Accounting
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)
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)
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
