Accounting

Question 1: (20 marks)

Mr. Ali has started business as a trader on 1 October, 2020. The following transactions and events of trading for his first month are as follows:

Date Transaction

1 Started the business by introducing $1,800,000 into the business bank account.

2 Rent is paid by cheque $60,000 for the month.

8 Mr. Ali paid $120,000 in cash for a van.

10 Mr. Ali purchased goods costing $72,000 on credit from Adam (invoice no Adam123).

12 Mr. Ali sold goods for $240,000 in cash.

15 Mr. Ali sold goods for $165,000 on credit to Jack (invoice no Jack001)

24 Mr. Ali paid the amount, taking advantage of a 10% settlement discount with respect to invoice no. Adam123.

25 Jack paid to Mr. Ali, taking advantage of a 8% settlement discount with respect to invoice no. jack001.

Required:

1- Enter the above transactions into an appropriate cash book (receipts and payments).

2- Post the transactions directly to the appropriate nominal ledger accounts.

3- Prepare the trial balance as at October 31, 2020.

[Marks: (5+ 10 + 5) = 20]

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Question 2: (20 marks)

 

John owns a small business selling coffee makers to other businesses. On 31st December 2019 he extracted the following trial balance.

 

Account Name Debit $ Credit $
Sales Revenue   902,148
Sales returns 6,864  
Opening inventory 122,742  
Purchases 494,814  
Purchase returns   4,428
Freehold property 304596  
Equipment at cost 45,900  
Accumulated depreciation on equipment   8,400
Motor vehicle 63,000  
Accumulated depreciation on motor vehicle   14,100
Salaries and Wages 19,440  
Insurance 4,200  
Motor expenses 6,600  
Advertising expenses 4,884  
Loan interest 7,800  
Receivables 94,560  
Allowance for receivables   5,076
Payables   86,112
Cash at bank 162,864  
Bank loan   74,400
Capital   243,600
Total 1,338,264 1,338,264

 

 

 

 

 

The following information is relevant.

1. Closing inventory was valued at $127,728.

2. Equipment is depreciated by 10% on Straight line basis.

3. Motor vehicles are depreciated by 20% on reducing balance basis.

4. Accrued wages at the end of 2019 amount to $4,020.

5. On 1 November 2019 Johns paid $1,800 for insurance which is valid until 31 October 2020.

6. Irrecoverable receivables of $3,000 need to be written off.

7. John decides to increase the allowance for receivable for $6,276.

8. John has taken goods worth $5,400 for his own use.

Required:

a. Prepare John’s income statement for the year ending 31st December 2019.

b. Prepare John’s balance sheet as at December 2019.

(10+10 = 20 Marks)

 

 

 

 

 

 

 

 

 

 

 

 

Question 3: (20 marks)

 

A. The internal audit function has been evolving with the increasing size and complexity of business that many large companies have experienced over decades. What are the functions performed by internal auditors or internal audit committee?

(7marks)

 

 

 

B. Explain and illustrate with suitable figures the concept of financial statements articulation?

 

(7marks)

 

 

C. Mary and Johns run a business together and are organized as a partnership to which each has contributed $ 140,000 in capital. During their accounting years they made a profit of $240,000. Drawings amounted to $14,000 for Mary and $18,000 for Johns.

Their partnership agreement stipulates the following:

· A profit sharing ratio of 2:3

· Eight percent interest on capital

· Ten percent interest charged on drawings

· Mary receives a salary of $40,000 per annum

Required: Prepare an appropriation statement for the partnership.

(6 Marks)

 

 

 

 

 

Question 4: (20 marks)

 

A. A partial balance sheet for orange company is presented below.

 

 

Orange Company

Income statement

For the year Ended December 31, 2019

Sales   $100,000
Cost of goods sold   (67,000)
Gross Profit   $33,000
Operating expenses:    
Salaries $5,000  
Depreciation expense 2,000  
Miscellaneous 1,000 (8,000)
Net Income   $25,000

 

 

 

Orange Company

Balance Sheet

As at 31st December 2019

2018 2019  
$1,800 $2,250 Cash
7,200 2,700 Account receivable
4,950 5,670 Inventories
500 450 Prepaid expenses
6,300 9,000 Furniture
1,350 1,350 Accounts Payable
180 1,080 Salaries Payable
4,000 4,500 Short term Bank Loan

 

 

Required: Prepare the operating activities section of the statement of cash flows using indirect method. (10 Marks)

 

 

 

 

 

A. The balance sheet of Fahmy plc. shows the following information in its assets and liability and equity section:

Assets $
Non-current assets 800,000
Current assets 200,000
Total Assets 1,000,000
   
Liabilities and Equity  
Total Liabilities 200,000
Equity:  
Share capital : ordinary shares of $ 5 each 500,000
Reserves : Share premium 200,000
Reserves : Retained earnings 100,000
Total Liabilities and Equity 1,000,000
   

 

Fahmy Plc. Needs to raise more cash and decided to make 1 for 4 rights issue, fully paid in cash at a price $10 per share.

Required:

Show by using detailed workings the effect on the balance sheet accounts of the rights issue.

(10 Marks)

 

 

 

 

 

 

 

 

 

Question 5: (20 marks)

a. Annual reports are prepared to serve different functions. Why annual reports are prepared? What type of information usually discussed in annual reports? (5 marks)

 

b. Morning star plc. is a manufacturer of computer accessories. The following are selected items appearing in the income statement and balance sheet for the year ended December 31st, 2015.

 

Income Statement
Net Sales 540,000
Less: Cost of Goods Sold 324,000
Gross Profit 216,000
Selling and general expenses 154,800
Net Operating profit 61,200
Interest expenses 7,200
Net Profit before ta 54,000
Income tax 35% 16,200
Net profit for the year 37,800

 

 

 

 

 

 

 

 

 

 

 

 

Balance Sheet
Cash and short-term investments 9,600
Receivables 45,600
Inventories 48,000
Property, plant & Equipment 385,200
Total Assets 360,000
Total current liabilities 48,000
Total Non-current liabilities 72,000
Shareholder’s Equity $10 par 96,000
Retained Earnings 144,000
Total Liabilities and Equity 360,000

 

 

 

 

 

 

 

 

 

 

 

 

Required:

Using the information above, compute the Company’s ratio below and comment on each:

a. Current ratio

b. Asset Turnover

c. EPS

d. Interest cover

e. Gearing ratio

(15 marks)

 

B291 / THE-Final 1 of 8 2020-2021/Summer

 

B291 / THE-Final 2 of 8 2020-2021/Summer

 

End of Assessment