BSc.(Hons) Banking and International Finance, BSc.(Hons) Tourism and Hospitality Management, Diploma in Public Administration and Management

BSc.(Hons) Banking and International Finance, BSc.(Hons) Tourism and Hospitality Management, Diploma in Public Administration and Management & BSc.(Hons) Public Administration and Management Cohort: BBIF/04/FT/PT - Year 1 BTHM/04/PT Year 1 DPAM/BPAM/04/PT Year 1 Examinations for 2004-2005 / Semester 2 MODULE: FINANCIAL ACCOUNTING MODULE CODE: ACCF1102 Duration: 2 Hours Reading time : 10 Minutes Instructions to Candidates: 1. This paper consists of Sections A and B. 2. Section A is compulsory. 3. Answer any two questions from Section B. 4. Always start a new question on a fresh page. 5. Total marks 100. This question paper contains 4 questions and 9 pages. Page 1 of 9

QUESTION 1: (40 MARKS) SECTION A: COMPULSORY The following was the Trial Balance of Brite Ltd as at 31 st December 2004: Rs Rs Sales 8,900,000 Purchases 4,070,000 Creditors 1,500,000 Freehold Land at cost 2,000,000 Plant and Machinery at cost 2,500,000 Depreciation- Freehold land 400,000 - Plant & Machinery 500,000 Debtors 1,200,000 Insurance 170,000 Bad Debts 30,000 Electricity 250,000 Wages and Salaries 1,200,000 Administrative Expenses 1,160,000 Selling Expenses 1,042,000 Travelling Expenses 1,025,000 Director s fee 200,000 Debenture interest 50,000 5% Debentures 2,000,000 Investments 2,500,000 Goodwill 2,000,000 Rs10 Ordinary Shares called up and fully paid 7,400,000 General Reserve 400,000 Debenture Redemption Fund Investment 1,000,000 Retained profits as at 1 st January 2004 540,000 Stock at 1 st January 2004 1,500,000 Cash at bank 1,810,000 Cash in hand 1,160,000 Discount Received 80,000 Interest on Investments 250,000 Borrowings 1,557,000 Bills Payable 490,000 Debenture Redemption Fund 1,000,000 Bills Receivable 150,000 25,017,000 25,017,000 Page 2 of 9

Question 1 (continued) Additional information relevant to the year ended 31 st December 2004 is as follows: I. The provision for doubtful debts is to be revised at 5% of debtors. II. Taxation on the 2004 profits is estimated at Rs 200,000. III. Stock at 31 st December 2004 was Rs 3,000,000. IV. Wages and salaries were outstanding to the extent of Rs.40,000 and Prepaid insurance amounted to Rs.20,000 V. Provide Depreciation @ 10% on Freehold Land and Plant and Machinery at cost price. Goodwill is to be amortised evenly over four years. VI. Make the following appropriations: - Rs 100,000 to Debenture redemption fund and Rs 150,000 to General Reserve. VII. The Directors declared 20 % dividend on Shares. REQUIRED: (a) The profit and loss account for the period ending 31 st December 2004 as per the function format of the International Accounting Standard (IAS) 1. (19 marks) (b) The balance sheet as at 31 st December 2004 as per the IAS 1, showing the Total Assets and the Total Equity and Liabilities. (18 marks) (c) Explain briefly three users of a Financial Statement. ( 3 marks) Page 3 of 9

SECTION B: ANSWER ANY TWO QUESTIONS QUESTION 2: (30 MARKS) Given below are the summarized Balance Sheets of X Ltd as at September 2003 and 2004, together with the Profit and Loss Account for the period ending 30 September 2004. Fixed Assets: Current Assets Balance Sheets as at 30 September 2003 2004 Rs 000 Rs 000 Plant & Machinery (NBV) 1 670 1910 Stock 390 430 Debtors 110 140 Bank -_ 160 500 730 Current Liabilities Creditors (170) (110) Bank (45) - Proposed Dividend (25) (50) Working Capital 260 570 NET ASSET 1 930 2 480 Financed by:- Shared Capital and reserves Ordinary Shares of Rs 1 each 800 1 200 Share Premium 500 900 Retained profits 230 280 Long-term Liabilities 12% loan Stock 400 100 1 930 2 480 (Continued) Page 4 of 9

Question 2 (continued) Profit and Loss Account for the year ending 30 September 2004 Rs 000 Rs 000 Profit for year (before charging the following expenses): 555 Depreciation on Plant & Machinery 310 Interest on 12% Loan Stock 35 Loss on sale of Plant & Machinery 90 435 Profit (after charging the above expenses) 120 Less: Dividend paid 20 Dividend proposed 50 (70) Retained Profit for year 50 During the year the company made a rights issue of 400 000 shares of Rs 1 each and also sold Plant and Machinery with a Net Book Value of Rs 380 000. Required:- (a) Prepare a Cash Flow Statement for the year ended 30 September 2004. (20 marks) (b) The control of cash flow is vital for a company s management. Explain the significance and importance of cash flow. (6 marks) (c) State the major advantages of a cash flow statement. (4 marks) Page 5 of 9

QUESTION 3: (30 MARKS) Part A On 30 th June 2004, Arthur s cash book showed that he had an overdraft of Rs 130,000 on his current account at the bank. A bank statement as at the end of June 2004 showed that he was in credit with the bank by Rs 65,000. On checking the cash book with the bank statement you find the following: a) Cheques drawn, amounting to Rs 500,000 had been entered in the Cash Book but had not yet been presented. b) Cheques received amounting to Rs 400,000 had been entered in the Cash Book, but had not been credited by the bank. c) Arthur has instructed the bank to transfer interests of Rs 60,000 from his deposit account to his Current Account. Arthur has recorded the transaction in his books on 30 June 2004. The bank effected the transfer only on 5 July 2004. d) Bank charges of Rs 35,000 shown in the bank statement had not been entered in the cash book. e) The payment side of the cash book was under cast by Rs 10,000. f) Dividends received amounting to Rs 200,000 had been paid directly to the bank and had not been entered in the cash book. g) A cheque issued to a supplier for Rs 25,000 was replaced when out of date. It was again entered in the Cash Book, no other entry being made. Both cheques were included in the total of unpresented cheques shown above. Required 1) Indicate the appropriate adjustments in the Cash Book. (6 marks) 2) Prepare a Bank Reconciliation Statement recording the Bank Balance with the adjusted Cash Book Balance. ( 5 marks) 3) Explain the importance of preparing a Bank Reconciliation Statement. ( 4 marks) (Continued) Page 6 of 9

Question 3 (continued) Part B The financial year of The Best Trading Company ended on 30 November 2004. You have been asked to prepare a Debtors control Account and a Creditors control Account in order to produce end-of-year figures for Debtors and Creditors for the draft final accounts. You are able to obtain the following information for the financial year from the books of original entry: Rs Sales - cash 444,890 - credit 578,187 Purchases - cash 34,440 - credit 496,600 Total receipts from customers 600,570 Total payments to suppliers 503,970 Discount allowed (all to credit customers) 15,520 Discounts received (all from credit suppliers) 23,510 Refunds given to cash customers 5,070 Balance in the sales ledger set off against balance in the purchase ledger 70 Bad debts written off 780 Increase in the provision for bad debts 390 Credit notes issued to credit customers 14,140 Credit notes received from credit suppliers 6,480 According to the audited financial statements for the previous year debtors and creditors as at 1 December 2003 were Rs 26,444 and Rs 143,450 respectively. Required: Draw up the relevant Total Control Accounts showing end-of-year totals for debtors and creditors. (15 marks) Page 7 of 9

QUESTION 4: (30 MARKS) The summarized final accounts of two very similar companies are given below. The similarities extend to both products and areas where the products are sold. Summarised Trading & Profit & Loss Accounts for Year ended 31 Dec 2004 ABC Ltd XYZ Ltd Rs 000 Rs 000 Rs 000 Rs 000 Sales 1 400 2 100 Less Cost of Sales Opening Stock 480 600 Purchases 1 120 1 560 1 600 2 160 Closing Stock 600 1 000 660 1 500 400 600 Less Interest payable - - 30 - Expenses 170 170 190 220 230 380 Balance Sheets as at 31 December 2004 ABC Ltd XYZ Ltd ABC Ltd XYZ Ltd Rs 000 Rs 000 Rs 000 Rs 000 Ordinary Share Capital Rs 1 shares 600 600 Fixed Assets 420 680 General Reserve 400 300 Stock 600 660 Profit and Loss 120 100 Trade Debtors 280 360 Loan (Repayable 2011) - 300 Bank 100 - Trade Creditors 280 240 Bank Overdraft - 160 1 400 1 700 1 400 1 700 (Continued) Page 8 of 9

Question 4 (continued) Required: (a) Calculate the following ratios for both of the companies. i. Net operating profit to sales ii. Stock turnover iii. Turnover/Fixed Assets iv. Return on long term capital employed v. Collection period for Debtors vi. Return on equity vii. Earnings per share viii. Acid test ratio Show your workings for each calculations. (16 marks) (b) From the information available to you, including the ratios calculated in (a) compare the performance of the two companies, using three criteria: (i) Profitability (ii) Utilization of resources (use of assets) (iii) Return to shareholders (9 marks) (c) Identify two possible limitations in the use of ratios. (5 marks) ***END OF QUESTION PAPER*** Page 9 of 9