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cpa 3 financial reporting 1 revision 5


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By Omosa


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QUESTIONS NUMBER ONE Kiriako and Sabina, who prepare their accounts annually to 30 September, are partners in retail business sharing profits and losses in the ratio of 3:2 respectively. On 31 March 2003, Kiriako retired and Mwamba was admitted as a partner, profits and losses from that date being shared between Sabina and Mwamba in the ratio of 2:1 respectively. For the purpose of these changes, the value of the firm’s goodwill was agreed at Sh. 900,000. No account for goodwill is maintained in the books, adjusting entries for the transactions between the partners being made in their current accounts. Interest on fixed capitals is allowed at 6% per annum but no interest is charged or allowed on current accounts. The amount due to a retiring partner is payable as to Sh. 250,000 on retirement, the balance being payable in five equal annual instalments commencing on the first anniversary of his retirement. The amount due to retiring partner attracts interest at the rate of 8% per annum. The trial balance of the partnership as at 30 September 2003 was as follows: Sh. “000” Sh. “000” Leasehold premises (bought on 1 October 2002) 800 Purchases 2,040 Motor vehicles at cost (30 September 2002) 420 Provision for depreciation – motor vehicles (30 September 2002) 180 Shop fittings at cost (30 September 2002) 180 Provision for depreciation – shop fittings (30 September 2002) 60 Balance at bank 148 Salaries 640 Stock (30 September 2002) 510 Sales (Sh. 1,393,300 for six months to 31 March 2003) 3,800 Cash paid to Kiriako 250 Debtors 80 Creditors 360 Professional charges 54 Wages 380 Rates and lighting 168 General expenses (Sh. 172,000 for six 31 March 2003) 410 Cash introduced by Mwamba 400 Capital accounts: - Kiriako 500 - Sabina 300 Current accounts: - Kiriako 220 - Sabina _____ 260 6,080 6,080 Additional information: 1. It was agreed that of the Sh. 400,000 introduced into the firm by Mwamba on 1 April 2003, Sh. 100,000 should form his fixed capital, the balance being credited to his current account 2. The stock as at 30 September 2003 was valued at Sh. 560,000. 3. Provision is to be made for depreciation on motor vehicles and shop fittings at the rates of 20% per annum and 10% per annum respectively on cost at the end of the year. 4. A motor vehicle which had cost Sh. 120,000 and on which depreciation of Sh. 48,000 had been provided, was taken over by Kiriako on his retirement at its down value. 5. The following drawings by partners are included in salaries: 6. As at 30 September 2003, rates paid in advance amounted to Sh. 22,000 and provision of Sh. 8,000 for general expenses was required. 7. A difference in the books of accounts of Sh. 10,000 had been written off at 30 September 2003 to general expenses but had later been found to be due to an undercast of similar amount in the purchases journal 8. Professional charges include Sh. 20,000 paid in respect of the acquisition of the leasehold premises. The total cost of the lease is to be written off over a period of 50 years. Sh. “000” Kiriako 60 Sabina 40 Mwamba 20 Required: (a) The trading and profit and loss account for the year ended 30 September 2003, (Gross profit is to be apportioned on the basis of turnover. Unless otherwise indicated, expenses are to be apportioned on a time basis). (10 marks) (b) The partner’s current accounts as at 30 September 2003. (4 marks) (c) The balance sheet as at 30 September 2003. (6 marks) (Total: 20 marks) NUMBER TWO BATU Ltd. is a manufacturing business with the head office in Nairobi Kenya, and a branch in Kampala, Uganda. The branch carries out the final assembly of the goods before selling them. The trial balances for both the head office and the branch in their respective currencies as at 31 October were as follows: Head office Branch Sh. “000” Sh. “000” Ush. “000” Ush. “000” Freehold building at cost 28,000 126,000 Debtors and creditors 17,800 19,000 72,000 3,120 Sales 208,000 864,000 Shares capital 80,000 Goods sent to branch 70,000 Head office/branch account 120,200 1,008,520 Cost of sales – branch 720,000 Provision for deciation on machinery 3,000 113,400 Head office cost of sales (including goods sent to branch) 118,000 Administration costs 30,400 36,000 Additional information: 1. The cost of sales figure includes a depreciation charge of 10% per annum on the cost of machinery. 2. A provision of Kshs. 600,000 for unrealized profit in the branch stock is to be made. 3. The branch remitted Ushs. 32,000,000 on 30 October 2003 which was not received by the head office until 3 November 2003. The amount realized was Kshs. 3,980,000. 4. During September 2003, a customer of the branch paid the head office for goods supplied by the branch. The amount due from him was Ushs. 640,000 which realized Kshs. 72,000. It has been correctly dealt with by the head office but not yet entered in the branch accounts. 5. Commission, which is payable to the branch Manager, is to be provided at 5% of the net profits of the branch after charging such commission. 6. The relevant exchange rates were as follows: Required: Stock – 31 October 2003 57,800 23,040 Profit and loss account – 1 November 2002 4,000 Machinery at cost 12,000 252,000 Remittances 56,000 544,000 Bank balance 9,200 158,400 Selling and distribution costs 46,600 ______ 57,600 _______ 440,000 440,000 1,989,040 1,989,040 Kshs. To Ushs. On 1 November 2002 1 10 On 31 October 2003 1 8 Average rate for the year ended 31 October 2003 1 9 On date of purchase of freehold building and machinery 1 7 (a) Branch trial balance (after the necessary adjustments) in Kenya shillings.(6 marks) (b) Trading profit and loss account for the head office, the branch and the combined business for the year ended 31 October 2003. (6 marks) (c) Combined balance sheet as at 31 October 2003. (8 marks) (Ignore the effects of taxation). (Total: 20 marks) NUMBER THREE Sun Ltd., Moon Ltd. and Thicket Ltd. are in the business of manufacturing tents. Their balance sheets as at 30 September 2003 were as below: Additional information: 1. Rain Ltd. purchased 30,000 ordinary shares in Storm Ltd. on 1 October 2001 for Sh. 3,400,000 and 5,000 preference shares on 1 October 2002 for Sh. 600,000. On 1 October 2002, Sun Ltd. purchased 5,000 ordinary shares in Thicket Ltd. for Sh. 1,000,000. Moon Ltd. purchased 11,000 ordinary shares in Thicket Ltd. for Sh. 1,900,000 on the same date. 2. Balances are as given below: Sun Ltd. Moon Ltd. Thicket Ltd. Sh. “000” Sh. “000” Sh. “000” Sh. “000” Sh. “000” Sh. “000” Non-current assets: Non-current assets (net of depreciation) 14,000 6,300 1,700 Shares in subsidiaries 5,000 1,900 - 19,000 8,200 1,700 Current assets: Stocks 2,000 1,200 1,600 Trade debtors 4,800 2,000 800 Cash 2,700 1,400 1,100 9,500 4,600 3,500 Current liabilities: Trade creditors ( 5,000 ) ( 2,600 ) ( 1,800 ) Net current assets 4,500 2,000 1,700 23,500 10,200 3,400 Financed by: Authorised and issued Share capital: Ordinary shares of Sh.100 Each fully paid 15,000 5,000 2,000 10% preference shares of Sh. 100 each fully paid - 3,000 - General reserve 6,000 3,000 1,000 Profit and loss account balance 2,500 ( 800 ) 400 23,500 10,200 3,400 Profit and loss account Moon Ltd. 1 October Sh. 500,000 3.The following inter-company balance are included 4. On 30 September 2003, thicket Ltd. remitted Sh.200,00 to Sun Ltd. which was not received until 3 October. There were no other inter-company balances. 5. Sun Ltd. sold goods to Moon Ltd. for Sh.800,000. The goods had originally cost Sun Ltd. Sh.600,000. Moon Ltd. still had Sh.200,000 worth of these goods (at invoiced price) in stock as at 30 September, 2003. Required: Consolidated balance sheet of Sun Ltd. and its subsidiaries as at 30 September 2003. (Total: 20 marks) NUMBER FOUR A compulsory winding up order was made on 30 November 2003 against Panama Ltd. A summary of the company’s balance sheet as at that date was as follows: 2001 (debit). 1 October 2002 Sh. 600,000 (debit). Thicket Ltd. 1 October 2002 Sh. 300,000 (debit). General reserve Moon Ltd. 1 October 2001 Sh. 1,000,000 1 October 2002 Sh. 2,000,000 Thicket Ltd. 1 October 2002 - Debtors: Sun Ltd. Sh. 600,000 due from Thicket Ltd. Thicket Ltd. Sh. 300,000 due from Sun Ltd. Sh. 200,000 due from Thicket Ltd. Non-current assets: Sh. “000” Sh. “000” Sh. “000” Goodwill Freehold property 2,689 Plant and machinery 4,940 Additional information: 1. The 10% debentures are secured by a first charge on freehold property and the bank overdraft is secured by a floating charge on the assets. 2. The accruals consisted of: 3. A holder of 20,000 of the partly paid shares was bankrupt and it was anticipated that his trustees would be in a position to pay a dividend of 25% to his unsecured creditors. Shares in subsidiaries 14,620 22,249 Current assets: Stocks 19,180 Debtors 9,040 Cash in hand 20 28,240 Current liabilities: Bank overdraft 22,790 Creditors 20,900 Customs and excise tax 200 Accruals 399 Debenture interest due 100 (44,389) (16,149) 6,100 Financed by: Share capital 5,000,000 ordinary shares of Sh.20 each – fully paid 10,000 400,000 ordinary shares of Sh.20 each- Sh.12.50 paid 5,000 15,000 Revenue reserves: Retained profits (losses) (12,900 ) Shareholders’ funds 2,100 Non-current liability: 10% debentures 4,000 6,100 Sh. “000” Directors fee, 6 months to 30 November 2003. 75 Managers salary, 2 months to 30 November 2003 80 Wages of 3 workmen, 4 weeks to 30 November 2003 18 Rates – half year to 30 November 2003 20 Taxes for the year to 30 November 2001 120 Miscellaneous expenses 86 399 Sh. “000” 4. The company’s ass
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