QUESTION 1:
Part A
Malcolm was in business as an import merchant and the following balances were extracted from his books on 31st December 2003:
|
Purchases
|
124,000
|
|
Sales
|
236,000
|
|
Wages
|
32,800
|
|
Motor Expenses
|
10,700
|
|
Sundry Expenses
|
600
|
|
Air freight charges on Purchases
|
20,200
|
|
Rent and rates paid
|
11,200
|
|
Interest on loan from Donald
|
900
|
|
Loan from Donald at 1st January 2003
|
10,000
|
|
Creditors
|
10,280
|
|
Debtors
|
25,200
|
|
Stock at 1st January 2002
|
14,240
|
|
Fittings and Equipment
|
9,800
|
|
Motor Vehicles at cost
|
44,000
|
|
Cash at bank
|
4,360
|
|
Capital
|
61,720
|
|
Drawings
|
20,000
|
Additional Information:
1. Stock at 31st December 2002 was valued at Rs. 17,920.
2. Motor Vehicles are to be depreciated by 20 %.
3. Interest on the loan by Donald is at the rate of 12 % per annum and has been paid to 30 September 2003.
4. A provision for doubtful debts at 5% of debtors is to be made.
5. One quarter of the wages was for staff employed in re-packaging the goods for sale.
6. Rates amounting to Rs.800 has been paid in advance for the year 2003.
Required:
(a) Prepare the Trading Account and the Profit and Loss Account for the year ended 31st December 2003
(b) Prepare the Balance Sheet as at 31st December 2003.
(c) Identify 4 User's of Financial statements and briefly explain their information needs.
Part B
The following two paragraphs were included in the auditor's report of Blue Marlin company limited:
"The accounts have been prepared on a going concern basis and the validity of this depends on the company's bankers who are continuing to support by providing adequate overdraft facilities".
"Because of the materiality of the matters referred to in the previous paragraph we are unable to form an opinion as to whether the accounts give a true and a fair view of the state of affairs of the company:
Required:
Explain the following terms
i. Going concern basis
ii. Materiality
QUESTION 2:
The directors of DPK Limited wish to compare the company's most recent financial statements with those of the previous year. The company's financial statements are given below:
|
DPK Limited Profit and Loss Accounts Year Ended
|
|
|
30-Jun 2002 Rs 000
|
30-Jun 2001 Rs 000
|
|
Sales (note 1)
|
2,500
|
1,800
|
|
Opening stock
|
200
|
180
|
|
Purchases (all on credit)
|
1,960
|
1,220
|
|
|
2,160
|
1,400
|
|
Less closing stock)
|
(360)
|
(200)
|
|
Cost of sales
|
1,800
|
1,200
|
|
Gross profit
|
700
|
600
|
|
Distribution costs
|
250
|
160
|
|
Administrative expenses
|
(200)
|
(200)
|
|
Interest payable
|
( 50)
|
(50)
|
|
Profit before tax
|
200
|
190
|
|
Taxation
|
(46)
|
( 44)
|
|
Retained profit
|
154
|
146
|
|
Note 1: 80% of the sales are on credit.
|
|
Balance Sheets as at
|
|
30-Jun 2002
Rs 000
|
30-Jun 2001
Rs 000
|
|
Non Current Assets
|
2,252
|
1,886
|
|
Current assets
|
|
|
|
Stock
|
360
|
200
|
|
Debtors - trade
|
750
|
400
|
|
Cash at bank
|
120
|
100
|
|
1,230
|
700
|
|
Less current liabilities
|
|
|
|
Creditors - trade
|
(380)
|
(210)
|
|
- sundry
|
(430)
|
(260)
|
|
Taxation
|
(50)
|
(48)
|
|
|
(860)
|
(518)
|
|
Net current assets
|
370
|
182
|
|
Total assets less current liabilities
|
2,622
|
2,068
|
|
10% debentures
|
(500)
|
(500)
|
|
|
2,122
|
1,568
|
|
Capital and reserves
|
|
|
|
Issued ordinary share capital
|
1,200
|
1,000
|
|
Share premium account
|
600
|
400
|
|
Profit and loss account
|
322
|
168
|
|
|
2,122
|
1,568
|
Required:
(a) Calculate, for each of the two years, the following accounting ratios which should assist the directors for comparison.
- Current Ratio
- Quick Ratio
- Debtors Collection Period
- Creditors Payment Period
- Gross Profit Margin
- Return on Capital Employed
- Return on Equity
- Average Stock Turnover
- Earnings per share
Show all your workings for each calculation.
(b) Evaluate the liquidity position and the financial performance of the company at 30 June 2001 and 2002.
(c) Suggest possible reasons for changes in the ratios between the two years.
QUESTION 3:
Part A
ABC Ltd finds that its opening bank balance of Rs.180,000 as on April 1 has been converted into an overdraft of Rs.75,000 by the end of the year. The following information are given below:
|
Particulars
|
Year beginning
|
Year end
|
|
Fixed assets
|
750,000
|
1,120,000
|
|
Stock in trade
|
190,000
|
330,000
|
|
Sundry Debtors
|
380,000
|
335,000
|
|
Trade Creditors
|
270,000
|
350,000
|
|
Share Capital
|
250,000
|
300,000
|
|
Share premium
|
-
|
25,000
|
|
Bills receivable
|
87,500
|
95,000
|
Additional information:
- The profit before depreciation and Income tax was Rs 240,000.
- During the Year, Income Tax to the extent of Rs 137,500 was paid.
- Dividend paid were final on the Capital as on April 1 at 10 % and interim at 5% on the year end Capital.
Required:
1. Prepare a Cash Flow Statement to show how the opening bank balance of Rs 180,000 has been converted into an Overdraft of Rs.75,000 at the end of the year.
2. Why is a Cash flow Statement considered a necessary component of the primary financial statements and what information is it intended to convey?
Part B
Depreciation has been described as the measure of the wearing out, consumption or other reduction in the useful economic life of a fixed asset.
(a) Give three causes of depreciation, and for each give the type of fixed asset for which that cause is appropriate.
(b) What factors should be taken into account when determining the amount of depreciation and its allocation between different accounting periods?
Question 4
Part A
The following totals relating to the Month of April 2006 were extracted from the books of Techno Ltd, a medium sized business selling computer hardwares:
|
RS
|
|
Trade Creditors - 1st April 2006
|
1,29,235.00
|
|
Trade Debtors - 1st April 2006
|
2,20,273.00
|
|
Credit Purchases
|
2,48,320.00
|
|
Credit Sales
|
4,15,638.00
|
|
Cash and Cheques received from Credit Customers
|
3,94,288.00
|
|
Cash and Cheques paid to Credit Suppliers
|
1,84,522.00
|
|
Credit Sales Returns
|
19,920.00
|
|
Credit Purchases Returns
|
2,272.00
|
|
Discount Allowed to Credit Customers
|
8,900.00
|
|
Discount Received from Credit Suppliers
|
3,705.20,160.
|
|
Credit Customer Cheque Dishonoured
|
-
|
|
Bad Debts Written Off
|
9,944.00
|
|
Interest charged on overdue accounts of Credit Customers
|
720
|
|
Set off of Debit Balances in Sales Ledger with Credit
|
-
|
|
Balances in the Purchases Ledger
|
4,840.00
|
REQUIRED
(i) Prepare a Debtors' Control Account and a Creditors' Control Account for the month of April 2006.
(ii) What are the advantages to be derived in keeping Control Accounts?
Part B
(i) What is the difference between a "Receipts and Payments" Account and an "Income and Expenditure" Account?
(ii) Is the "Accrual Concept" applied in the preparation of an "Income and Expenditure" Account? If so, why?
(iii) What do you understand by "Accumulated Funds"?