KASNEB Financial accounting - Question 2b

The following balances were extracted from the books of Juhudi Traders for the month of July 2023: Sh.“000”Debit balances: (1 July 2023) Sales ledger ... [Click to view full question and step-by-step solution]

KASNEB Financial accounting - Question 4

The following information was extracted from the financial statements of Biashara Ltd. for the year ended 30 June 2023: Statement of profit or loss for t... [Click to view full question and step-by-step solution]

KASNEB Financial accounting - Question 5a

Explain the nature of the accounting equation. ... [Click to view full question and step-by-step solution]

KASNEB Financial accounting - Question 5b

Highlight FOUR advantages of books of prime entry. ... [Click to view full question and step-by-step solution]

August 2023

1

Financial Statements of a sole trader

Feisal Rajab runs a business as a sole trader under the name Feraj Traders. The following balances of assets and liabilities were extracted from Feraj Traders’ books of account as at 31 March 2022:

	Sh.
Bank loan	450,000
Equipment (Net book value)	5,580,000
Cash balance	830,700
Inventory	1,750,500
Building (Net book value)	15,000,000
Bank loan interest payable	22,500
Trade receivables	2,635,200
Prepaid insurance	85,500
Interest due on customers’ accounts	40,500
Other payables	153,000
Trade payables	2,137,500

The following cash book for the year ended 31 March 2023 was provided:

Cash book

	Sh.		Sh.
Balance brought forward	830,700	Payment in respect of trade payables	6,769,500
Receipts from trade receivables	5,720,700	Bank loan (including interest of Sh.100,000)	234,000
Bank loan	800,000	Transport for purchases	194,000
Cash sales	2,619,000	Withdrawals for personal use	200,000
Interest on overdue accounts	23,850	Insurance premium	14,700
Rent from building	540,000	Purchase of equipment	500,000
		Operating expenses	714,150
		Other payables	60,000
		Balance carried forward	1,847,900
	10,534,250		10,534,250

Additional information:

1.	Inventory as at 31 March 2023 was valued at Sh.3,500,000.
2.	Returns inwards and returns outwards from credit transactions were Sh.100,000 and Sh.80,000 respectively.
3.	Discounts allowed amounted to Sh.75,000 while discounts received were Sh.112,000.

4.	Depreciation was to be provided as follows:
	Asset	Rate per annum
	Building	5% on the reducing balance
	Equipment	25% on the reducing balance

5.	Trade payables balance as at 31 March 2023 amounted to Sh.850,000 while trade receivables at the same date amounted to Sh.1,100,000 excluding interest on overdue accounts. All purchases were on credit.
6.	Trade receivables of Sh.42,000 had been written off during the accounting period. Sh.43,400 of the trade receivables as at 31 March 2023 may be uncollectible and an allowance for this is required.
7.	Prepaid insurance as at 31 March 2023 amounted to Sh.25,000.
Required:
(a)	Statement of profit or loss for the year ended 31 March 2023.
(b)	Statement of financial position as at 31 March 2023.

2a

Correction of errors and preparing financial statements with incomplete records

The bank statement of Maji Marefu Enterprises as at 30 June 2023 showed an overdraft of Sh.2,324,000 while the bank balance as per the cash book showed a credit balance of Sh.1,108,000.

The following extract from the cash book of Maji Marefu Enterprises for the month of June 2023 was provided:

Cash book (extract)

	Sh.“000”		Sh.“000”
Receipts during the month	2,938	Balance (1 June 2023)	1,522
Balance (30 June 2023)	1,108	Payments during the month	2,524
	4,046		4,046

Upon investigation, the following matters were discovered:

1. A cheque received for Sh.160,000 had been returned unpaid. No adjustment had been made in the cash book.

2. During the month of June 2023, dividends amounting to Sh.124,000 were credited directly into the bank account, but no entries had been made in the cash book.

3. A cheque drawn for Sh.12,000 had been incorrectly entered in the cash book as Sh.132,000.

4. The balance brought forward as per the above cash book was overstated by Sh.100,000.

5. Bank charges amounting to Sh.272,000 appeared in the bank statement only.

6. Cheques drawn amounting to Sh.554,000 had not been presented to the bank for payment.

7. Cheques received totalling Sh.1,524,000 had been entered in the cash book and deposited in the bank, but were not credited until 5 July 2023.

8. A cheque for Sh.54,000 had been entered as a receipt in the cash book instead of a payment.

9. A cheque for Sh.50,000 had erroneously been debited by the bank into Maji Marefu’s account.

Required:

(i) The adjusted cash book balance as at 30 June 2023.

(ii) Bank reconciliation statement as at 30 June 2023.

2b

The Accounting Process and Systems Financial Statements of a sole trader

The following balances were extracted from the books of Juhudi Traders for the month of July 2023:

	Sh.“000”
Debit balances: (1 July 2023) Sales ledger	1,428,000
(1 July 2023) Purchases ledger	10,500
Credit balances: (1 July 2023) Sales ledger	40,500
(1 July 2023) Purchases ledger	553,800
Discounts received	142,500
Discounts allowed	209,700
Purchases (including cash purchases of Sh.152,000)	1,334,000
Cash sales	618,000
Credit sales	2,068,200
Credit notes issued to customers	75,000
Contra settlements	36,900
Payments to trade payables	1,159,200
Interest charged by trade payables on overdue accounts	69,000
Receipts from trade receivables	1,578,000
Bad debts written off	37,200
Customer’s dishonoured cheques	26,100
Interest charged on customers’ overdue accounts	96,100
Debt collection expenses charged to trade receivables	10,800
Credit notes received from trade payables	26,700
Balances as at 31 July 2023:
Purchases ledger (Debit)	14,400
Sales ledger (Credit)	50,700

Required:

(i) Sales ledger control account for the month ended 31 July 2023.

(ii) Purchases ledger control account for the month ended 31 July 2023.

3

Financial Statements of a manufacturing entity

Faida Ltd. is a company that manufactures and supplies gas cylinders. The following trial balance was extracted from the books of the company as at 30 June 2023:

	Sh.“000”	Sh.“000”
Sales		5,220,294
Purchases of raw materials	1,030,000
Returns inward	37,412
Ordinary share capital		900,000
10% redeemable preference share capital		300,000
Retained profit (1 July 2022)		89,950
Land	80,000
Building (cost)	320,000
Accumulated depreciation (1 July 2022)		15,000
Plant and machinery (cost)	1,400,000
Office equipment (cost)	220,000
Motor vehicles (cost)	400,000
Accumulated depreciation (1 July 2022):
Plant and machinery		401,000
Office equipment		98,000
Motor vehicles		160,000
Bank balance		80,040
General administrative expenses	63,011
Interim dividend on preference shares	15,000
Factory power	70,028
Light and heat	102,054
Bank interest	14,140
Insurance	30,232
Rates	80,342
Office salaries	352,026
Advertising	340,096
Directors’ salaries	119,239
Inventory (1 July 2022):
Raw materials	140,000
Work-in-progress	252,000
Finished goods	500,000
Plant repairs	100,204
Rent	80,126
Carriage inwards of raw materials	170,026
Direct wages	1,062,800
Trade receivables and trade payables	1,000,000	712,452
Allowance for doubtful debts (1 July 2022)		2,000
	7,978,736	7,978,736

Additional information:

1.	Allowance for doubtful debts is to be maintained at 2% of the trade receivables balance as at 30 June 2023.

2.	Inventory as at 30 June 2023 was valued as follows:
	Raw materials	Sh.116,000,000
	Work-in-progress	Sh. 64,000,000

3.	Light and heat of Sh.1,500,000 and rent of Sh.2,400,000 were accruing as at 30 June 2023, while rates of Sh.4,200,000 and insurance of Sh.3,200,000 relates to the period ending 30 June 2024.
4.	Rent, rates, light and heat as well as insurance are to be apportioned in the ratio 80% to factory and 20% to administration.

5.	Depreciation is to be provided at the following rates:
		Rate per annum	Basis	Allocated to
	Building	2.5%	Cost	Administration
	Plant and machinery	10%	Cost	Factory
	Office equipment	10%	Cost	Administration
	Motor vehicles	25%	Cost	Distribution

6.	The company completed 2,000 units during the year and only 150 units were in the inventory as at 30 June 2023.
7.	Corporation tax is to be provided at the rate of 30%.
Required:
(a)	Manufacturing statement for the year ended 30 June 2023.
(b)	Statement of profit or loss for the year ended 30 June 2023.

4

Analyzing Financial Statements

The following information was extracted from the financial statements of Biashara Ltd. for the year ended 30 June 2023:

Statement of profit or loss for the year ended 30 June 2023:
	Sh.“000”
Revenue	134,400
Cost of sales	(105,000)
Gross profit	29,400
Investment income	1,500
Operating expenses	(14,000)
Finance cost	(2,500)
Profit before tax	14,400
Corporation tax	(5,400)
Profit after tax	9,000

Statement of financial position as at 30 June:
	2023	2022
	Sh.“000”	Sh.“000”
Assets:
Non-current assets:
Freehold land	100,800	72,000
Plant and machinery	51,960	55,500
Investments at cost	21,600	22,500
	174,360	150,000
Current assets:
Inventory	40,300	32,200
Accounts receivable	36,840	46,800
Short-term investments	10,260	5,040
Cash in hand	1,200	2,580
	88,600	86,620
Total assets	262,960	236,620
Equity and liabilities:
Equity:
Ordinary share capital	108,000	90,000
Share premium	9,000	4,500
Revaluation reserve	27,000	-
Retained earnings	36,900	31,500
	180,900	126,000
Non-current liabilities:
10% loan	25,000	34,000
Current liabilities:
Accounts payable	35,100	31,500
Bank overdraft	14,340	39,240
Proposed dividends	2,700	2,280
Taxation	4,920	3,600
	57,060	76,620
Total equity and liabilities	262,960	236,620

Additional information:

1.	The revaluation reserve relates to freehold land.
2.	Depreciation on plant and machinery amounting to Sh.6,900,000 was charged to the statement of profit or loss for the year.
3.	Part of the long-term investments were sold during the year at a profit of Sh.960,000.
4.	During the year, plant with a net book value of Sh.4,500,000 was sold for Sh.8,820,000. The plant had an original cost of Sh.18,000,000.
5.	The following is an extract from the statement of changes in equity for the year ended 30 June 2023 (Retained earnings column only):

5.		Sh.“000”
	Balance as at 1 July 2022	31,500
	Profit after tax for the year	9,000
	Interim ordinary dividend paid during the year	(900)
	Final ordinary dividend proposed	(2,700)
	Balance as at 30 June 2023	36,900

Required:

(a) Statement of cash flows for the year ended 30 June 2023 in accordance with International Accounting Standards (IAS) 7 “Statement of Cash Flows”.

(b) Comment on how Biashara Ltd. has generated and used its cash and cash equivalents for the year ended 30 June 2023.

5a

Introduction to Accounting The Accounting Process and Systems

Explain the nature of the accounting equation.

5b

The Accounting Process and Systems Introduction to Accounting

Highlight FOUR advantages of books of prime entry.

5c

Correction of errors and preparing financial statements with incomplete records

The following statement of financial position as at 30 June 2023 was prepared by an inexperienced bookkeeper:

Utamaduni Ltd.
Statement of financial position as at 30 June 2023

	Cost Sh.“000”	Accumulated Depreciation Sh.“000”	Net book value Sh.“000”
Assets:
Non-current assets	363,400	103,500	259,900
Current assets:
Inventory		316,250
Accounts receivable (Less allowance for doubtful debts)		278,070
Bank balance		25,875	620,195
Total assets			880,095
Capital and liabilities:
Authorised issued and fully paid Share capital 3,220,000 shares of Sh.100 each			322,000
Share premium			23,000
Profit for the year			132,250
			477,250
Current liabilities:
Accounts payable			402,845
Total capital and liabilities			880,095

Additional information:

1.	A new machine purchased for Sh.2,300,000 had been recorded in the repairs account.
2.	An inventory sheet had been misplaced causing the closing inventory to be undercast by Sh.2,300,000.
3.	An invoice from a supplier of Sh.1,460,500 had been omitted from the books.
4.	Bank reconciliation had not been done and the following items on the bank statement had not been entered in the books: Bank charges Sh. 1,150,000 Standing order for rent payment Sh. 805,000
5.	An additional allowance of Sh.575,000 is required in respect of doubtful debts.
6.	No provision has been made for electricity expense of Sh.402,500 and audit fees of Sh.1,035,000.
7.	The company has signed an agreement to buy a new plant costing Sh.8,050,000 to be delivered and installed in six months’ time.
8.	Depreciation on non-current assets is provided at 10% per annum on straight line basis. A full year’s depreciation is charged in the year of purchase.
Required:
(i)	Journal entries to correct the above errors. (Narrations not required).
(ii)	Corrected statement of profit or loss for the year ended 30 June 2023.

August 2023

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