THE PUBLIC ACCOUNTANTS EXAMINATION COUNCIL OF MALAWI 2009 EXAMINATIONS FOUNDATION STAGE PAPER 1: ACCOUNTING FRAMEWORK

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1 Examination No. THE PUBLIC ACCOUNTANTS EXAMINATION COUNCIL OF MALAWI 2009 EXAMINATIONS FOUNDATION STAGE PAPER 1: ACCOUNTING FRAMEWOR MONDAY 7 DECEMBER 2009 TIME ALLOWED : 3 HOURS 9.00 AM NOON INSTRUCTIONS: - 1. You are allowed 15 minutes reading time before the examination begins during which you should read the question paper and, if you wish, make annotations on the question paper. However, you will not be allowed, under any circumstances, to open the answer book and start writing or use your calculator during this reading time. 2. Number of questions on paper Answer FIVE questions ONLY. 4. Each question carries 20 marks. 5. Marks will be awarded for content, presentation and layout. 6. All workings must be shown. 7. This question paper must not be removed from the examination hall. 8. DO NOT OPEN THIS PAPER UNTIL YOU ARE INSTRUCTED BY THE INVIGILATOR This paper contains 9 pages

2 1 1. (a) (i) Describe the components of a computerized Integrated Inventory Control System. 4 Marks Sitingawao is a designer of women s clothing. On 9 August 2008 thieves entered her shop and stole all the inventory on sale. Information contained in ledgers kept at her home showed that - 1 Jan 2008 balance of inventory 36,600 - Purchases, at cost, up to 8 August 134,300 - Sales, up to 8 August 187,200 Sitingawao s Fashions policy is to fix the selling price as a mark-up of ⅓ on cost. Using mark-up on sales, calculate the value of the inventory that was stolen. 6 Marks (b) (i) James buys and sells clothing as a retailer. The following information relates to his purchases and sales over a period of five months. DATE PURCHASES SALES Jan Feb Apr May Jun Units Price Units Price Calculate the value of the closing inventory using the LIFO and FIFO methods of valuing inventory. 7 Marks With reference to the data in (i) above, compare and contrast the First- In-First-Out (FIFO) and the Last-In-First-Out (LIFO) methods of valuing inventory. 3 Marks (TOTAL : 20 MARS)

3 2 2. An inexperienced trainee book-keeper had extracted the following trial balance from the books of accounts of Gone Trading Ltd as at 31 March Inventory at 1 April ,700 Inventory on 31 March ,800 Discount allowed 310 Discount received 450 Provision for bad debts 960 Purchases 94,000 Purchases returns 1,400 Sales 132,100 Sales returns 1,100 Freehold property at cost 70,000 Provision for depreciation 3,500 Motor vehicles at cost 15,000 Provision for depreciation 4,500 Capital 84,600 Balance at bank 7,100 Accounts receivable 11,300 Accounts payable Establishment and administration expenses Drawings 7,600 16,600 9, , ,010 The accountant was happy that the trial balance had balanced and was about to start preparing the final accounts when he discovered the following: (1) Inventory lists representing inventory worth 1,300 were found underneath some files. These had not been included in the inventory at 31 March (2) A credit note for goods worth 210 had just been received from James Banda relating to the goods received in December 2008 by Gone Trading Ltd. (3) Trade sample goods sent to a customer had been wrongly charged to the customer as sales at 1,000. A credit note has been prepared to rectify the error. (4) In March 2009 Gone painted his stockroom using materials worth 150 which were included in the purchases figure shown in the trial balance.

4 3 (a) Prepare the necessary journal entries to amend the account affected. (narrations are not required) 4 Marks (b) Draw up a corrected trial balance as at 31 March (c) Gone s trial balance balanced even though there were errors. Identify four types of error that can arise when preparing a trial balance. 4 Marks (TOTAL: 20 MARS)

5 4 3. (a) (i) What is the difference between bad debts and the provision for bad and doubtful debts? (iii) (iv) How might a business determine the size of a provision for bad and doubtful debts for a given period? 3 Marks Using the appropriate accounting convention, explain why it is important for a business to write off bad debts and to make a provision for bad and doubtful debts. What is the effect of bad debts and provision for doubtful debts in the final accounts of a business? (b) Dzutse Trading has a financial year that ends on 31 March. The following information relates to accounts receivable for three years to 31 March 2009: 31 March , March , March ,700 The firm had a balance of 950 in its provision account as at 1 April Bad debts to be written off at the end of the year are as follows: 31 March , March Dzutse Trading Ltd maintains a provision for bad and doubtful debts of 5% of the outstanding debtors. (i) Prepare the provision for bad and doubtful debts account showing the balances at the end of each of the three years. 5 Marks Prepare the bad debts account for 2008 and 2009 to show the bad debts written off.

6 5 (b) Of the bad debts written off in 2008, those owed by Jennifer (240) and B Duncan (720) were received in full in Prepare ledger accounts to show how the bad debts written off were recovered. 4 Marks (TOTAL: 20 MARS) 4. (a) Explain how profits are determined under the Accruals Accounting method. 5 Marks (b) Matandani Cattle Ranch had the following transactions relating to some of its expenses and revenue during the financial year ended 31 December (1) Insurance paid during 2008 was 84,000. Prepaid insurance as at 31 December 2008 was 6,800. (2) Purchase of stationery involving cash paid during 2008 was 37, ,000 was owing as at 31 December 2007 and 24,500 was owing as at 31 December (3) 165,400 was paid for business rates during Prepaid rates as at 31 December 2007 were 14,000, and 12,000 were prepaid as at 31 December (4) Cash paid for wages amounted to 150,000 during Accrued wages at 31 December 2007 amounted to 3,060 and 4,190 as at 31 December (5) The firm received 260,000 for rent during ,600 had been received in advance as at 31 December 2007 and 10,500 was still outstanding as at 31 December (i) Prepare the necessary Ledger accounts to show charges to the profit and loss account during the year ended December 2008, properly indicating the date for each transaction. 13 Marks Prepare a summary of prepayments and accrued expenses as they would appear in the balance sheet. (TOTAL: 20 MARS)

7 6 5. The following accounts were prepared from the books of Msadalira Supermarket Ltd during the year ended 31 March 2009 using the columnar method. PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31 MARCH 2009 Cost of sales Wages and Salaries Sundry Expenses Motor vehicle Expenses Depreciation: vehicles fixtures & fittings Advertising Audit fee Debenture interest Preference dividend Surplus 351,000 63,000 45,500 74,500 6, ,750 1,750 1,600 5,250 40, ,000 Sales 595, ,000 BALANCE SHEET AS AT 31 MARCH 2009 Ordinary share capital 100,000 Preference shares 100,000 8% debentures 20,000 Creditors 91,000 Provision for bad debts 7,250 Profit and loss 86,050 General reserve 45, ,300 Additional Information Land and building 85,000 Fixture & fittings 20,600 Motor vehicles 12,650 Debtors 169,950 Stock 103,000 Bank 57,150 Cash , The nominal value of the shares was 1 each. The authorized capital has been fully issued and paid. 2. Additional fees for the director are to be provided for at 6, Corporation tax is to be provided for at 18, The provision for doubtful debts should be adjusted to 9, The original cost of fixed assets is as follows: Freehold land and buildings 85,000 Fixtures and fittings 32,300 Motor vehicles 19,600

8 7 6. A dividend of 7% is proposed in respect of the ordinary shares. Using the format and terminology required by the International Accounting Standard (IAS 1), redraft, for Msadalira Supermarket Limited, the: (a) Income Statement; 10 Marks (b) Balance Sheet. 10 Marks (TOTAL: 20 MARS)

9 8 6. (a) (i) Why do balances on the bank statement appear as credits while they appear as debits in the cashbook? Mention three reasons why a business should regularly undertake a bank reconciliation. 3 Marks (b) Lisa, an accountant at the Neighbour s Bakery, discovered that the company s cash account was showing a credit balance of 38,000 on 30 June The bank, however, continued to honour their cheques. An investigation showed that: (1) A standing order for a subscription of 4,000 had been paid by the bank on 29 June but no entry had been made in the cash book. (2) A cheque paid for advertising on 10 June for 17,900 had been entered in the cash book as 19,700. (3) Cheques for 103,700 sent to suppliers on 30 June were not paid by the bank until 6 July. (4) Cheques received from customers amounting to 168,000 were paid to the bank on 30 June but were not credited by the bank until 1 July. (5) On 20 June a cheque for 11,400 was received from a customer in settlement of an invoice for 12,000. An entry of 12,000 had been made in the cash book. (i) Prepare a corrected cashbook and a bank reconciliation by calculating the balance per bank statement. 10 Marks State five ways in which a company could increase its bank balance without making a profit during an accounting period. 5 Marks (TOTAL: 20 MARS)

10 9 7. (a) Accounting practice keeps changing with the passage of time. (b) Describe three environmental factors which have led to changes in accounting practice. 6 Marks Explain, giving two examples in each case, the following: (i) Underlying accounting concepts. 4 Marks Fundamental accounting concepts. 4 Marks (c) State three reasons that led to the establishment of the International Accounting Standards Board (IASB). 6 Marks (TOTAL:20 MARS) E N D

THE PUBLIC ACCOUNTANTS EXAMINATION COUNCIL OF MALAWI 2013 EXAMINATIONS FOUNDATION STAGE PAPER 1: ACCOUNTING FRAMEWORK

EXAMINATION NO. THE PUBLIC ACCOUNTANTS EXAMINATION COUNCIL OF MALAWI 2013 EXAMINATIONS FOUNDATION STAGE PAPER 1: ACCOUNTING FRAMEWOR MONDAY 2 DECEMBER 2013 TIME ALLOWED : 3 HOURS 9.00 AM - 12.00 NOON INSTRUCTIONS: