Unit: Financial accounting
9 Questions| 1. | The partners are to be credited at the end of each year with the following salaries: Sh.“000” Dadu 150,000 Elegwa 75,000 Fondo 75,000 |
| 2. | Each partner is to be credited with interest on capital balances at the beginning of each year at the rate of 5% per annum. |
| 3. | No interest is to be charged on drawings. |
| 4. | After charging partnership salaries and interest on capital, Dadu, Elegwa and Fondo are to share profits or losses in the ratio of 5:3:2 respectively, with a provision that Fondo’s share in any year (exclusive of salary and interest) shall not be less than Sh.150 million. Any deficiency is to be borne in the profit and loss sharing ratio by the other partners. The trial balance of the partnership as at 31 December 2022 was as follows: |
| Sh.“million” | Sh.“million” | ||
| 4. | Partners’ capital accounts: | ||
| Dadu | 1,200 | ||
| Elegwa | 750 | ||
| Fondo | 450 | ||
| Partners’ current accounts: | |||
| Dadu | 240 | ||
| Elegwa | 180 | ||
| Fondo | 120 | ||
| Sales | 6,975 | ||
| Freehold land | 900 | ||
| Buildings (purchased during the year) | 675 | ||
| Buildings (renovations and improvements) | 375 | ||
| Purchases | 4,200 | ||
| Trade receivables | 309 | ||
| Trade payables | 555 | ||
| Drawings: | |||
| Dadu | 255 | ||
| Elegwa | 165 | ||
| Fondo | 135 | ||
| Furniture and fittings: Cost | 540 | ||
| Accumulated depreciation (1 January 2022) | 210 | ||
| Inventory (1 January 2022) | 630 | ||
| Salaries and wages | 960 | ||
| Office expenses | 678 | ||
| Rent, rates and insurance | 157.5 | ||
| Professional fees | 52.5 | ||
| Allowance for doubtful debts (1 January 2022) | 7.5 | ||
| Bank balance | 655.5 | ||
| 10,687.5 | 10,687.5 |
| 1. | Inventory as at 31 December 2022 was valued at Sh.540 million. |
| 2. | A debt of Sh.9 million is to be written off and the allowance for doubtful debts should be provided at the rate of 5% of the trade receivables on 31 December 2022. |
| 3. | As at 31 December 2022, salaries and wages included the following monthly drawings by the partners: Sh.“million” Dadu 7.5 Elegwa 4.5 Fondo 3.75 |
| 4. | Partners had during the year been supplied with goods from inventory and it was agreed that these should be charged to them as follows: Sh.“million” Dadu 9.0 Elegwa 6.0 Fondo - |
| 5. | On 31 December 2022, rates paid in advance and office expenses owing were Sh.37.5 million and Sh.36 million respectively. |
| 6. | Professional fees included Sh.37.5 million paid in respect of the acquisition of the buildings. |
| 7. | Depreciation is to be provided as follows: | ||
| Asset | Rate per annum | Basis | |
| Buildings | 2.5% | Cost | |
| Furniture and fittings | 15% | Cost | |
| 8. | The buildings were brought into use during the year ended 31 December 2022. |
Required | |
| (a) | Partnership statement of profit or loss and appropriation account for the year ended 31 December 2022. |
| (b) | Partners’ current accounts as at 31 December 2022. |
| (c) | Statement of financial position as at 31 December 2022. |
| Sh.“000” | Sh.“000” | Sh.“000” | Sh.“000” | ||
| Capital and liabilities: | Assets: | ||||
| Capital | 694,000 | Non-current assets: | |||
| Net profit | 126,000 | Plant and equipment | 634,000 | ||
| 820,000 | Less: Depreciation | (72,000) | 562,000 | ||
| Drawings | (160,000) | Furniture and fittings | 70,000 | ||
| 660,000 | Less: Depreciation | (14,000) | 56,000 | ||
| Current liabilities: | 618,000 | ||||
| Accounts payable | 50,000 | Current assets: | |||
| Bank balance | 1,520 | 51,520 | Inventory | 28,000 | |
| Accounts receivable | 57,000 | ||||
| Suspense account | 8,520 | 93,520 | |||
| Total capital and liabilities | 711,520 | Total assets | 711,520 |
| Sh.“000” | Sh.“000” | |
| Golf course at cost | 80,000 | |
| Club house at cost | 20,000 | |
| Investments representing the building fund: | ||
| Ordinary shares | 7,400 | |
| Deposit with Jamii Building Society | 12,000 | 19,400 |
| Subscriptions received in advance | 400 | |
| Creditors for bar supplies | 350 | |
| Life membership fund | 5,000 | |
| Subscriptions in arrears | 600 | |
| Bar inventory | 4,850 | |
| Club house equipment at cost | 3,400 | |
| Cash in hand | 100 | |
| Bank balance | 950 | 1,050 |
| Sh.“000” | |
| Receipts: | |
| Subscriptions | 26,000 |
| Life membership fees | 2,000 |
| Tournament fees | 1,000 |
| Bar sales | 28,600 |
| Dividend from ordinary shares | 800 |
| Sh.“000” | |
| Payments: | |
| Maintenance of golf course | 17,150 |
| General club house expenses | 12,150 |
| Utilities | 1,528 |
| Bar supplies | 23,500 |
| Purchase of club house equipment | 700 |
| Deposit into Jamii Building Society | 800 |
| Repainting of club house | 1,260 |
| 1. | The club maintains a building fund separate from the accumulated fund and life membership fund. The building fund is invested in ordinary shares and also deposited into Jamii Building Society. |
| 2. | Jamii Building Society has been instructed to credit the interest on the club’s deposits to the club’s account at each half year. Jamii Building Society computes interest half yearly on 28 February and 31 August. For the year ended 31 August 2023, the interest amounted to Sh.840,000. Dividends paid on the ordinary shares are also added to the building fund by paying them into the building society account. |
| 3. | There were five life members as at 1 September 2022, one of whom died before the end of the year. Two other life members joined the club during the year. Life membership fee is Sh.1,000,000 per member. When a life member dies, his contribution is transferred to the accumulated fund. |
| 4. | General club house expenses included bar wages of Sh.4,200,000. |
| 5. | Balances as at 31 August 2023 were as follows: | |
| Sh.“000” | ||
| Creditors for bar supplies | 1,600 | |
| Subscriptions in advance | 900 | |
| Subscriptions in arrears | 300 | |
| Bar debtors | 650 | |
| 6. | As at 31 August 2023, bar inventory was valued at Sh.4,350,000. |
| 7. | An insurance premium of Sh.480,000 was also included in the general club house expenses that had been paid by cheque. The insurance premium was for the year ended 30 November 2023. |
Required: | |
| (a) | Bar statement of profit or loss for the year ended 31 August 2023. |
| (b) | Statement of income and expenditure for the year ended 31 August 2023. |
| (c) | Statement of financial position as at 31 August 2023. |
| 2022 | 2023 | |
| Sh.“million” | Sh.“million” | |
| Net Sales (80% credit sales) | 4,400 | 5,100 |
| Cost of sales | (2,200) | (2,850) |
| Gross profit | 2,200 | 2,250 |
| Operating expenses | (640) | (910) |
| Net profit before interest and taxes | 1,560 | 1,340 |
| Interest expense | (45) | (60) |
| Profit before tax | 1,515 | 1,280 |
| Corporate tax | (400) | (240) |
| Net profit after tax | 1,115 | 1,040 |
| Less: Dividends - Interim | (50) | (65) |
| - Final | (150) | (105) |
| Retained profit | 915 | 870 |
| 2022 | 2023 | |
| Sh.“million” | Sh.“million” | |
| Assets: | ||
| Non-current assets: | ||
| Propert, plant and equipment (NBV) | 1,400 | 1,800 |
| Current assets: | ||
| Inventory | 800 | 1,200 |
| Trade receivables | 490 | 600 |
| Cash in hand | 420 | 395 |
| 1,710 | 2,195 | |
| 3,110 | 3,995 | |
| Capital and liabilities: | ||
| Capital: | ||
| Ordinary share capital (Sh.10 par) | 1,000 | 1,000 |
| Revenue reserves | 915 | 1,785 |
| 1,915 | 2,785 | |
| Non-current liabilities: | ||
| 10% debentures | 450 | 600 |
| Current liabilities: | ||
| Tax payable | 400 | 240 |
| Trade payables | 145 | 200 |
| Proposed dividends | 200 | 170 |
| 745 | 610 | |
| Total capital and liabilities | 3,110 | 3,995 |
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