery
(vii) Fixtures
(viii) Stocks/inventory.
(e) Depletion unit method is a type of depreciation method, used for assets of a
wasting nature. For example if a quarry was bought for K50,000 and it was
expected to contain 10 tonnes of saleable materials, then for each tonne taken out
we would depreciate it by K5,000 i.e. K5,000 ÷ 10 = K5,000.
Similarly for
Depreciation
Purchase price Tonnage per tonne_
K K
(i) 1,000,000 200 5,000
(ii) 6,000 1 6,000
(iii) 40,000 5 8,000
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END