KASNEB Financial accounting - Question 1a

The finance manager of Wali Traders has provided you with the following information: Sh. “000”Cost of sales 22,000Gross profit 9,500Interest expense 3,00... [Click to view full question and step-by-step solution]

KASNEB Financial accounting - Question 2a

Outline four objectives of accounting regulatory bodies. ... [Click to view full question and step-by-step solution]

KASNEB Financial accounting - Question 5b

Discuss two benefits of using the double entry system of bookkeeping to an organisation. ... [Click to view full question and step-by-step solution]

KASNEB Financial accounting - Question 5c

Explain three objectives of the International Public Sector Accounting Standards Board (IPSASB). ... [Click to view full question and step-by-step solution]

August 2022

1a

Analyzing Financial Statements

The finance manager of Wali Traders has provided you with the following information:

	Sh. “000”
Cost of sales	22,000
Gross profit	9,500
Interest expense	3,000
Tax expense	1,116
Net profit after tax	4,464

Required:

(i) Interest coverage ratio.

(ii) Gross profit margin ratio.

1b

Financial Statements of a sole trader

Grace Solo is a sole trader who runs a commercial bakery. She does not maintain proper records, but has provided you with the following information.

	31 December 2020	31 December 2021
	Sh. “000”	Sh. “000”
Factory building (at cost)	425,000	425,000
Motor vehicles (at cost)	93,000	?
Furniture and fittings (at cost)	13,500	13,500
Inventories	13,700	14,930
Accounts receivable	11,450	11,570
Accounts payable	15,460	16,800
Loan	19,500	?
Salaries and wages due	8,420	8,250
Prepaid rates	7,750	7,860
Rent received in advance	7,900	8,180
Capital	502,320	?
Accumulated depreciation:
• Factory building	8,500	17,000
• Motor vehicles	2,580	5,422
• Furniture and fittings	1,600	3,200

Additional information:

1.	Grace Solo’s cash summary is provided as follows:

Cash summary

	Sh. “000”		Sh. “000”
Balance brought forward	1,880	Accounts payable	57,760
Accounts receivable	9,810	Cash purchases	15,640
Cash sales	28,860	Salaries and wages	15,820
Rent	13,700	Rates	9,140
Capital	72,250	Motor vehicle expenses	10,320
		Bank charges	7,650
		General expenses	4,770
		Loan interest	800
		Loan repayment	17,500
		Motor vehicle	10,500
		Drawings	11,100
		Balance carried forward	54,500
	215,500		215,500

2.	During the year ended 31 December 2021, discounts allowed amounted to Sh.873,000 while discounts received amounted to Sh.886,000.
3.	During the year ended 31 December 2021, Grace Solo took goods valued at Sh.800,000 for her personal use.

Required:

(i) Statement of profit or loss for the year ended 31 December 2021.

(ii) Statement of financial position as at 31 December 2021.

2a

Regulation and other principles guiding the accounting profession

Outline four objectives of accounting regulatory bodies.

2b

Analyzing Financial Statements

The following are the statements of financial position of Sabuni Ltd., a soap manufacturing company for year ended 30 June 2022 and 30 June 2021:

Sabuni Ltd.
Statements of financial position as at 30 June:

	2022	2021
	Sh. “000”	Sh. “000”
Non-current assets:
Property, plant and equipment	48,080	37,460
Current assets:
Inventories	13,420	11,980
Accounts receivable	6,020	5,120
Cash and cash equivalents	450	1,008
Total current assets	19,890	18,108
Total Assets	67,970	55,568
Equity and liabilities:
Share capital	4,160	3,800
Share premium	540	450
Retained earnings	34,182	21,618
Revaluation reserve	1,080	720
Total equity	39,962	26,588
Non-current liabilities:
Long-term loan	13,500	14,400
Total non-current liabilities.	13,500	14,400
Current liabilities:
Accounts payable	12,448	12,700
Accrued expenses	800	800
Bank overdraft	360	540
Current tax	900	540
Total current liabilities	14,508	14,580
Total equity and liabilities	67,970	55,568

Additional information:

The cost of property, plant and equipment was Sh.45,740,000 on 1 July 2021.
The company disposed of a plant with a carrying value of Sh.3,120,000 on 1 April 2022. The original cost of this plant was Sh.4,800,000 and the company made a loss of Sh.120,000.
It is the policy of the company to depreciate all assets at the rate of 10% per annum on cost from date of purchase to date of sale.
The finance cost incurred and paid in the year ended 30 June 2022 was Sh.288,000, while a dividend of Sh.516,000 was paid for the same period.
Sabuni Ltd. made a profit before tax of Sh.13,458,000 during the year ended 30 June 2022.
The income tax expense for the year ended 30 June 2022 was Sh.378,000.

Required:

Statement of cash flows in accordance with the requirement of “International Accounting Standard (IAS)7”, statement of cash flows, for the year ended 30 June 2022.

3

Financial Statements of a manufacturing entity

Maji Matamu Ltd. is company that manufacturers Tamu juice. On 1 January 2021, 100,000 litres of Tamu juice were in stock. During the year ended 31 December 2021, the company manufactured 366,000 litres of juice. The company sold 400,000 litres of juice at a price of Sh.600 per litre.

The following trial balance was extracted from the books of the company for year ended 31 December 2021:

	Sh.“000”	Sh.“000”
240,000 ordinary shares of Sh.100 each		24,000
Retained earnings (1 January 2021)		3,000
Factory land and building at cost (land Sh.11,000,000)	22,700
Plant and machinery (at cost)	35,000
Motor vehicles (at cost)	4,050
Accumulated depreciation (1 January 2021)
Factory building		7,680
Plant and machinery		2,930
Motor vehicles		950
Inventories (1 January 2021)
Raw materials	3,280
Work-in-progress	11,000
Finished goods	50,000
Sales		276,381
Purchases of raw materials	166,101
Factory wages	3,810
Office salaries	1,250
Factory expenses	13,490
Office expenses	3,860
Allowance for doubtful debts		380
Accounts receivable	5,340
Accounts payable		4,320
Bank		240
	319,881	319,881

Additional information:

1.	Inventories as at 31 December 2021 were valued as follows:

1.		Sh. “000”
	Raw materials	3,560
	Work-in progress	18,400
	Finished goods	33,000

2.	The allowance for doubtful debts is to be maintained at 5% of the accounts receivable.
3.	As at 31 December 2021, accrued factory expenses amounted to Sh.125,000 (including office expenses of Sh75,000) and prepaid factory expenses amounted to Sh.12,000 (including office rent and rates of Sh.7,000).

4.	Depreciation is provided on cost as follows:
		Rate per annum
	Factory buildings	2%
	Factory plant	20%
	Motor vehicles	25%

5.	The inventory of finished goods of Tamu juice on 1 January 2021 was valued at factory cost.
6.	The directors of Maji Matamu decided to transfer all the Tamu juice manufactured to the warehouse at a mark-up of 10% from 1 January 2021.
7.	The directors proposed a dividend of Sh.10 per share issued.
Required:
(a)	Manufacturing and statement of profit or loss for the year ended 31 December 2021.
(b)	Statement of financial position as at 31 December 2021.

4

Financial Statements of a company

The authorised share capital of MLO Ltd. consists of one million ordinary shares of Sh.10 each and 500,000 6% preference shares of Sh.10.

The following trial balance was extracted from the books of MLO Ltd. as at 30 June 2022:

	Sh.“000”	Sh.“000”
Ordinary shares fully paid (1 July 2021)		6,000
6% preference shares		5,000
Share premium		500
Revaluation reserve		2,200
General reserve		500
Retained earnings (1 July 2021)		2,500
Land at cost	20,000
Building at cost	8,000
Machinery at cost	10,000
Motor vehicles at cost	8,000
Accumulated depreciation (1 July 2021):
Building		600
Machinery		1,500
Motor vehicles		3,200
Accounts receivable and accounts payable	1,400	600
Distribution expenses	3,800
Administrative expenses	1,800
12% bank loan		6,000
Bank and cash balances	2,100
Dividend paid - Preference (interim)	150
- Ordinary (interim)	600
Suspense account		750
Gross profit		30,740
Bank loan interest paid	240
Inventory (30 June 2022)	4,000
	60,090	60,090

Additional information:

1.	The suspense account relates to 50,000 new ordinary shares which were issued at a premium of 50% each on 31 January 2022.
2.	On 30 November 2021, the directors made a bonus issue of one share for every five shares held at par fully paid from the revenue reserves.

3.	Depreciation is provided per annum on straight line basis as follows:
	Asset	Rate per annum (%)
	Building	2½
	Machinery	10
	Motor vehicle	20

4.	Corporate tax expenses for the year amounted to Sh.3,100,000.
5.	The directors proposed the following: A transfer of Sh.2,500,000 to general reserve. Payment of final dividends for preference shares. A dividend of Sh.5 per share for ordinary shares.The additional ordinary shares also qualified for the final dividend.
6.	Land was revalued upwards to Sh.22 million on 1 July 2021.
Required:
(a)	Statement of profit or loss for the year ended 30 June 2022.
(b)	Statement of financial position as at 30 June 2022.

5a

Introduction to Accounting

Outline the information required by each of the following users of accounting information:

(i) Owners.

(ii) Customers.

(iii) Suppliers.

(iv) Lenders.

(v) Management.

5b

The Accounting Process and Systems

Discuss two benefits of using the double entry system of bookkeeping to an organisation.

5c

Accounting in the Public Sector

Explain three objectives of the International Public Sector Accounting Standards Board (IPSASB).

August 2022

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